ADR DIGEST

ADR CASE DIGESTS 2015

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Page number 1

Heirs of Augusto Salas v Laperal Realty

Corporation

Upon whom is an agreement to submit to

arbitration binding?

G.R. NO. 135362 (December 13, 1999)

DE LEON, JR., J.:

FACTS:

Augusto Salas, Jr. was the registered owner of a

vast tract of land in Lipa City, Batangas. He

entered into an Owner-Contractor

Agreement with Respondent Laperal Realty

Corporation to render and provide complete

(horizontal) construction services on his land.

Said agreement contains an arbitration

clause, to wit:

ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR

and OWNERS representative shall be referred

to the committee represented by:

1. One representative of the OWNER;

2. One representative of the CONTRACTOR;

3. One representative acceptable to both

OWNER and CONTRACTOR.

Salas, Jr. then executed a Special Power of

Attorney in favor of Respondent Laperal Realty

to exercise general control, supervision and

management of the sale of his land, for cash or

on installment basis. By virtue thereof,

Respondent Laperal Realty subdivided said land

and sold portions thereof to Respondents

Rockway Real Estate Corporation and South

Ridge Village, Inc. in 1990; to Respondent

spouses Abrajano and Lava and Oscar Dacillo

in 1991; and to Respondents Eduardo Vacuna,

Florante de la Cruz and Jesus Vicente Capalan

in 1996 (Respondent Lot Buyers hereinafter).

Back in 1989, Salas, Jr. left his home in the

morning for a business trip to Nueva Ecija. He,

however, never returned on that unfaithful

morning. Seven years later or in 1996, his wife,

Teresita Diaz-Salas filed with the RTC of Makati

City a verified Petition for the Declaration of

Presumptive Death, which Petition was granted.

In 1998, Petitioners, as heirs of Salas, Jr. filed in

the RTC of Lipa City a Complaint for Declaration

of Nullity of Sale, Reconveyance, Cancellation of

Contract, Accounting and Damages against

Respondents.

Respondent Laperal Realty filed a Motion to

Dismiss on the ground that Petitioners failed to

submit their grievance to arbitration as required

under Article VI of the Owner-Contractor

Agreement. Respondent spouses Abrajano and

Lava and Respondent Dacillo filed a

Joint Answer with Counterclaim and

Crossclaim praying for dismissal of Petitioners

Complaint for the same reason.


pg. 2

Page number 2

The RTC then issued the herein assailed Order

dismissing Petitioners Complaint for non-

compliance with the foregoing arbitration clause.

Hence the present Petition for Review on

Certiorari under Rule 45.

ISSUE:

Whether or not the arbitration clause under

Article VI of the Owner-Contractor Agreement

is binding upon the Respondent Lot Buyers?

ARGUMENTS:

Petitioners argue that (1) their causes of action

did not emanate from the Owner-Contractor

Agreement, (2) that their causes of action for

cancellation of contract and accounting are

covered by the exception under the Arbitration

Law, and (3) that failure to arbitrate is not a

ground for dismissal.

Petitioners claim that they suffered lesion of

more than one-fourth (1/4) of the value of Salas,

Jr.s land when Respondent Laperal Realty

subdivided it and sold portions thereof to

Respondent Lot Buyers. Thus, they instituted

action against both Respondent Laperal Realty

and Respondent Lot Buyers for rescission of the

sale transactions and reconveyance to them of

the subdivided lots. They argue that rescission,

being their cause of action, falls under the

exception clause in Sec. 2 ofRepublic Act No.

876 which provides that such submission [to] or

contract [of arbitration] shall be valid,

enforceable and irrevocable, save upon such

grounds as exist at law for the revocation of any

contract.


pg. 3

Page number 3

RULING: NO. Respondent Lot Buyers are

neither parties to the Agreement nor the latters

assigns or heirs. Consequently, the right to

arbitrate as provided in Article VI of the

Agreement was never vested in Respondent Lot

Buyers. Respondent Laperal Realty, on the

other hand, as a contracting party to the

Agreement, has the right to compel Petitioners

to first arbitrate before seeking judicial

relief. However, to split the proceedings into

arbitration for Respondent Laperal Realty and

trial for the Respondent Lot Buyers, or to hold

trial in abeyance pending arbitration between

Petitioners and Respondent Laperal Realty,

would in effect result in multiplicity of suits,

duplicitous procedure and unnecessary

delay. On the other hand, it would be in the

interest of justice if the trial court hears the

complaint against all herein Respondents and

adjudicates Petitioners rights as against theirs

in a single and complete proceeding.

Petition is GRANTED. The assailed Order of

RTC of Lipa City is NULLIFIED and SET ASIDE.

RATIO DECIDENDI:

In a catena of cases inspired by Justice

Malcolms provocative dissent in Vega v. San

Carlos Milling Co. [1924], the SC has recognized

arbitration agreements as valid, binding,

enforceable and not contrary to public policy so

much so 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 in accordance with the terms of their

agreement. Arbitration is the wave of the future

in dispute resolution. To brush aside a

contractual agreement calling for arbitration in

case of disagreement between parties would be

a step backward.


pg. 4

Page number 4

A submission to arbitration is a contract. As

such, the Agreement, containing the stipulation

on arbitration, binds the parties thereto, as well

as their assigns and heirs. But only

they. Petitioners, as heirs of Salas, Jr., and

Respondent Laperal Realty are certainly bound

by the Agreement. If Respondent Laperal

Realty, had assigned its rights under the

Agreement to a third party, making the former,

the assignor, and the latter, the assignee, such

assignee would also be bound by the arbitration

provision since assignment involves such

transfer of rights as to vest in the assignee the

power to enforce them to the same extent as the

assignor could have enforced them against the

debtor or, in this case, against the heirs of the

original party to the Agreement. However,

Respondent Lot Buyers are NOT assignees of

the rights of Respondent Laperal Realty under

the Agreement to develop Salas, Jr.s land and

sell the same. They are, rather, buyers of the

land that Respondent Laperal Realty was given

the authority to develop and sell under the

Agreement. As such, they are NOT assigns

contemplated in Art. 1311 of the New Civil Code

which provides that contracts take effect only

between the parties, their assigns and heirs.

In the same vein, Petitioners contention that

rescission, being their cause of action, falls

under the exception clause in Sec. 2 of Republic

Act No. 876 is without merit. For while

rescission, as a general rule, is an arbitrable

issue, they impleaded in the suit for rescission

the Respondent Lot Buyers who are neither

parties to the Agreement nor the latters assigns

or heirs. Consequently, the right to arbitrate as

provided in Article VI of the Agreement was

never vested in Respondent Lot Buyers.

Tuna Processing Inc v Phil. Kingford Inc.

May a foreign corporation not licensed to do

business in the Philippines, but which collects

royalties from entities in the Philippines, sue

here to enforce a foreign arbitral award?

