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[G.R. No. 127004. March 11, 1999]
SO ORDERED.
THIRD DIVISION
FORT BONIFACIO DEVELOPMENT CORPORATION,
Petitioner,
- versus -
MANUEL N. DOMINGO,
Respondent.
G.R. No. 180765
Present:
QUISUMBING, J.,*
CARPIO,**
CHICO-NAZARIO,
Acting Chairperson,NACHURA, and
PERALTA, JJ.
Promulgated:
February 27, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
D E C I S I O N
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioner Fort Bonifacio Development Corporation,
seeking to reverse and set aside the Decision dated 19 July 2007[1] and the
Resolution dated 10 December 2007[2] of the Court of Appeals in CA-G.R. SP No.
97731. The appellate court, in its assailed Decision, affirmed the Order[3] of the
Regional Trial Court (RTC) of Pasay City, Branch 109, in Civil Case No. 06-2000-CFM,
denying the Motion to Dismiss of petitioner; and in its assailed Resolution, refused
to reconsider its decision.
Petitioner, a domestic corporation duly organized under Philippine laws, is
engaged in the real estate development business. Respondent is the assignee of L
and M Maxco Specialist Engineering Construction (LMM Construction) of its
receivables from petitioner.
On 5 July 2000, petitioner entered into a Trade Contract with LMM
Construction for partial structural and architectural works on one of its projects, the
Bonifacio Ridge Condominium. According to the said Contract, petitioner had the
right to withhold the retention money equivalent to 5% of the contract price for a
period of one year after the completion of the project. Retention money is a
portion of the contract price, set aside by the project owner, from all approved
billings and retained for a certain period to guarantee the performance by the
contractor of all corrective works during the defect-liability period.[4]
Due to the defect and delay in the work of LMM Construction on the
condominium project, petitioner unilaterally terminated the Trade Contract[5] and
hired another contractor to finish the rest of the work left undone by LMM
Construction. Despite the pre-termination of the Trade Contract, petitioner was
liable to pay LMM Construction a fraction of the contract price in proportion to the
works already performed by the latter.[6]
On 30 July 2004, petitioner received the first Notice of Garnishment
against the receivables of LMM Construction issued by the Construction Industry
Arbitration Commission (CIAC) in connection with CIAC Case No. 11-2002 filed by
Asia-Con Builders against LMM Construction, wherein LMM Construction was
adjudged liable to Asia-Con Builders for the amount of P5,990,927.77.
On 30 April 2005, petitioner received a letter dated 18 April 2005 from
respondent inquiring on the retention money supposedly due to LMM Construction
and informing petitioner that a portion of the amount receivable by LMM
Construction therefrom was already assigned to him as evidenced by the Deed of
Assignment executed by LMM Construction in respondent’s favor on 28 February
2005. LMM Construction assigned its receivables from petitioner to respondent to
settle the alleged unpaid obligation of LMM Construction to respondent amounting
to P804,068.21.
Through its letter dated 11 October 2005, addressed to respondent,
petitioner acknowledged that LMM Construction did have receivables still with
petitioner, consisting of the retention money; but petitioner also advised
respondent that the retention money was not yet due and demandable and may be
ascertained only after the completion of the corrective works undertaken by the
new contractor on the condominium project. Petitioner also notified respondent
that part of the receivables was also being garnished by the other creditors of LMM
Construction.
Unsatisfied with the reply of petitioner, respondent sent another letter
dated 14 October 2005 asserting his ownership over a portion of the retention
money assigned to him and maintaining that the amount thereof pertaining to him
can no longer be garnished to satisfy the obligations of LMM Construction to other
persons since it already ceased to be the property of LMM Construction by virtue of
the Deed of Assignment. Attached to respondent’s letter was the endorsement of
LMM Construction dated 17 January 2005 approving respondent’s claim upon
petitioner in the amount of P804,068.21 chargeable against the retention money
that may be received by LMM Construction from the petitioner.
Before respondent’s claim could be fully addressed, petitioner, on 6 June
2005, received the second Notice of Garnishment against the receivables of LMM
Construction, this time, issued by the National Labor Relations Commission (NLRC)
to satisfy the liability of LMM Construction to Nicolas Consigna in NLRC Case No. 00-
07-05483-2003.
On 13 July 2005, petitioner received an Order of Delivery of Money issued
by the Office of the Clerk of Court and Ex-Officio Sheriff enforcing the first Notice of
Garnishment and directing petitioner to deliver to Asia-Con Builders, through the
Sheriff, the amount of P5,990,227.77 belonging to LMM Construction. In
compliance with the said Order, petitioner was able to deliver to Asia-Con Builders
on 22 July 2005 and on 11 August 2005 partial payments amounting
to P1,170,601.81, covered by the appropriate Acknowledgement Receipts.
A third Notice of Garnishment against the receivables of LMM
Construction, already accompanied by an Order of Delivery of Money, both issued
by the RTC of Makati, Branch 133, was served upon petitioner on 26 January
2006. The Order enjoined petitioner to deliver the amount of P558,448.27 to the
Sheriff to answer for the favorable judgment obtained by Concrete Masters, Inc.
(Concrete Masters) against LMM Construction in Civil Case No. 05-164.
Petitioner, in a letter dated 31 January 2006, categorically denied
respondent’s claim on the retention money, reasoning that after the completion of
the rectification works on the condominium project and satisfaction of the various
garnishment orders, there was no more left of the retention money of LMM
Construction.
It would appear, however, that petitioner fully satisfied the first Notice of
Garnishment in the amount of P5,110,833.44 only on 31 January 2006,[7] the very
the same date that it expressly denied respondent’s claim. Also, petitioner
complied with the Notice of Garnishment and its accompanying Order of Delivery of
Money in the amount ofP558,448.27 on 8 February 2006, a week after its denial of
respondent’s claim.[8]
The foregoing events prompted respondent to file a Complaint for
collection of sum of money, against both LMM Construction and petitioner,
docketed as Civil Case No. 06-0200-CFM before the RTC of Pasay City, Branch 109.