G.R. No. 185582 (February 29, 2012)

PEREZ, J.:

FACTS:

Kanemitsu Yamaoka, co-patentee of a US

Patent, Philippine Letters Patent, and an

Indonesian Patent, entered into a Memorandum

of Agreement (MOA) with five Philippine tuna

processors including Respondent Philippine

Kingford, Inc. (KINGFORD). The MOA provides

for the enforcing of the abovementioned patents,

granting licenses under the same, and collecting

royalties, and for the establishment of herein

Petitioner Tuna Processors, Inc. (TPI).


pg. 5

Page number 5

Due to a series of events not mentioned in the

Petition, the tuna processors, including

Respondent KINGFORD, withdrew from

Petitioner TPI and correspondingly reneged on

their obligations. Petitioner TPI submitted the

dispute for arbitration before the International

Centre for Dispute Resolution in the State of

California, United States and won the case

against Respondent KINGFORD.

To enforce the award, Petitioner TPI filed

a Petition for Confirmation, Recognition, and

Enforcement of Foreign Arbitral Award before

the RTC of Makati City. Respondent KINGFORD

filed a Motion to Dismiss, which the RTC denied

for lack of merit. Respondent KINGFORD then

sought for the inhibition of the RTC judge, Judge

Alameda, and moved for the reconsideration of

the order denying the Motion. Judge Alameda

inhibited himself notwithstanding [t]he

unfounded allegations and unsubstantiated

assertions in the motion. Judge Ruiz, to which

the case was re-raffled, in turn, granted

Respondent KINGFORDSs Motion for

Reconsideration and dismissed the Petition on

the ground that Petitioner TPI lacked legal

capacity to sue in the Philippines. Petitioner TPI

is a corporation established in the State of

California and not licensed to do business in the

Philippines.

Hence, the present Petition for Review on


ISSUE:

Whether or not a foreign corporation not

licensed to do business in the Philippines, but

which collects royalties from entities in the

Philippines, sue here to enforce a foreign arbitral

award?

ARGUMENT:

Petitioner TPI contends that it is entitled to seek

for the recognition and enforcement of the

subject foreign arbitral award in accordance

with RA No. 9285 (Alternative Dispute

Resolution Act of 2004), the Convention on the

Recognition and Enforcement of Foreign Arbitral

Awards drafted during the United Nations

Conference on International Commercial

Arbitration in 1958 (New York Convention), and

the UNCITRAL Model Law on International

Commercial Arbitration (Model Law), as none of

these specifically requires that the party seeking

for the enforcement should have legal capacity

to sue.

RULING:

YES. Petitioner TPI, although not licensed to do

business in the Philippines, may seek

recognition and enforcement of the foreign

arbitral award in accordance with the provisions

of the Alternative Dispute Resolution Act of

2004. A foreign corporations capacity to sue in

the Philippines is not material insofar as the

recognition and enforcement of a foreign arbitral

award is concerned.


pg. 6

Page number 6

The Resolution of the RTC is REVERSED and

SET ASIDE.

RATIO DECIDENDI:

Sec. 45 of the Alternative Dispute Resolution Act

of 2004 provides that the opposing party in an

application for recognition and enforcement of

the arbitral award may raise only those grounds

that were enumerated under Article V of

the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award

may be refused, at the request of the party

against whom it is invoked, only if that party

furnishes to the competent authority where the

recognition and enforcement is sought, proof

that:

a. The parties to the agreement referred to in

Article II were, under the law applicable to them,

under some incapacity, or the said agreement is

not valid under the law to which the parties have

subjected it or, failing any indication thereon,

under the law of the country where the award

was made;

b. The party against whom the award is invoked

was not given proper notice of the appointment

of the arbitrator or of the arbitration proceedings

or was otherwise unable to present his case;

c. The award deals with a difference not

contemplated by or not falling within the terms of

the submission to arbitration, or it contains

decisions on matters beyond the scope of the

submission to arbitration, provided that, if the

decisions on matters submitted to arbitration can

be separated from those not so submitted, that

part of the award which contains decisions on

matters submitted to arbitration may be

recognized and enforced;

d. The composition of the arbitral authority or the

arbitral procedure was not in accordance with

the agreement of the parties, or, failing such

agreement, was not in accordance with the law

of the country where the arbitration took place;

or

e. The award has not yet become binding on the

parties, or has been set aside or suspended by

a competent authority of the country in which, or

under the law of which, that award was made.

2. Recognition and enforcement of an arbitral

award may also be refused if the competent

authority in the country where recognition and

enforcement is sought finds that:

a. The subject matter of the difference is not

capable of settlement by arbitration under the

law of that country; or


pg. 7

Page number 7

b. The recognition or enforcement of the award

would be contrary to the public policy of that

country.

Not one of the abovementioned exclusive

grounds touched on the capacity to sue of the

party seeking the recognition and enforcement

of the award.

Pertinent provisions of the Special Rules of

Court on Alternative Dispute Resolution, which

was promulgated by the Supreme Court,

likewise support this position.

Rule 13.1 of the Special Rules provides that

[a]ny party to a foreign arbitration may petition

the court to recognize and enforce a foreign

arbitral award. The contents of such petition

are enumerated in Rule 13.5. Capacity to sue is

not included. Oppositely, in the rule on local

arbitral awards or arbitrations in instances where

the place of arbitration is in the Philippines, it is

specifically required that a petition to determine

any question concerning the existence, validity

and enforceability of such arbitration agreement

available to the parties before the

commencement of arbitration and/or a petition

for judicial relief from the ruling of the arbitral

tribunal on a preliminary question upholding or

declining its jurisdiction after arbitration has

already commenced should state [t]he facts

showing that the persons named as petitioner or

respondent have legal capacity to sue or be

sued.

Indeed, it is in the best interest of justice that

in the enforcement of a foreign arbitral award,

the Court deny availment

by the losing party of the rule that bars

foreign corporations not licensed to do business

in the Philippines from maintaining a suit in

Philippine courts. When a party enters

into a contract containing a foreign arbitratio

n clause and, as in this case, in fact submits

itself to arbitration, it becomes bound by the

contract, by the arbitration and by the result of

arbitration, conceding thereby the capacity of

the other party to enter into the contract,

participate in the arbitration and cause the

implementation of the result. Although not on all

fours with the instant case, also worthy to

consider is the wisdom of then Associate Justice

Flerida Ruth P. Romero in her Dissenting

Opinion in Asset Privatization Trust v. Court of

Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of

settlement, is gaining adherents in legal and

judicial circles here and abroad. If its tested

mechanism can simply be ignored by an

aggrieved party, one who, it must be stressed,

voluntarily and actively participated in the

arbitration proceedings from the very beginning,

it will destroy the very essence of mutuality

inherent in consensual contracts.

Clearly, on the matter of capacity to sue, a

foreign arbitral award should be respected not

because it is favored over domestic laws and

procedures, but because Republic Act No.

9285 has certainly erased any conflict of law

question.


pg. 8

Page number 8

Finally, even assuming, only for the sake of

argument, that the RTC correctly observed that

theModel Law, not the New York Convention,

governs the subject arbitral award, Petitioner

TPI may still seek recognition and enforcement

of the award in Philippine court, since the Model

Law prescribes substantially identical exclusive

grounds for refusing recognition or enforcement.

Koppel Inc. v Makati Rotary Club Foundation

Inc.