Instead of filing an Answer, petitioner filed a Motion to Dismiss Civil Case No.
06-0200-CFM on the ground of lack of jurisdiction over the subject
matter. Petitioner argued that since respondent merely stepped into the shoes of
LMM Construction as its assignor, it was the CIAC and not the regular courts that
had jurisdiction over the dispute as provided in the Trade Contract.
On 6 June 2006, the RTC issued an Order denying the Motion to Dismiss of
petitioner, ruling that a full-blown trial was necessary to determine which one
between LMM Construction and petitioner should be made accountable for the
sum due to respondent.
Petitioner sought remedy from the Court of Appeals by filing a Petition
for Certiorari, docketed as CA-G.R. SP No. 97731, challenging the RTC Order dated 6
June 2006for having been rendered by the trial court with grave abuse of
discretion.
In its Decision promulgated on 19 July 2007, the Court of Appeals
dismissed the Petition for Certiorari and affirmed the 6 June 2006 Order of the RTC
denying the Motion to Dismiss of petitioner. The appellate court rejected the
argument of petitioner that respondent, as the assignee of LMM Construction, was
bound by the stipulation in the Trade Contract that disputes arising therefrom
should be brought before the CIAC. The Court of Appeals declared that respondent
was not privy, but a third party, to the Trade Contract; and money claims of third
persons against the contractor, developer, or owner of the project are lodged in the
regular courts and not in the CIAC.
Similarly ill-fated was petitioner’s Motion for Reconsideration, which was
denied by the Court of Appeals in its Resolution dated 10 December 2007.
Petitioner now comes to this Court via this instant Petition for Review
on Certiorari praying for the reversal of the 19 July 2007 Decision of the Court of
Appeals and 6 June 2006 Order of the RTC and, ultimately, for the dismissal of Civil
Case No. 06-0200-CFM pending before the RTC.
For the resolution of this Court is the sole issue of:
WHETHER OR NOT THE RTC HAS JURISDICTION OVER CIVIL CASE NO. 06-0200-CFM.
The jurisdiction of CIAC is defined under Executive Order No. 1008 as follows:
SECTION 4. Jurisdiction.—The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes arises before or after the completion of the contract, or after the abandonment or breach thereof. These 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 jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines.
In assailing the 19 July 2007 Decision of the Court of Appeals, petitioner
invoked Article 1311 of the Civil Code on relativity of contracts. According to said
provision, all contracts shall only take effect between the contracting parties, their
assigns and heirs except when the rights and obligations arising from the contract
are not transmissible. Petitioner argues that the appellate court, in recognizing the
existence of the Deed of Assignment executed by LMM Construction -- in favor of
respondent -- of its receivables under the Trade Contract, should have considered
the concomitant result thereof, i.e., that respondent became a party to the Trade
Contract and, therefore, bound by the arbitral clause therein.
Respondent counters that the CIAC is devoid of jurisdiction over money
claims of third persons against the contractor, developer or owner of the
project. The jurisdiction of the CIAC is limited to settling disputes arising among
contractors, developers and/or owners of construction projects. It does not include
the determination of who among the many creditors of the contractor should enjoy
preference in payment of its receivables from the developer/owner.
It is an elementary rule of procedural law that jurisdiction of the court over
the subject matter is determined by the allegations of the complaint, irrespective of
whether or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein. As a necessary consequence, the jurisdiction of the court cannot
be made to depend upon the defenses set up in the answer or upon the motion to
dismiss; for otherwise, the question of jurisdiction would almost entirely depend
upon the defendant. What determines the jurisdiction of the court is the nature of
the action pleaded as appearing from the allegations in the complaint. The
averments therein and the character of the relief sought are the ones to be
consulted.[9] Accordingly, the issues in the instant case can only be properly
resolved by an examination and evaluation of respondent’s allegations in his
Complaint in Civil Case No. 06-0200-CFM.
The allegations in respondent’s Complaint are clear and simple: That LMM
Construction had an outstanding obligation to respondent in the amount
of P804,068.21; that in payment of the said amount, LMM Construction assigned to
respondent its receivables from petitioner, which assignment was properly made
known to petitioner as early as 18 April 2005; that despite due notice of such
assignment, petitioner still refused to deliver the amount assigned to respondent,
giving preference, instead, to the garnishing creditors of LMM Construction; that at
the time petitioner was notified of the assignment, only one notice of garnishment,
the first Notice of Garnishment, was received by it; that had petitioner properly
recognized respondent’s right as an assignee of a portion of the receivables of LMM
Construction, there could have been sufficient residual amounts to satisfy
respondent’s claim; and that, uncertain over which one between LMM Construction
and petitioner he may resort to for payment, respondent named them both as
defendants in Civil Case No. 06-0200-CFM. A scrupulous examination of the
aforementioned allegations in respondent’s Complaint unveils the fact that his
cause of action springs not from a violation of the provisions of the Trade Contract,
but from the non-payment of the monetary obligation of LMM Construction to
him.
A cause of action is a party’s act or omission that violates the rights of the
other.[10] The right of the respondent that was violated, prompting him to initiate
Civil Case No. 06-0200-CFM, was his right to receive payment for the financial
obligation incurred by LMM Construction and to be preferred over the other
creditors of LMM Construction, a right which pre-existed and, thus, was separate
and distinct from the right to payment of LMM Construction under the Trade
Contract.
Petitioner’s unceasing reliance on Article 1311[11] of the Civil Code on
relativity of contracts is unavailing. It is true that respondent, as the assignee of the
receivables of LMM Construction from petitioner under the Trade Contract, merely
stepped into the shoes of LMM Construction. However, it bears to emphasize that
the right of LMM Construction to such receivables from petitioner under the Trade
Contract is not even in dispute in Civil Case No. 06-0200-CFM. What respondent
puts in issue before the RTC is the purportedly arbitrary exercise of discretion by
the petitioner in giving preference to the claims of the other creditors of LMM
Construction over the receivables of the latter.
It is encouraged that disputes arising from construction contracts be
referred first to the CIAC for their arbitration and settlement, since such cases
would often require expertise and technical knowledge in construction. Hence,
some of the matters over which the CIAC may exercise jurisdiction, upon agreement
of the parties to the construction contract, “include but [are] not limited to
violation of specifications for materials and workmanship; violation of the terms of
agreement; interpretation and/or application of contractual provisions; amount of
damages and penalties; commencement time and delays; maintenance and defects;
payment default of employer or contractor and changes in contract
cost.”[12] Although the jurisdiction of the CIAC is not limited to the afore-stated
enumeration, other issues which it could take cognizance of must be of the same or
a closely related kind or species applying the principle of ejusdem generis in
statutory construction.
Respondent’s claim is not even construction-related at all. Construction is
defined as referring to all on-site works on buildings or altering structures, from
land clearance through completion including excavation, erection and assembly and
installation of components and equipment.[13] Petitioner’s insistence on the
application of the arbitration clause of the Trade Contract to respondent is clearly
anchored on an erroneous premise that respondent is seeking to enforce a right
under the same. Again, the right to the receivables of LMM Construction from
petitioner under the Trade Contract is not being impugned herein. In fact,
petitioner readily conceded that LMM Construction still had receivables due from
petitioner, and respondent did not even have to refer to a single provision in the
Trade Contract to assert his claim. What respondent is demanding is that a portion
of such receivables amounting to P804,068.21 should have been paid to him first
before the other creditors of LMM Construction, which, clearly, does not require
the CIAC’s expertise and technical knowledge of construction.
The adjudication of Civil Case No. 06-0200-CFM necessarily involves the
application of pertinent statutes and jurisprudence to matters such as obligations,
contracts of assignment, and, if appropriate, even preference of credits, a task more
suited for a trial court to carry out after a full-blown trial, than an arbitration body
specifically devoted to construction contracts.
This Court recognizes the laudable objective of voluntary arbitration
to provide a speedy and inexpensive method of settling disputes by allowing the
parties to avoid the formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. It cannot, however, altogether surrender to arbitration those
cases, such as the one at bar, the extant facts of which plainly call for the exercise of
jurisdiction by the regular courts for their resolution.
WHEREFORE, premises considered, the instant Petition is DENIED. The
Decision dated 19 July 2007 and the Resolution dated 10 December 2007 of the
Court of Appeals in CA-G.R. SP No. 97731 are hereby AFFIRMED in toto. Costs
against the petitioner.
SO ORDERED.
THIRD DIVISION
HUTAMA-RSEA JOINT OPERATIONS, INC., Petitioner,
- versus - CITRA METRO MANILA TOLLWAYS CORPORATION, Respondent.
G.R. No. 180640 Present:
YNARES-SANTIAGO, J., Chairperson,AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.
Promulgated:
April 24, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
D E C I S I O N
CHICO-NAZARIO, J.:
Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules
of Court seeking to set aside the Decision[2] dated 23 May 2007 and
Resolution[3] dated 16 November 2007 of the Court of Appeals in CA-G.R. SP No.
92504.
The facts, culled from the records, are as follows:
Petitioner HUTAMA-RSEA Joint Operations Incorporation and respondent
Citra Metro Manila Tollways Corporation are corporations organized and existing
under Philippine laws. Petitioner is a sub-contractor engaged in engineering and
construction works. Respondent, on the other hand, is the general contractor and
operator of the South Metro Manila Skyway Project (Skyway Project).
On 25 September 1996, petitioner and respondent entered into an
Engineering Procurement Construction Contract (EPCC) whereby petitioner would
undertake the construction of Stage 1 of the Skyway Project, which stretched from
the junction of Buendia Avenue, Makati City, up to Bicutan
Interchange, Taguig City. As consideration for petitioner’s undertaking, respondent
obliged itself under the EPCC to pay the former a total amount of
US$369,510,304.00.[4]
During the construction of the Skyway Project, petitioner wrote
respondent on several occasions requesting payment of the former’s interim
billings, pursuant to the provisions of the EPCC. Respondent only partially paid the
said interim billings, thus, prompting petitioner to demand that respondent pay the
outstanding balance thereon, but respondent still failed to do so.[5]
The Skyway Project was opened on 15 December 1999 for public use, and
toll fees were accordingly collected. After informing respondent that the
construction of the Skyway Project was already complete, petitioner reiterated its
demand that respondent pay the outstanding balance on the interim billings, as
well as the “Early Completion Bonus” agreed upon in the EPCC. Respondent
refused to comply with petitioner’s demands.[6]
On 24 May 2004, petitioner, through counsel, sent a letter to respondent
demanding payment of the following: (1) the outstanding balance on the interim
billings; (2) the amount of petitioner’s final billing; (3) early completion bonus; and
(4) interest charges on the delayed payment. Thereafter, petitioner and
respondent, through their respective officers and representatives, held several
meetings to discuss the possibility of amicably settling the dispute. Despite several
meetings and continuous negotiations, lasting for a period of almost one year,
petitioner and respondent failed to reach an amicable settlement.[7]
Petitioner finally filed with the Construction Industry Arbitration
Commission (CIAC) a Request for Arbitration, seeking to enforce its money claims
against respondent.[8] Petitioner’s Request was docketed as CIAC Case No. 17-2005.