Will the disagreement between parties to a

contract be rendered non-arbitrable if, in the

arbitration thereof, the validity of the contract

itself will have to be determined?

May a party to a contract invoke the arbitration

clause thereof and, at the same time, impugn

the validity of the contract itself?

Is it necessary for a party seeking arbitration to

first file a request or an application therefor

with the court to render an arbitration clause

operational?

If parties to a contract already underwent

Judicial Dispute Resolution (JDR) proceedings

before the court, may they still refer their dispute

to arbitration?

G.R. No. 198075 (September 04, 2013)

PEREZ, J.:

FACTS:

In 1975, Fedders Koppel, Incorporated (FKI)

bequeathed a parcel of land exclusive of

improvements thereon in favor of Respondent

Makati Rotary Club Foundation, Inc. by way of

aconditional donation. Respondent accepted the

donation with all of its conditions. On 26 May

1975, FKI and the Respondent executed a Deed

of Donation evidencing their consensus.


pg. 9

Page number 9

One of the conditions of the donation required

the Respondent to lease the subject land back

to FKI under terms specified in their Deed of

Donation. With the Respondents acceptance of

the donation, a lease agreement between them

was, therefore, effectively incorporated in

the Deed of Donation.

Pertinent terms of such lease agreement, as

provided in the Deed of Donation, were as

follows:

1. The period of the lease is for twenty-five (25)

years, or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the

first twenty-five (25) years is P40,126.00

perannum.

The Deed of Donation also stipulated that the

lease over the subject property is renewable for

another period of twenty-five (25) years upon

mutual agreement of FKI and the Respondent.

In which case, the amount of rent shall be

determined in accordance with item 2(g) of

the Deed of Donation.

In October 1976, FKI and the Respondent

executed an Amended Deed of Donation that

reiterated the provisions of the Deed of

Donation, including those relating to the lease of

the subject land.

Verily, by virtue of the lease agreement

contained in the Deed of

Donation and Amended Deed of Donation, FKI

was able to continue in its possession and use

of the subject land.

Two (2) days before the lease incorporated in

the Deed of Donation and Amended Deed of

Donation was set to expire, or on 23 May 2000,

FKI and Respondent executed another contract

of lease (2000 Lease Contract) covering the

subject land. In this 2000 Lease Contract, FKI

and Respondent agreed on a new five-year

lease to take effect on the 26th of May 2000, with

annual rents ranging from P4M for the first year

up to P4.9M for the fifth year.

The 2000 Lease Contract also contained an

arbitration clause enforceable in the event the

parties come to disagreement about the

interpretation, application and execution of the

lease.

After the 2000 Lease Contract expired, FKI and

Respondent agreed to renew their lease for

another five (5) years. This new lease (2005

Lease Contract) required FKI to pay a fixed

annual rent of P4.2M.In addition to paying the

fixed rent, however, the 2005 Lease

Contract also obligated FKI to make a yearly

donation of money to the Respondent. Such

donations ranged from P3M for the first year up

to P3.9M for the fifth year.


pg. 10

Page number 10

Notably, the 2005 Lease Contract contained an

arbitration clause similar to that in the 2000

Lease Contract, to wit:

19. Governing Law The provisions of this

[2005 Lease Contract] shall be governed,

interpreted and construed in all aspects in

accordance with the laws of the Republic of the

Philippines.

Any disagreement as to the interpretation,

application or execution of this [2005 Lease

Contract] shall be submitted to a board of three

(3) arbitrators constituted in accordance with the

arbitration law of the Philippines. The decision of

the majority of the arbitrators shall be binding

upon [FKI and Respondent]. (Emphasis

supplied)

From 2005 to 2008, FKI faithfully paid the

rentals and donations due it per the 2005

Lease Contract. But in June of 2008, FKI sold all

its rights and properties relative to its business in

favor of herein Petitioner Koppel, Incorporated.

On 29 August 2008, FKI and Petitioner executed

an Assignment and Assumption of Lease and

Donationwherein FKI, with the conformity of

the Respondent, formally assigned all of its

interests and obligations under the Amended

Deed of Donation and the 2005 Lease

Contract in favor of Petitioner.

The following year, Petitioner discontinued the

payment of the rent and donation under the

2005Lease Contract.

Petitioners refusal to pay such rent and

donation emanated from its belief that the

rental stipulations of the 2005 Lease Contract,

and even of the 2000 Lease Contract, cannot be

given effect because they violated one of the

material conditions of the donation of the

subject land, as stated in the Deed of

Donation and Amended Deed of Donation.

According to Petitioner, the Deed of

Donation and Amended Deed of

Donation actually established not only one but

two (2) lease agreements between FKI and

Respondent, i.e., one lease for the first twenty-

five (25) years or from 1975 to 2000, and

another lease for the next twenty-five (25) years

thereafter or from 2000 to 2025. Both leases are

material conditions of the donation of the subject

land.

Petitioner points out that while a definite amount

of rent for the second twenty-five (25) year lease

was not fixed in the Deed of

Donation and Amended Deed of Donation, both

deeds nevertheless prescribed rules and

limitations by which the same may be

determined. Such rules and limitations ought to

be observed in any succeeding lease

agreements between Petitioner and Respondent

for they are, in themselves, material conditions

of the donation of the subject land.


pg. 11

Page number 11

In this connection, Petitioner cites item 2(g) of


Donation that supposedly limits the amount of

rent for the lease over the second twenty-five

(25) years to only three percent (3%) of the fair

market value of the [subject] land excluding the

improvements.

For Petitioner then, the rental stipulations of both

the 2000 Lease Contract and 2005 Lease

Contract cannot be enforced as they are clearly,

in view of their exorbitant exactions, in violation

of the aforementioned threshold in item 2(g) of


Donation. Consequently, Petitioner insists that

the amount of rent it has to pay thereon is and

must still be governed by the limitations

prescribed in the Deed of


Respondent then sent Demand Letters to

Petitioners notifying the latter of its default,

demanding for the settlement of the rent and

donations due for the year 2009. Respondent

intimated of cancelling the 2005 Lease

Contract should Petitioner fail to settle the said

obligations. In its last sent Demand Letter,

Respondent demand Petitioner to immediately

vacate the leased premises should it fail to pay

such obligations within seven (7) days from its

receipt of the letter.

Petitioner refused to comply with the demands

of the Respondent. Instead, on 30 September

2009, Petitioner filed with the RTC of Paraaque

City a Complaint for the Rescission or

Cancellation of the Deed of

Donation and Amended Deed of

Donation against the Respondent.

On 5 October 2009, Respondent filed

an Unlawful Detainer case against the Petitioner

before the MeTC of Paraaque City.

On 4 November 2009, Petitioner filed an Answer

with Compulsory Counterclaim.In it, Petitioner

reiterated its objection over the rental

stipulations of the 2005 Lease Contract for being

violative of the material conditions of the Deed of


On 27 April 2010, the MeTC rendered judgment

in favor of the Petitioner. While the MeTC

refused to dismiss the action on the ground that

the dispute is subject to arbitration, it

nonetheless sided with the Petitioner with

respect to the issues regarding the insufficiency

of the Respondents demand and the nullity of

the 2005 Lease Contract.