In its Answer ad cautelam with Motion to Dismiss, respondent averred that
the CIAC had no jurisdiction over CIAC Case No. 17-2005. Respondent argued that
the filing by petitioner of said case was premature because a condition
precedent, i.e., prior referral by the parties of their dispute to the Dispute
Adjudication Board (DAB), required by Clause 20.4 of the EPCC, had not been
satisfied or complied with. Respondent asked the CIAC to dismiss petitioner’s
Request for Arbitration in CIAC Case No. 17-2005 and to direct the parties to comply
first with Clause 20.4 of the EPCC.[9]
After submission by the parties of the necessary pleadings on the matter of
jurisdiction, the CIAC issued on 30 August 2005, an Order in CIAC Case No. 17-2005,
favoring petitioner. The CIAC ruled that it had jurisdiction over CIAC Case No. 17-
2005, and that the determination of whether petitioner had complied with Clause
20.4 of the EPCC was a factual issue that may be resolved during the trial. It then
ordered respondent to file an Answer to petitioner’s Request for Arbitration.[10]
After respondent and petitioner filed an Answer and a Reply, respectively,
in CIAC Case No. 17-2005, the CIAC conducted a preliminary conference, wherein
petitioner and respondent signed the “Terms of Reference” outlining the issues to
be resolved, viz:
(1) Is prior resort to the DAB a precondition to submission of the dispute to arbitration considering that the DAB was not constituted?;
(2) Is [herein petitioner] entitled to the balance of the principal amount of the contract? If so, how much?;
(3) Is [petitioner] entitled to the early compensation bonus net of VAT due thereon? If so, how much?;
(4) Was there delay in the completion of the project? If so, is [herein respondent] entitled to its counterclaim for liquidated damages?;
(5) Is [petitioner] entitled to payment of interest on the amounts of its claims for unpaid billings and early completion bonus? If so, at what rate and for what period?;
(6) Which of the parties is entitled to reimbursement of the arbitration costs incurred? [11]
Respondent, however, subsequently filed an Urgent Motion requesting
that CIAC refrain from proceeding with the trial proper of CIAC Case No. 17-2005
until it had resolved the issue of whether prior resort by the parties to DAB was a
condition precedent to the submission of the dispute to CIAC.[12] Respondent’s
Urgent Motion was denied by the CIAC in its Order dated 6 December 2005.[13]
Respondent filed a Motion for Reconsideration of the CIAC Order dated 6
December 2005.[14] The CIAC issued, on 12 December 2005, an Order denying
respondent’s Motion for Reconsideration.[15] It held that prior resort by the parties
to DAB was not a condition precedent for it to assume jurisdiction over CIAC Case
No. 17-2005. Aggrieved, respondent assailed the CIAC Order dated 12 December
2005 by filing a special civil action for certiorari and prohibition with the Court of
Appeals,[16] docketed as CA-G.R. SP No. 92504.
On 23 May 2007, the Court of Appeals rendered its Decision in CA-G.R. SP
No. 92504, annulling the 12 December 2005 Order of the CIAC, and enjoining the
said Commission from proceeding with CIAC Case No. 17-2005 until the dispute
between petitioner and respondent had been referred to and decided by the DAB,
to be constituted by the parties pursuant to Clause 20.4 of the EPCC. The appellate
court, thus, found that the CIAC exceeded its jurisdiction in taking cognizance of
petitioner’s Request for Arbitration in CIAC Case No. 17-2005 despite the latter’s
failure to initially refer its dispute with respondent to the DAB, as directed by Clause
20.4 of the EPCC.
The dispositive portion of the 23 May 2007 Decision of the Court of
Appeals reads:
WHEREFORE, the instant petition is GRANTED and the order of the Arbitration Tribunal of the Construction Industry Arbitration Commission dated December 12, 2005 is herebyANNULED and SET ASIDE and, instead, [CIAC, members of the Arbitral Tribunal,[17] and herein petitioner], their agents or anybody acting in their behalf, are enjoined from further proceeding with CIAC Case No. 17-2005, promulgating a decision therein, executing the same if one has already been promulgated or otherwise enforcing said order of December 12, 2005 until the dispute has been referred to and decided by the Dispute Adjudication Board to be constituted by the parties in accordance with Sub-Clause 20.4 of the Engineering Procurement Construction Contract dated September 25, 1996.
Petitioner filed a Motion for Reconsideration of the afore-mentioned
Decision but this was denied by the Court of Appeals in a Resolution dated 16
November 2007.
Hence, petitioner filed the instant Petition for Review before us raising the
sole issue of whether CIAC has jurisdiction over CIAC Case No. 17-2005.
Section 4 of Executive Order No. 1008[18] defines the jurisdiction of CIAC,
thus:
SECTION 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes arises before or after the completion of the contract, or after the abandonment or breach thereof. These 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 jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines. (Emphasis ours.)
Further, Section 1, Article III of the CIAC Rules of Procedure Governing
Construction Arbitration[19] (CIAC Rules), 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.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by the parties, as long as the intent is clear that the parties agree to submit a present or future controversy arising from a construction contract to arbitration.
It may be in the form of exchange of letters sent by post or by telefax, telexes, telegrams or any other modes of communication. (Emphasis ours.)
Based on the foregoing provisions, the CIAC shall have jurisdiction over a
dispute involving a construction contract if said contract contains an arbitration
clause (nothwithstanding any reference by the same contract to another arbitration
institution or arbitral body); or, even in the absence of such a clause in the
construction contract, the parties still agree to submit their dispute to arbitration.
It is undisputed that in the case at bar, the EPCC contains an arbitration
clause in which the petitioner and respondent explicitly agree to submit to
arbitration any dispute between them arising from or connected with the EPCC,
under the following terms and conditions[20]:
CLAIMS, DISPUTES and ARBITRATION
x x x x
20.3 Unless the member or members of the Dispute Adjudication Board have been previously mutually agreed upon by the parties and named in the Contract, the parties shall, within 28 days of the Effective Date, jointly ensure the appointment of a Dispute Adjudication Board. Such Dispute Adjudication Board shall comprise suitably qualified persons as members, the number of members being either one or three, as stated in the Appendix to Tender. If the Dispute Adjudication Board is to comprise three members, each party shall nominate one member for the approval of the other party, and the parties shall mutually agree upon and appoint the third member (who shall act as chairman).