The Respondent appealed to the RTC which

reversed the MeTCs decision.

Aggrieved, the Petitioner appealed to the CA

which affirmed the decision of the RTC.




pg. 12

Page number 12

ISSUE:

Whether or not the present dispute is arbitrable

under the Arbitration Clause of the 2005 Lease

Agreement Contract?

ARGUMENTS:

At different points in the proceedings of this

case, the following arguments were offered

against the application of the arbitration clause

of the 2005 Lease Contract:

1. The disagreement between the

Petitioner and Respondent is non-

arbitrable as it will inevitably touch upon

the issue of the validity of the 2005

Lease Contract. It was submitted that

one of the reasons offered by the

Petitioner in justifying its failure to pay

under the 2005 Lease Contract was the

nullity of such contract for being contrary

to law and public policy. The Supreme

Court, in Gonzales v. Climax Mining,

Ltd. [2005], held that the validity of

contract cannot be subject of arbitration

proceedings as such questions are

legal in nature and require the

application and interpretation of laws

and jurisprudence which is necessarily a

judicial function.

2. The Petitioner cannot validly invoke the

arbitration clause of the 2005 Lease

Contract while, at the same time,

impugn such contracts validity.

3. Even assuming that it can invoke the

arbitration clause whilst denying the

validity of the2005 Lease Contract,

Petitioner still did not file a formal

application before the MeTC so as to

render such arbitration clause

operational. Section 24 of Republic Act

No. 9285 requires the party seeking

arbitration to first file a request or an

application therefor with the court not

later than the preliminary conference.

4. Petitioner and Respondent already

underwent JDR proceedings before the

RTC. Hence, a further referral of the

dispute to arbitration would only be

circuitous. Moreover, an ejectment case,

in view of its summary nature, already

fulfills the prime purpose of

arbitration, i.e., to provide parties in

conflict with an expedient method for the

resolution of their dispute. Arbitration

then would no longer be necessary in

this case.

RULING:YES. None of the above-

mentioned arguments have any merit.

The MeTC, RTC and CA all erred in

overlooking the significance of the

arbitration clause incorporated in

the 2005 Lease Contract. As the SC

sees it, that is a fatal mistake.Hence, the


pg. 13

Page number 13

Petition is GRANTED and thus referring

the Petitioner and the Respondent to

arbitration pursuant to the arbitration

clause of the 2005 Lease Contract,

repeatedly included in the 2000 Lease

Contract and in the 1976

Amended Deed of Donation.

RATIO DECIDENDI:

The arbitration clause of the 2005 Lease

Contract stipulates that any disagreement as to

the interpretation, application or execution of

the 2005 Lease Contract ought to be submitted

to arbitration. To the mind of the Court, such

stipulation is clear and is comprehensive enough

so as to include virtually any kind of conflict or

dispute that may arise from the 2005 Lease

Contractincluding the one that presently besets

Petitioner and Respondent.

First. The disagreement between the Petitioner

and Respondent falls within the all-

encompassing terms of the arbitration clause of

the 2005 Lease Contract. While it may be

conceded that in the arbitration of such

disagreement, the validity of the 2005 Lease

Contract, or at least, of such contracts rental

stipulations would have to be determined, the

same would not render such disagreement non-

arbitrable. The quotation from Gonzales case

that was used to justify the contrary position was

taken out of context.

The pivotal issue that confronted the Court in

the Gonzales case was whether the complaint

for arbitration raises arbitrable issues that the

Panel of Arbitrators of the Mines and

Geosciences Bureau (PA-MGB) can take

cognizance of.


pg. 14

Page number 14

Gonzales decided the issue in the negative. In

holding that the PA-MGB was devoid of any

jurisdiction to take cognizance of the complaint

for arbitration, this Court pointed out to the

provisions of R.A. No. 7942, or the Mining Act of

1995, which granted the PA-MGB with exclusive

original jurisdiction only over mining disputes,

i.e., disputes involving rights to mining areas,

mineral agreements or permits, and surface

owners, occupants, claimholders or

concessionaires requiring the technical

knowledge and experience of mining authorities

in order to be resolved. Accordingly, since the

complaint for arbitration in Gonzales did not

raise mining disputes as contemplated under

R.A. No. 7942 but only issues relating to the

validity of certain mining related agreements, SC

held that such complaint could not be arbitrated

before the PA-MGB. It is in this context that SC

made the pronouncement now in

discussion.Arbitration before the Panel of

Arbitrators is proper only when there is a

disagreement between the parties as to some

provisions of the contract between them, which

needs the interpretation and the application of

that particular knowledge and expertise

possessed by members of that Panel. It is not

proper when one of the parties repudiates the

existence or validity of such contract or

agreement on the ground of fraud or oppression

as in this case. The validity of the contract

cannot be subject of arbitration

proceedings. Allegations of fraud and duress in

the execution of a contract are matters within the

jurisdiction of the ordinary courts of law. These

questions are legal in nature and require the

application and interpretation of laws and

jurisprudence which is necessarily a judicial

function. (Emphasis supplied)


pg. 15

Page number 15

SC in Gonzales did not simply base its rejection

of the complaint for arbitration on the ground

that the issue raised therein, i.e., the validity of

contracts, is per se non-arbitrable. The real

consideration behind the ruling was the limitation

that was placed by R.A. No. 7942 upon the

jurisdiction of the PA-MGB as an arbitral

body. Gonzales rejected the complaint for

arbitration because the issue raised therein is

not a mining dispute per R.A. No. 7942 and it is

for this reason, and only for this reason, that

such issue is rendered non-arbitrable before the

PA-MGB. As stated beforehand, R.A. No. 7942

clearly limited the jurisdiction of the PA-MGB

only tomining disputes.Much more instructive for

our purposes, on the other hand, is the recent

case of Cargill Philippines, Inc. v. San Fernando

Regal Trading, Inc [2011]. In Cargill, SC

answered the question of whether issues

involving the rescission of a contract are

arbitrable. The respondent in Cargill argued

against arbitrability, also citing therein Gonzales.

After dissecting Gonzales, SC ruled in favor of

arbitrability. Thus, SC held:Respondent

contends that assuming that the existence of the

contract and the arbitration clause is conceded,

the CAs decision declining referral of the

parties dispute to arbitration is still correct. It

claims that its complaint in the RTC presents the

issue of whether under the facts alleged, it is

entitled to rescind the contract with damages;

and that issue constitutes a judicial question or

one that requires the exercise of judicial function

and cannot be the subject of an arbitration

proceeding. Respondent cites our ruling in

Gonzales, wherein we held that a panel of

arbitrator is bereft of jurisdiction over the

complaint for declaration of nullity/or termination

of the subject contracts on the grounds of fraud

and oppression attendant to the execution of the

addendum contract and the other contracts

emanating from it, and that the complaint should

have been filed with the regular courts as it

involved issues which are judicial in nature.

Such argument is misplaced and respondent

cannot rely on the Gonzales case to support its

argument. (Emphasis ours)

Second. Petitioner may still invoke the

arbitration clause of the 2005 Lease

Contractnotwithstanding the fact that it assails

the validity of such contract. This is due to

the doctrine of separability.