The terms of appointment of the Dispute Adjudication Board shall:
(a) incorporate the model terms published by the Fédération Internationale des Ingénieurs-Conseils (FIDIC),
(b) require each member of the Dispute Adjudication Board to be, and to remain throughout the appointment, independent of the parties,
(c) require the Dispute Adjudication Board to act impartially and in accordance with the Contract, and
(d) include undertakings by the parties (to each other and to the Dispute Adjudication Board) that the members of the Dispute Adjudication Board shall in no circumstances be liable for breach of duty or of contract arising out of their appointment; the parties shall indemnify the members against such claims.
The terms of the remuneration of the Dispute Adjudication Board, including the remuneration of each member and of any specialist from whom the Dispute Adjudication Board may require to seek advice, shall be mutually agreed upon by the Employer, the Contractor and each member of the Dispute Adjudication Board when agreeing such terms of appointment. In the event of disagreement, the remuneration of each member shall include reimbursement for reasonable expenses, a daily fee in accordance with the daily fee established from time to time for arbitrators under the administrative and financial regulations of the International Centre for Settlement of Investment Disputes, and a retainer fee per calendar month equivalent to three times such daily fee.
The Employer and the Contractor shall each pay one-half of the Dispute Adjudication Board’s remuneration in accordance with its terms of remuneration. If, at any time, either party shall fail to pay its due proportion of such remuneration, the other party shall be entitled to make payment on his behalf and recover if from the party in default.
The Dispute Adjudication Board’s appointment may be terminated only by mutual agreement of the Employer and the Contractor. The Dispute Adjudication Board’s appointment shall expire when the discharge referred to in Sub-Clause 13.12 shall have become effective, or at such other time as the parties may mutually agree.
It, at any time, the parties so agree, they may appoint a suitably qualified person to replace (or to be available to replace) any or all members of the Dispute Adjudication Board. The appointment will come into effect if a member of the Dispute Adjudication Board declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. If a member so declines or is unable to act, and no such replacement is available to act, the member shall be replaced in the same manner as such member was to have been nominated.
If any of the following conditions apply, namely:
(a) the parties fail to agree upon the appointment of the sole member of a one-person Dispute
Adjudication Board within 28 days of the Effective Date,
(b) either party fails to nominate an acceptable member, for the Dispute Adjudication Board of three members, within 28 days of the Effective Date,
(c) the parties fail to agree upon the appointment of the third member (to act as chairman) within 28 days of the Effective Date, or
(d) the parties fail to agree upon the appointment of a replacement member of the Dispute Adjudication Board within 28 days of the date on which a member of the Dispute Adjudication Board declines to act or is unable to act as a result of death, disability, resignation or termination of appointment,
then the person or administration named in the Appendix to the Tender shall, after due consultation with the parties, nominate such member of the Dispute Adjudication Board, and such nomination shall be final and conclusive.
20.4 If a dispute arises between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any opinion, instruction, determination, certification or valuation of the Employer’s
Representative, the dispute shall initially be referred in writing to the Dispute Adjudication Board for its decision, with a copy to the other party. Such reference shall state that it is made under this Sub-Clause. The parties shall promptly make available to the Dispute Adjudication Board all such information, access to the Site, and appropriate facilities, as the Dispute Adjudication Board may require for the purposes of rendering its decision. No later than the fifty-sixth day after the day on which it received such reference, the Dispute Adjudication Board, acting as a panel of expert(s) and not as arbitrator(s), shall give notice of its decision to the parties. Such notice shall include reasons and shall state that it is given under this Sub-Clause.
Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence, and the Contractor and the Employer shall give effect forthwith to every decision of the Dispute Adjudication Board, unless and until the same shall be revised, as hereinafter provided, in an amicable settlement or an arbitral award.
If either party is dissatisfied with the Dispute Adjudication Board’s decision, then either party, on or before the twenty-eighth day after the day on which it received notice of such decision, may notify the other party of its dissatisfaction. If the Dispute Adjudication Board fails to give notice of its decision on or before the fifty-sixth day after the day on which it received the reference, then either party, on or before the twenty-eighth day after the day on which the said period of fifty-six days has expired, may notify the other party of its dissatisfaction. In either event, such notice of dissatisfaction shall state that it is given under this Sub-Clause, such notice shall set out the
matters in dispute and the reason(s) for dissatisfaction and, subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect of such dispute may be commenced unless such notice is given.
If the Dispute Adjudication Board has given notice of its decision as to a matter in dispute to the Employer and the Contractor and no notice of dissatisfaction has been given by either party on or before the twenty-eighth day after the day on which the parties received the Dispute Adjudication Board’s decision, then the Dispute Adjudication Board’s decision shall become final and binding upon the Employer and the Contractor.
20.5 Where notice of dissatisfaction has been given under Sub-Clause 20.4, the parties shall attempt to settle such dispute amicably before the commencement of arbitration. Provided that unless the parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.
20.6 Any dispute in respect of which:
(a) the decision, if any, of the Dispute Adjudication Board has not become final and binding pursuant to Sub-Clause 20.4, and
(b) amicable settlement has not been reached,
shall be finally decided by international arbitration. The arbitration rules under which the arbitration is conducted, the institution to nominate the arbitrator(s) or to administer the arbitration rules (unless named therein), the number of arbitrators, and the language and place of such arbitration shall be as set out in the Appendix to Tender. The arbitrator(s) shall have full power to open up, review and revise any decision of the Dispute Adjudication Board.
Neither party shall be limited, in the proceedings before such arbitrator(s), to the evidence or arguments previously put before the Dispute Adjudication Board to obtain its decision.
Arbitration may be commenced prior to or after completion of the Works. The obligations of the parties and the Dispute Adjudication Board shall not be altered by reason of the arbitration being conducted during the progress of the Works.
20.7 Where neither party has given notice of dissatisfaction within the period stated in Sub-Clause 20.4 and the Dispute Adjudication Board’s related decision, if any, has become final and binding, either party may, if the other party fails to comply with such decision, and without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not apply to any such reference.
20.8 When the appointment of the Dispute Adjudication Board and of any replacement has expired, any such dispute referred to in Sub-Clause 20.4 shall be finally settled by arbitration pursuant to Sub-Clause 20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not apply to any such reference. (Emphasis ours.)