Under the doctrine of separability, an arbitration

agreement is considered as independent of the

main contract. Being a separate contract in

itself, the arbitration agreement may thus be

invoked regardless of the possible nullity or

invalidity of the main contract.

Once again instructive is Cargill, wherein SC

held that, as a further consequence of the

doctrine of separability, even the very party who

repudiates the main contract may invoke its

arbitration clause.


pg. 16

Page number 16

Third. The operation of the arbitration clause in

this case is not at all defeated by the failure of

the Petitioner to file a formal request or

application therefor with the MeTC. SC finds that

the filing of a request pursuant to Section 24

of R.A. No. 9285 is not the sole means by which

an arbitration clause may be validly invoked in a

pending suit.

Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration. A court before

which an action is brought in a matter which is

the subject matter of an arbitration agreement

shall, if at least one party so requestsnot later

that the pre-trial conference, or upon the request

of both parties thereafter, refer the parties to

arbitration unless it finds that the arbitration

agreement is null and void, inoperative or

incapable of being performed. [Emphasis ours;

italics original]

The request referred to in the above provision

is, in turn, implemented by Rules 4.1 to 4.3

ofA.M. No. 07-11-08-SC or the Special Rules of

Court on Alternative Dispute Resolution (Special

ADR Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. A party to a

pending action filed in violation of the arbitration

agreement, whether contained in an arbitration

clause or in a submission

agreement, may request the court to refer the

parties to arbitration in accordance with such

agreement.

Rule 4.2. When to make request. (A) Where

the arbitration agreement exists before the

action is filed. The request for referral shall be

made not later than the pre-trial conference.

After the pre-trial conference, the court will only

act upon the request for referral if it is made with

the agreement of all parties to the case.

(B) Submission agreement. If there is no

existing arbitration agreement at the time the

case is filed but the parties subsequently enter

into an arbitration agreement, they may request

the court to refer their dispute to arbitration at

any time during the proceedings.

Rule 4.3. Contents of request. The request for

referral shall be in the form of a motion, which

shall state that the dispute is covered by an

arbitration agreement.

Apart from other submissions, the movant shall

attach to his motion an authentic copy of the

arbitration agreement.

The request shall contain a notice of hearing

addressed to all parties specifying the date and

time when it would be heard. The party making

the request shall serve it upon the respondent to

give him the opportunity to file a comment or

opposition as provided in the immediately

succeeding Rule before the hearing. [Emphasis

ours; italics original]


pg. 17

Page number 17

Attention must be paid, however, to the salient

wordings of Rule 4.1. It reads: [a] party to a

pending action filed in violation of the arbitration

agreement x x x may request the court to refer

the parties to arbitration in accordance with such

agreement.

In using the word may to qualify the act of filing

a request under Section 24 of R.A. No. 9285,

the Special ADR Rules clearly did not intend to

limit the invocation of an arbitration agreement in

a pending suit solely via such request. After all,

non-compliance with an arbitration agreement is

a valid defense to any offending suit and, as

such, may even be raised in an answer as

provided in our ordinary rules of procedure.

In this case, it is conceded that Petitioner was

not able to file a separate request of arbitration

before the MeTC. However, it is equally

conceded that the Petitioner, as early as in

its Answer with Counterclaim, had already

apprised the MeTC of the existence of the

arbitration clause in the 2005 Lease

Contract and, more significantly, of its desire to

have the same enforced in this case. This act of

Petitioner is enough valid invocation of his right

to arbitrate.

Fourth. The fact that the Petitioner and

Respondent already underwent through JDR

proceedings before the RTC, will not make the

subsequent conduct of arbitration between the

parties unnecessary or circuitous. The JDR

system is substantially different from arbitration

proceedings.

The JDR framework is based on the processes

of mediation, conciliation or early neutral

evaluation which entails the submission of a

dispute before a JDR judge who shall merely

facilitate settlement between the parties in

conflict or make a non-binding evaluation or

assessment of the chances of each partys

case. Thus in JDR, the JDR judge lacks the

authority to render a resolution of the dispute

that is binding upon the parties in conflict. In

arbitration, on the other hand, the dispute is

submitted to an arbitrator/sa neutral third

person or a group of thereofwho shall have

the authority to render a resolution binding upon

the parties.

Clearly, the mere submission of a dispute to

JDR proceedings would not necessarily render

the subsequent conduct of arbitration a mere

surplusage. The failure of the parties in conflict

to reach an amicable settlement before the JDR

may, in fact, be supplemented by their resort to

arbitration where a binding resolution to the

dispute could finally be achieved. This situation

precisely finds application to the case at bench.

Neither would the summary nature of ejectment

cases be a valid reason to disregard the

enforcement of the arbitration clause of the 2005

Lease Contract. Notwithstanding the summary

nature of ejectment cases, arbitration still

remains relevant as it aims not only to afford the

parties an expeditious method of resolving their

dispute.


pg. 18

Page number 18

A pivotal feature of arbitration as an alternative

mode of dispute resolution is that it is, first and

foremost, a product of party autonomy or the

freedom of the parties to make their own

arrangements to resolve their own disputes.

Arbitration agreements manifest not only the

desire of the parties in conflict for an expeditious

resolution of their dispute. They also represent,

if not more so, the parties mutual aspiration to

achieve such resolution outside of judicial

auspices, in a more informal and less

antagonistic environment under the terms of

their choosing. Needless to state, this critical

feature can never be satisfied in an ejectment

case no matter how summary it may be.

Legal Effect of the Application of the Arbitration

Clause

Since there really are no legal impediments to

the application of the arbitration clause of

the 2005 Contract of Lease in this case, We find

that the instant unlawful detainer action was

instituted in violation of such clause. The Law,

therefore, should have governed the fate of the

parties and this suit:

R.A. No. 876

Section 7. Stay of civil action. If any suit or

proceeding be brought upon an issue arising out

of an agreement providing for the arbitration

thereof, the court in which such suit or

proceeding is pending, upon being satisfied that

the issue involved in such suit or proceeding is

referable to arbitration, shall stay the action or

proceeding until an arbitration has been had in

accordance with the terms of the agreement:

Provided, That the applicant for the stay is not in

default in proceeding with such arbitration.

[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. A court

before which an action is brought in a matter

which is the subject matter of an arbitration

agreement shall, if at least one party so requests

not later that the pre-trial conference, or upon

the request of both parties thereafter, refer the

parties to arbitration unless it finds that the

arbitration agreement is null and void,

inoperative or incapable of being performed.

[Emphasis supplied]

It is clear that under the law, the instant unlawful

detainer action should have been stayed; the

Petitioner and the Respondent should have

been referred to arbitration pursuant to the

arbitration clause of the 2005 Lease Contract.

The MeTC, however, did not do so in violation of

the lawwhich violation was, in turn, affirmed by

the RTC and Court of Appeals on appeal.


pg. 19

Page number 19

The violation by the MeTC of the clear directives

under R.A. Nos. 876 and 9285 renders invalid all

proceedings it undertook in the ejectment

case after the filing by Petitioner of its Answer

with Counterclaimthe point when the

Petitioner and the Respondent should have

been referred to arbitration. This case must,

therefore, be remanded to the MeTC and be

suspended at said point. Inevitably, the

decisions of the MeTC, RTC and the Court of

Appeals must all be vacated and set aside.

The Petitioner and the Respondent must then be

referred to arbitration pursuant to the arbitration

clause of the 2005 Lease Contract.

J Plus Asia Corporation v Utility Assurance

Corporation

Does CA have jurisdiction to review arbitral

awards?

G.R. No. 199650 (June 26, 2013)

VILLARAMA, JR., J.:

FACTS:

Petitioner J Plus Asia Development Corporation

and Martin E. Mabunay entered into

aConstruction Agreement on December 24,

2007 whereby the latter undertook to build the

formers 72-room condominium/hotel located in

Boracay Island.

The project, costing P42M, was to be completed

within one year or 365 days reckoned from the

first calendar day after signing of the Notice of

Award and Notice to Proceed and receipt of

down payment (20% of contract price). The

P8.4M down payment was fully paid on January

14, 2008. Payment of the balance of the contract

price will be based on actual work finished within

15 days from receipt of the monthly progress

billings. Per the agreed work schedule, the

completion date of the project was December

2008. Mabunay also submitted the

required Performance Bond issued by

Respondent Utility Assurance Corporation in the

amount equivalent to 20% down payment or

P8.4M.

Mabunay commenced work at the project site on

January 7, 2008. Petitioner paid up to the 7th

monthly progress billing sent by Mabunay. As of

September 16, 2008, Petitioner had paid the

total amount of P15.98M inclusive of the 20%

down payment. However, as of said date,

Mabunay had accomplished only 27.5% of the

project. It was later found out by the joint

inspection and evaluation by the Petitioner and

Mabunay that, as of November 14, 2008, the

project was only 31.39% complete and that the

uncompleted portion was 68.61%.

On November 19, 2008, Petitioner terminated

the contract and sent Demand Letters to

Mabunay and Respondent surety. As its

demands went unheeded, Petitioner filed

a Request for Arbitrationbefore the Construction

Industry Arbitration Commission (CIAC).


pg. 20

Page number 20

In his Answer, Mabunay claimed that the delay

was caused by retrofitting and other revision

works ordered by Petitioner. He asserted that

he actually had until April 30, 2009 to finish the

project since the 365 days period of completion

started only on May 2, 2008 after clearing the

retrofitted old structure. Hence, the termination

of the contract by Petitioner was premature and

the filing of the Complaint against him was

baseless, malicious and in bad faith.

Respondent, on the other hand, filed a Motion to

Dismiss on the ground that Petitioner has no

cause of action and the complaint states no

cause of action against it. The CIAC denied

the Motion to Dismiss.

In its Answer Ex Abundante Ad Cautelam with

Compulsory Counterclaims and Cross-claims,

Respondent argued that the Performance

Bond merely guaranteed the 20% down

payment and not the entire obligation of

Mabunay under the Construction

Agreement. Since the value of the projects

accomplishment already exceeded the said

amount, Respondents obligation under

thePerformance Bond had been fully

extinguished. As to the claim for alleged

overpayment to Mabunay, Respondent

contended that it should not be credited against

the 20% down payment which was already

exhausted and such application by Petitioner is

tantamount to reviving an obligation that had

been legally extinguished by

payment. Respondent also set up a cross-claim

against Mabunay who executed in its favor

an Indemnity Agreement whereby Mabunay

undertook to indemnify Respondent for whatever

amounts it may be adjudged liable to pay

Petitioner under the surety bond.

On February 2, 2010, CIAC rendered its

Decision and made Awards in favor of

Petitioner. CIAC ruled that Mabunay had

incurred delay which entitled Petitioner to the

stipulated liquidated damages and unrecouped

down payment.

Dissatisfied, Respondent filed in the CA

a Petition for Review under Rule 43 of the 1997

Rules of Civil Procedure, as amended, which

reversed the CIACs ruling.


pg. 21

Page number 21


Certiorari under Rule 45 seeking to reverse the

CA insofar as it denied its claims under

the Performance Bond and to reinstate in its

entirety the February 2, 2010 CIAC Decision.

ISSUE:

Whether or not the Alternative Dispute

Resolution Act of 2004 and the Special ADR

Rules have stripped the CA of jurisdiction to

review arbitral awards?

ARGUMENT:

Petitioner contends that that with the

institutionalization of alternative dispute

resolution under RA No. 9285, otherwise known

as the Alternative Dispute Resolution Act of

2004, the CA was divested of jurisdiction to

review the decisions or awards of the CIAC.

RULING:

NO. The Petitioners contention is without merit.

Petitioner erroneously relied on the provision

in RA No. 9285 allowing any party to a domestic

arbitration to file in the RTC a petition either to

confirm, correct or vacate a domestic arbitral

award.

The Petition is GRANTED. The assailed

decision of the CA is REVERSED and SET

ASIDE. The Award made in the

Decision rendered by CIAC dated February 2,

2010 is REINSTATED with MODIFICATIONS.

RATIO DECIDENDI:

SC holds that RA No. 9285 did not confer on

RTCs jurisdiction to review awards or decisions

of the CIAC in construction disputes. On the

contrary, Section 40 thereof expressly declares

that confirmation by the RTC is NOT required,

thus:

SEC. 40. Confirmation of Award. The

confirmation of a domestic arbitral award shall

be governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall

be enforced in the same manner as final and

executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be

made by the regional trial court in accordance

with the Rules of Procedure to be promulgated

by the Supreme Court.

A CIAC arbitral award need not be confirmed by

the regional trial court to be executory as

provided under E.O. No. 1008. (Emphasis

supplied.)


pg. 22

Page number 22

EO No. 1008 vests upon the CIAC 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. By express

provision of Section 19 thereof, the arbitral

award of the CIAC is final and unappealable,

except on questions of law, which are

appealable to the Supreme Court. With the

amendments introduced by RA No. 7902 and

promulgation of the 1997 Rules of Civil

Procedure, as amended, the CIAC was included

in the enumeration of quasi- judicial agencies

whose decisions or awards may be appealed to

the CA in a Petition for Review under Rule

43. Such review of the CIAC award may

involve either questions of fact, of law, or of fact

and law.Petitioner misread the provisions

of A.M. No. 07-11-08-SC (Special ADR Rules)

promulgated by the SC and which took effect on

October 30, 2009. Since RA No. 9285 explicitly

excluded CIAC awards from domestic arbitration

awards that need to be confirmed to be

executory, said awards are therefore not

covered by Rule 11 of the Special ADR Rules,

as they continue to be governed byEO No.

1008, as amended and the rules of procedure of

the CIAC. The CIAC Revised Rules of

Procedure Governing Construction

Arbitration provide for the manner and mode of

appeal from CIAC decisions or awards in

Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition

for review from a final award may be taken by

any of the parties within fifteen (15) days from

receipt thereof in accordance with the provisions

of Rule 43 of the Rules of Court.

NIA V CA

Does the Construction Industry Arbitration

Commission (CIAC) have jurisdiction over

construction contracts entered into between

parties before the creation of said Commission

in 1985?