Despite the presence of the afore-quoted arbitration clause in the EPCC, it
is respondent’s position, upheld by the Court of Appeals, that the CIAC still cannot
assume jurisdiction over CIAC Case No. 17-2005 (petitioner’s Request for
Arbitration) because petitioner has not yet referred its dispute with respondent to
the DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the dispute to DAB
is a condition precedent and an indispensable requirement for the CIAC to acquire
jurisdiction over CIAC Case No. 17-2005.[21]
It is true that Clause 20.4 of the EPCC states that a dispute between
petitioner and respondent as regards the EPCC shall be initially referred to the DAB
for decision, and only when the parties are dissatisfied with the decision of the DAB
should arbitration commence. This does not mean, however, that the CIAC is
barred from assuming jurisdiction over the dispute if such clause was not complied
with.
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a
construction contract shall be deemed as 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 x x x.” Elementary
is the rule that when laws or rules are clear, it is incumbent on the court to apply
them. When the law (or rule) is unambiguous and unequivocal, application, not
interpretation thereof, is imperative.[22]
Hence, the bare fact that the parties herein incorporated an arbitration
clause in the EPCC is sufficient to vest the CIAC with jurisdiction over any
construction controversy or claim between the parties.[23] The arbitration clause in
the construction contract ipso facto vested the CIAC with jurisdiction.[24] This rule
applies, regardless of whether the parties specifically choose another forum or
make reference to another arbitral body.[25] Since the jurisdiction of CIAC is
conferred by law, it cannot be subjected to any condition; nor can it be waived or
diminished by the stipulation, act or omission of the parties, as long as the parties
agreed to submit their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract.[26] The parties will not be precluded
from electing to submit their dispute to CIAC, because this right has been vested in
each party by law.[27]
In China Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders,[28] we elucidated thus:
What the law merely requires for a particular construction contract to fall within the jurisdiction of CIAC is for the parties to agree to submit the same to voluntary arbitration. Unlike in the original version of Section 1, as applied in the Tesco case, the law does not mention that the parties
should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over such disputes. 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 specially 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.
x x x x
Now that Section 1, Article III [CIAC Rules of Procedure Governing Construction Arbitration], as amended, is submitted to test in the present petition, we rule to uphold its validity with full certainty. However, this should not be understood to mean that the parties may no longer stipulate to submit their disputes to a different forum or arbitral body. Parties may continue to stipulate as regards their preferred forum in case of voluntary arbitration, but in so doing, they may not divest the CIAC of jurisdiction as provided by law. Under the elementary principle on the law on contracts that laws obtaining in a jurisdiction form part of all agreements, when the law provides that the Board acquires jurisdiction when the parties to the contract agree to submit the same to voluntary arbitration, the law in effect, automatically gives the parties an alternative forum before whom they may submit their disputes. That alternative forum is the CIAC. This, to the mind of the Court, is the real spirit of E.O. No. 1008, as implemented by Section 1, Article III of the CIAC Rules. (Emphases ours.)
Likewise, in National Irrigation Administration v. Court of Appeals,[29] we
pronounced that:
Under the present Rules of Procedure [CIAC Rules of Procedure Governing Construction Arbitration], 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.
We note that this is not a case wherein the arbitration clause in the
construction contract named another forum, not the CIAC, which shall have
jurisdiction over the dispute between the parties; rather, the said clause requires
prior referral of the dispute to the DAB. Nonetheless, we still hold that this
condition precedent, or more appropriately, non-compliance therewith, should not
deprive CIAC of its jurisdiction over the dispute between the parties.
It bears to emphasize that the mere existence of an arbitration clause in
the construction contract is considered by law as an agreement by the parties to
submit existing or future controversies between them to CIAC jurisdiction, without
any qualification or condition precedent. To affirm a condition precedent in the
construction contract, which would effectively suspend the jurisdiction of the CIAC
until compliance therewith, would be in conflict with the recognized intention of
the law and rules to automatically vestCIAC with jurisdiction over a dispute should
the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the
construction industry to national development goals. Realizing that delays in the
resolution of construction industry disputes would also hold up the development of
the country, Executive Order No. 1008 expressly mandates the CIAC
to expeditiously settle construction industry disputes and, for this purpose, vests in
the CIAC original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by the parties involved in construction in the
Philippines.[30]
The dispute between petitioner and respondent has been lingering for
almost five years now. Despite numerous meetings and negotiations between the
parties, which took place prior to petitioner’s filing with the CIAC of its Request for
Arbitration, no amicable settlement was reached. A ruling requiring the parties to
still appoint a DAB, to which they should first refer their dispute before the same
could be submitted to the CIAC, would merely be circuitous and dilatory at this
point. It would entail unnecessary delays and expenses on both parties, which
Executive Order No. 1008 precisely seeks to prevent. It would, indeed, defeat the
purpose for which the CIAC was created.
WHEREFORE, the Petition is hereby GRANTED. The Decision, dated 23
May 2007, and Resolution, dated 16 November 2007, of the Court of Appeals in CA-
G.R. SP No. 92504 are hereby REVERSED and SET ASIDE. The instant case is
hereby REMANDED for further proceedings to the CIAC which is DIRECTED to
resolve the same with dispatch.
SO ORDERED.
THIRD DIVISION
EMPIRE EAST LAND HOLDINGS, INC.,
Petitioner,
- versus -
G.R. No. 168074
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC.,
Respondent.
VELASCO, JR.,* and
NACHURA, JJ.
Promulgated:
September 26, 2008
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, of the Court of Appeals (CA) Decision[1] dated November 3, 2004 and its
Resolution[2] dated May 10, 2005, in CA-G.R. SP No. 58980. The assailed decision
modified the Decision[3] of the Construction Industry Arbitration Commission (CIAC)
dated May 16, 2000 in CIAC No. 39-99.