When a construction contract contains an

arbitration clause, is it still necessary for the

parties thereto to agree to submit disputes

arising therefrom specifically to the CIAC for the

latter to acquire jurisdiction?

G.R. No. 129169 (November 17, 1999)

DAVIDE, JR., C.J.:

FACTS:

In a competitive bidding held by Petitioner NIA,

Hydro Resources Contractors Corporation

(HYDRO) was awarded Contract for the

construction of the main civil works of the Magat

River Multi-Purpose Project. The contract

provided that Respondent HYDRO would be

paid partly in Philippine pesos and partly in U.S.

dollars. Respondent HYDRO substantially

completed the works under the contract in 1982

and final acceptance by Petitioner NIA was

made in 1984. Respondent HYDRO thereafter

determined that it still had an account receivable

from Petitioner NIA representing the dollar rate

differential of the price escalation for the

contract.


pg. 23

Page number 23

After unsuccessfully pursuing its case with

Petitioner NIA, Respondent HYDRO filed with

the CIAC a Request for Adjudication of the

aforesaid claim. Petitioner NIA filed

its Answer wherein it questioned the jurisdiction

of the CIAC alleging lack of cause of action,

laches and estoppel in view of Respondent

HYDROs alleged failure to avail of its right to

submit the dispute to arbitration within the

prescribed period as provided in the contract.

Later, Petitioner NIA filed a Motion to

Dismiss alleging lack of jurisdiction over the

disputes.

The arbitral body constituted by both parties

issued an order which deferred the

determination of the Motion to Dismiss and

resolved to proceed with the hearing of the case

on the merits as the grounds cited by Petitioner

NIA did not seem to be indubitable. Petitioner

NIA filed a Motion for Reconsideration of the

aforesaid Order. CIAC in denying the Motion for

Reconsideration ruled that it has jurisdiction over

the Respondent HYDROs claim over Petitioner

NIA pursuant to E.O 1008 and that the hearing

should proceed as scheduled. CIAC then

rendered a decision in the main case in favor of

Respondent HYDRO.

Petitioner NIA filed with the CA an Original

Action of Certiorari and Prohibition with prayer

for Restraining Order and/or Injunction which

dismissed the same.

Hence, the present Petition for Certiorari and

Prohibition with urgent prayer for Temporary

Restraining Order and Writ of Preliminary

Injunction.

ISSUE:

Whether or not CIAC has jurisdiction to hear and

try the dispute between the parties?

ARGUMENTS:

Petitioner NIA alleged that CIAC has no

jurisdiction to hear and try the dispute between

the parties as EO No. 1008 had no retroactive

effect. It contended that there was no agreement

with Respondent HYDRO to submit the dispute

to CIAC for arbitration considering that the

construction contract was executed in 1978 and

the project completed in 1982, whereas the

Construction Industry Arbitration Law creating

CIAC was signed only in 1985; and that while

they have agreed to arbitration as a mode of

settlement of disputes, they could not have

contemplated submission of their disputes to

CIAC. Petitioner NIA further argued that records

show that it had not voluntarily submitted itself to

arbitration by CIAC. Petitioner NIA contended

that the CIAC did not acquire jurisdiction over

the dispute since it was only Respondent

HYDRO that requested for arbitration. It asserts

that to acquire jurisdiction over a case, as

provided under E.O. 1008, the request for

arbitration filed with CIAC should be made by

both parties, and hence the request by one party

is not enough.

RULING:YES. Contrary to the claim of Petitioner

NIA, the CIAC has jurisdiction over the

controversy.


pg. 24

Page number 24

The instant Petition is DISMISSED for lack of

merit.

RATIO DECIDENDI:

EO No. 1008, otherwise known as the

Construction Industry Arbitration Law which

was promulgated on 4 February 1985, vests

upon CIAC 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. The 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.

The complaint of Respondent HYDRO against

Petitioner NIA on the basis of the contract

executed between them was filed on 7

December 1994, during the effectivity of E.O.

No. 1008. Hence, it is well within the jurisdiction

of CIAC. The jurisdiction of a court is determined

by the law in force at the time of the

commencement of the action. Petitioner NIAs

argument that CIAC had no jurisdiction to

arbitrate on contract which preceded its

existence is untenable. E.O. 1008 is clear that

the CIAC has jurisdiction over all disputes

arising from or connected with construction

contract whether the dispute arises BEFORE or

AFTER the completion of the contract. Thus, the

date the parties entered into a contract and the

date of completion of the same, even if these

occurred before the constitution of the CIAC, did

not automatically divest the CIAC of jurisdiction

as long as the dispute submitted for arbitration

arose after the constitution of the CIAC. Stated

differently, the jurisdiction of CIAC is over the

dispute, not the contract; and the instant dispute

having arisen when CIAC was already

constituted, the arbitral board was actually

exercising current, not retroactive, jurisdiction.

It is undisputed that the contracts between

Respondent HYDRO and Petitioner NIA

contained anarbitration clause wherein they

agreed to submit to arbitration any dispute

between them that may arise before or after the

termination of the agreement. Consequently, the

claim of Respondent HYDRO having arisen from

the contract is arbitrable. Petitioner NIAs

reliance with the ruling on the case of Tesco

Services Incorporated v. Vera, is misplaced.


pg. 25

Page number 25

The 1988 CIAC Rules of Procedure which were

applied by this Court in the Tesco case had

been duly amended by CIAC Resolutions No. 2-

91 and 3-93, Section 1 of Article III of which read

as follows:

Submission to CIAC Jurisdiction An

arbitration clause in a construction contract or a

submission to arbitration of 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 CIAC jurisdiction, notwithstanding

the reference to a different arbitration institution

or arbitral body in such contract or submission.

When a contract contains a clause for the

submission of a future controversy to arbitration,

it is not necessary for the parties to enter into a

submission agreement before the claimant may

invoke the jurisdiction of CIAC.

Under the present Rules of Procedure, for a

particular construction contract to fall within the

jurisdiction of CIAC, it is merely required that the

parties agree to submit the same to voluntary

arbitration. Unlike in the original version of

Section 1, as applied in the Tesco case, the law

as it now stands does not provide that the

parties should agree to submit disputes arising

from their agreement specifically to the CIAC for

the latter to acquire jurisdiction over the same.

Rather, it is plain and clear that as long as the

parties agree to submit to voluntary arbitration,

regardless of what forum they may choose, their

agreement will fall within the jurisdiction of the

CIAC, such that, even if they specifically choose

another forum, the parties will not be precluded

from electing to submit their dispute before the

CIAC because this right has been vested upon

each party by law, i.e., E.O. No. 1008.

Moreover, it is undeniable that Petitioner NIA

agreed to submit the dispute for arbitration to the

CIAC. Petitioner NIA through its counsel actively

participated in the arbitration proceedings by

filing an Answer with Counterclaim, as well as its

compliance wherein it nominated arbitrators to

the proposed panel, participating in the

deliberations on, and the formulation of, the

Terms of Reference of the arbitration

proceeding, and examining the documents

submitted by Respondent HYDRO after

Petitioner NIA asked for the originals of the said

documents.


pg. 26

Page number 26

LM POWER ENGINEERING CORP V CAPITOL

INDUSTRIAL

Is there a need to file first a Formal Request for

Arbitration with the Construction Industry

Arbitration Commission (CIAC) in order to vest it

with jurisdiction to decide a construction

dispute?

G.R. No. 141833 (March 26, 2003)

PANGANIBAN, J.:

FACTS:

Petitioner and Respondent entered into a

Subcontract Agreement involving electrical

work at the Third Port of Zamboanga. Two years

thereafter, Respondent took over some of the

work contracted to Petitioner. Allegedly, the

latter had failed to finish it because of its inability

to procure materials.

Upon completing its task under the Contract,

Petitioner billed Respondent in the amount of

P6.7M. Respondent, however, refused to pay

and contested the accuracy of the amount of

advances and billable accomplishments listed by

Petitioner. Respondent also took refuge in the

termination clause of the Agreement. That

clause allowed it to set off the cost of the work

that Petitioner had failed to undertake due to

termination or take-over against the amount it

owed the latter.

Because of the dispute, Petitioner filed with the

RTC of Makati a Complaint for Collection of the

amount representing the alleged balance due it

under the Subcontract. Instead of submitting

anAnswer, Respondent filed a Motion to

Dismiss, alleging that the Complaint was

premature because there was no prior recourse

to arbitration.

RTC denied the Motion to Dismiss on the

ground that the dispute did not involve the

interpretation or the implementation of the

Agreement and was, therefore, not covered by

the arbitral clause. The RTC ruled that the take-

over of some work items by Respondent was not

equivalent to a termination, but a mere

modification, of the Subcontract. The latter was

ordered to give full payment for the work

completed by Petitioner.

On appeal, the CA reversed the RTC and

ordered the referral of the case to arbitration.

The CA held as arbitrable the issue of whether

Respondents take-over of some work items had

been intended to be a termination of the original

contract under Letter K of the Subcontract.

Hence, this Petition for Review on


ISSUES:

1. Whether or not there exists a

controversy/dispute between Petitioner

and Respondent regarding the

interpretation and implementation of the

Subcontract Agreement that requires

prior recourse to voluntary arbitration?;

2. In the affirmative, whether or not there is

a need to file a request first with the

CIAC in order to vest it with jurisdiction

to decide a construction dispute?


pg. 27

Page number 27

ARGUMENTS:

1.

Petitioner claims that there is no conflict

regarding the interpretation or the

implementation of the Agreement. Thus, without

having to resort to prior arbitration, it is entitled

to collect the value of the services it rendered

through an ordinary action for the collection of a

sum of money from Respondent.

On the other hand, Respondent contends that

there is a need for prior arbitration as provided in

the Agreement. This is because there are some

disparities between the parties positions

regarding the extent of the work done, the

amount of advances and billable

accomplishments, and the set off of expenses

incurred by Respondent in its take-over of

Petitioners work.

2.

According to Petitioner, assuming arguendo that

the dispute is arbitrable, the failure to file a

formal request for arbitration with the CIAC

precluded the latter from acquiring jurisdiction

over the question.

RULING:

The Petition is unmeritorious; hence,

DENIED. The assailed Decision of the CA is

AFFIRMED.

1.

YES. SC sides with Respondent. The instant

case involves technical discrepancies that are

better left to an arbitral body that has expertise

in those areas.

2.

NO. SC is not persuaded with Petitioners

contention. Section 1 of Article III of the NEW

Rules of Procedure Governing Construction

Arbitration has dispensed with the requirement

to submit a request for arbitration. Recourse to

the CIAC may now be availed of whenever a

contract contains a clause for the submission of

a future controversy to arbitration.

RATIO DECIDENDI:

1.

In the instant case, the Subcontract has the

following arbitral clause:

6. The Parties hereto agree that any dispute or

conflict as regards to interpretation and

implementation of this Agreement which cannot

be settled between [respondent] and [petitioner]

amicably shall be settled by means of arbitration

x x x.

Clearly, the resolution of the dispute between

the parties herein requires a referral to the

provisions of their Agreement. Within the scope

of the arbitration clause are discrepancies as to

the amount of advances and billable

accomplishments, the application of the

provision on termination, and the consequent

set-off of expenses.

A review of the factual allegations of the parties

reveals that they differ on the following

questions, the resolutions of which lies in the

interpretation of the provisions of the

Subcontract Agreement:

1. Did a take-over/termination occur?

2. May the expenses incurred by

Respondent in the take-over be set off

against the amounts it owed Petitioner?

3. How much were the advances and

billable accomplishments?


pg. 28

Page number 28

Being an inexpensive, speedy and amicable

method of settling disputes, arbitration along

with mediation, conciliation and negotiation is

encouraged by the SC. Aside from unclogging

judicial dockets, arbitration also hastens the

resolution of disputes, especially of the

commercial kind. It is thus regarded as the

wave of the future in international civil and

commercial disputes. Brushing aside a

contractual agreement calling for arbitration

between the parties would be a step backward.

Consistent with the above-mentioned policy of

encouraging alternative dispute resolution

methods, courts should liberally construe

arbitration clauses. Provided such clause is

susceptible of an interpretation that covers the

asserted dispute, an order to arbitrate should be

granted. Any doubt should be resolved in favor

of arbitration.

2.

Section 1 of Article III of the NEW Rules of

Procedure Governing Construction Arbitration

provides:

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 CIAC jurisdiction, notwithstanding

the reference to a different arbitration institution

or arbitral body in such contract or submission.

When a contract contains a clause for the

submission of a future controversy to arbitration,

it is not necessary for the parties to enter into a

submission agreement before the claimant may

invoke the jurisdiction of CIAC.

As clearly explained in China Chang Jiang

Energy Corporation (Philippines) v. Rosal

Infrastructure Builders et al. (an extended

unsigned Resolution) and reiterated in National

Irrigation Administration v. Court of Appeals

[1999], from which SC quote thus:

Under the present Rules of Procedure, for a

particular construction contract to fall within the

jurisdiction of CIAC, it is merely required that the

parties agree to submit the same to voluntary

arbitration unlike in the original version of

Section 1, as applied in the Tesco case, the law

as it now stands does not provide that the

parties should agree to submit disputes arising

from their agreement specifically to the CIAC for

the latter to acquire jurisdiction over the same.

Rather, it is plain and clear that as long as the

parties agree to submit to voluntary arbitration,

regardless of what forum they may choose, their

agreement will fall within the jurisdiction of the

CIAC, such that, even if they specifically choose

another forum, the parties will not be precluded

from electing to submit their dispute before the

CIAC because this right has been vested upon

each party by law, i.e., E.O. No. 1008.

Clearly, there is no more need to file a request

with the CIAC in order to vest it with jurisdiction

to decide a construction dispute.

The arbitral clause in the Agreement is a

commitment on the part of the parties to submit

to arbitration the disputes covered therein.

Because that clause is binding, they are

expected to abide by it in good faith. And

because it covers the dispute between the

parties in the present case, either of them may

compel the other to arbitrate.

ADR DIGEST

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