The facts of the case, as found by the CIAC and affirmed by the CA, follow:
On February 12, 1997, petitioner Empire East Land Holdings, Inc. and
respondent Capitol Industrial Corporation Groups, Inc. entered into a Construction
Agreement[4]whereby the latter bound itself to undertake the complete supply and
installation of “the building shell wet construction” of the former’s building known
as Gilmore Heights Phase I, located at Gilmore cor. Castilla St., San Juan, Metro
Manila.[5] The pertinent portion of the aforesaid agreement is quoted hereunder for
easy reference:
ARTICLE II - SCOPE OF WORK
2.1. The CONTRACTOR shall complete the civil/structural and masonry works of the building based on the works (sic) items covered by the CONTRACTOR’s Proposal of Complete Supply and Installation of Building Shell Wet Construction Works as indicated in the plans and specifications at the Contract Price and within the Contract time herein stipulated and in accordance with the plans and specifications. The CONTRACTOR shall furnish and supply all necessary labor, equipment and tools, supervision and other facilities needed and shall perform everything necessary for the complete and successful masonry works of the building described hereof, provided that it pertains to or is part of the above mentioned work or items covered by the Contract documents.
2.2. The scope of works as stated hereunder but not limited to the following:
a) CONCRETE WORKS – foundation and footings, tie beams, walls, columns, beams, girders, slabs, stairs, stair slabs, cement floor topping, ramps, rubbed concrete.
b) MASONRY WORKS – interior and exterior walls including stiffeners, CHB laying, interior and exterior plastering, non-skid tile installation and scratch coating for tile installation.
c) FORMWORKS
d) OTHER CONCRETE WORKS – trenches, platform for transformers, ger sets and aircons
e) METAL WORKS – trench grating, I-beam separator, manhole cover, ladder rungs of tanks, stair railings and stair nosing
f) MISCELLANEOUS WORK
- installation of Doors and Jambs (metal and wood)
- Lintel Beams/Stiffener Columns
- Installation of Hardwares and accessories
- Window and Door Openings
g) MISCELLANEOUS ITEMS – column guard, wheel guard, waterstop, vapor barrier, incidental embeds, floor hardener, dustproofer, sealant, soil treatment, elevator block-outs for call button, block-outs for electro-mechanical works and concrete landing sills.
h) ROOFING WORKS –Steel Trusses/Purlins, Rib Type pre-painted roofing sheets, Insulation
i) Garbage Chutes
2.3. The work of the CONTRACTOR shall include but not be limited to, preparing the bill of materials, canvassing of prices, requisition of materials for purchase by OWNER, following up of orders, checking the quality and quantity of the materials within the premises of the construction site and returning defective materials.[6]
Respondent further agreed that the construction work would be completed within
330 calendar days from “Day 1,” upon the Construction Manager’s confirmation.[7] Petitioner initially considered February 20, 1997 as “Day 1” of the
project. However, when respondent entered the project site, it could not start
work due to the on-going bulk excavation by another contractor. Respondent thus
asked petitioner to move “Day 1” to a later date, when the bulk excavation
contractor would have completely turned over the site.[8]
After a series of correspondence between petitioner and
respondent, February 25, 1997 was proposed as “Day 1.” Accordingly, respondent’s
completion date of the project was fixed on January 21, 1998.[9]
Prior to and during the construction period, changes in circumstances
arose, prompting the parties to make adjustments in the initial terms of their
contract. The following pertinent changes were mutually agreed upon by the
parties:
First, as the bulk excavation contractor refused to return to the project site, petitioner directed respondent to continue the excavation work;[10]
Second, in addition to respondent’s scope of work, it was made to perform side trimmings.
Third, petitioner directed respondent to reduce the monthly target accomplishment to P1 million worth of work and up to one (1) floor only.[11]
Fourth, the following were deleted from respondent’s scope of work: a) Masonry works and all related items from 6th floor to roof deck; b) All exterior masonry works from 4th floor to roof deck; and c) Garbage chute.[12]
Fifth, as a consequence of the deletion of the above works, the contract price was reduced to P62,828,826.53.[13]
Sixth, the parties agreed: that the items of work or any part thereof not completed by the respondent as of February 28, 1999 should be deleted from its contract, except demobilization; the punch list items under respondent’s scope of responsibility not yet made good/corrected as of the same period shall be done by others at a fixed cost to be agreed upon by all concerned; and respondent should be compensated for the cost of utilities it installed but were still needed by other contractors to complete their work.[14]
Lastly, they agreed that a joint quantification should be done to establish the bottom line figures as to what were to be deleted from the respondent’s contract and the cost of completing the punch list items which were deductible from respondent’s receivables.[15]
In view of the limitation on the target accomplishment to P1 million worth
of work per month, respondent asked that the topping-off be moved to February
1999. Respondent likewise requested a price adjustment with respect to overhead
and equipment expenses and legislated additional labor cost. These requests were
not, however, acted upon by petitioner.[16]
After the completion of the side trimmings and excavation of the building’s
foundation, respondent demanded the payment of P2,248,507.70
and P1,805,225.90, respectively. Instead of paying the amount, petitioner agreed
with the respondent on a negotiated amount of P900,000.00 for side trimmings.[17] However, respondent’s claim for foundation excavation was not acted upon.[18] During the construction period, petitioner granted, on separate occasions,
respondent’s requests for payroll and material accommodations.[19]
On March 13, 1999, respondent submitted its final billing, amounting
to P4,442,430.90 representing its work accomplishment and retention, less all
deductions. On March 23, 1999, a punch list was drawn as a result of the joint
inspection undertaken by the parties. Petitioner, on the other hand, refused to
issue a certificate of completion. It, instead, sent a letter to respondent informing
the latter that it was already in default.[20]
On September 14, 1999, respondent was constrained to file a Request for
Adjudication[21] with the CIAC. Respondent specifically prayed, thus:
WHEREFORE, premises considered, the Claimant-Contractor prays that this Honorable Commission render judgment against Respondent-Owner EMPIRE EAST LAND HOLDINGS, INC., ordering said Respondents to pay the Claimant
the amount of PhP22,770,976.66 plus costs of suit, broken down as follows
a. PhP4,442,430.90 as unpaid amount from the contract price;
b. PhP3,153,733.60 as the amount remaining unpaid for additional works;
c. PhP13,976,427.00 as overhead expenses; and
d. PhP1,198,385.16 as additional costs due to wage escalation;
Other reliefs equitable under the premises are also prayed for.[22]
On May 16, 2000, the CIAC rendered a decision[23] in favor of the respondent,
disposing, as follows:
WHEREFORE, judgment is hereby rendered and AWARD of monetary claims is hereby made as follows:
FOR THE CLAIMANT:
1. Retention Money P4,502,886.64
Unpaid Billings (P1,607,627.65)
Retention Money (6,110,514.29)
2. Additional Work: Excavation for Foundations 1,805,225.90
3. Overhead Expenses 1,397,642.70
4. Labor Costs Escalation 308,226.57
Total due the Claimant P8,013,981.81
FOR THE RESPONDENT:
1. Punch List Items P248,350.00
Total due the Respondent P248,350.00
All other claims and counterclaims are dismissed.
OFFSETTING the lesser amount due from Claimant with the bigger amount from the Respondent, EMPIRE EAST LAND HOLDINGS, INC. is hereby ordered to pay CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC. the net amount of SEVEN MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED THIRTY-ONE AND 81/100 (P7,765,631.81) with 6% legal interest from the time the request for adjudication was filed with the CIAC on September 14, 1999 up to the time this Decision becomes final and executory.
Thereafter, interest at the rate of 12% per annum shall accrue on the final judgment until it is fully paid.
The arbitration fees and expenses shall be paid on a pro rata basis as initially shared by the parties.
SO ORDERED.[24]
As to petitioner’s counterclaim, the CIAC denied those which referred to
masonry and other works that it took over, considering that they were formally
deleted from respondent’s scope of work, which in turn caused the reduction of
their total contract price.[25] Petitioner’s claim for liquidated damages was likewise
found unmeritorious because it allowed respondent to complete the works despite
knowledge that the latter was already in default.[26] On the other hand, as the
punch list was drawn after the joint inspection by the parties, CIAC found for the
petitioner and thus awarded a total amount of P248,350.00[27]
Aggrieved, petitioner elevated the matter to the CA via a petition for review
under Rule 43 of the Rules of Court. On November 3, 2004, the CA affirmed the
CIAC’s findings of fact and conclusions of law with a slight modification, and ruled:
WHEREFORE, the Decision, dated 16 May 2000, of the Construction Industry Arbitration Commission Arbitral Tribunal is hereby AFFIRMED WITH MODIFICATION in that CIAC’s award on Labor Cost Escalation is hereby DELETED for lack of factual basis and, consequently, for lack of cause of action and CIAC’s award on Additional Work for Foundation Excavation is hereby equitably REDUCED to P980,376.34. All other awards, as well as the rates of interest, are hereby AFFIRMED.
Accordingly, the total amount due to CICG is P6,880,905.68. While EELH is entitled P248,350.00. Offsetting the award of EELH from the amount due to CICG, EELH is hereby ORDERED to pay CICG the total amount of SIX MILLION SIX HUNDRED THIRTY-TWO THOUSAND FIVE HUNDRED FIFTY-FIVE PESOS (P6,632,555.00). No costs at this instance.
SO ORDERED.[28]
In deleting respondent’s claim for labor cost escalation and reducing its claim
for the cost of the excavation of foundation, the appellate court said that
respondent failed to show that it in fact paid said wage increase pursuant to the
New Wage Order,[29] while the reduction of the cost of foundation excavation was
the result of the reduction of its cost per cubic meter.[30]
Hence, the present petition, raising the following issues:
I.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT ORDERED THE RELEASE OF RETENTION MONEY IN FAVOR OF CICG.
II.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AWARDED THE CLAIM OF CICG FOR THE EXCAVATION OF FOUNDATION.
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AFFIRMED CIAC’S AWARD FOR THE PAYMENT OF ALLEGED OVERHEAD EXPENSES
IV.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT DENIED EMPIRE EAST’S CLAIM FOR MASONRY AND OTHER WORKS, LIQUIDATED DAMAGES, AND COST OF MONEY FOR PAYROLL ASSISTANCE AND MATERIALS ACCOMMODATION.[31]
The petition is partly meritorious.
On the Release of Retention Money
Petitioner contends that both the CIAC and the CA erred in ordering the
release of the retention money despite respondent’s failure to comply with the
conditions for its release as set forth in the contract.
We find for the petitioner.
In the construction industry, the ten percent (10%) retention money is a
portion of the contract price automatically deducted from the contractor’s billings,
as security for the execution of corrective work – if any becomes necessary.[32]
The construction contract gave petitioner the right to retain 10% of each
progress payment until completion and acceptance of all works.[33] Undoubtedly, as
will be discussed hereunder, respondent complied fully with its obligations, save
only those items of work which were mutually deleted by the parties from its scope
of work. However, apart from the completion and acceptance of all works, the
following requisites were set as pre-conditions for the release of the retention
money:
a) Contractor’s Sworn Statement showing that all taxes due from the CONTRACTOR, and all obligations on materials used and labor employed in connection with this contract have been duly paid
b) Guarantee Bond to answer for faulty and/or defective materials or workmanship as stated in Article IX Section 9.3 of this Contract;
c) Original and signed and sealed Three (3) sets of prints of “As Built” drawings.[34]
The CA affirmed the CIAC’s decision to order the release of the retention
money despite respondent’s failure to establish the fulfillment of the
aforementioned conditions, as both tribunals merely focused on the non-issuance
of the certificate of completion, which, according to respondent, was a pre-requisite
to the issuance of a guarantee bond. The CA concluded that the conditions were
deemed fulfilled because the creditor voluntarily prevented their fulfillment.
To this, we cannot agree.
The record of the case is bereft of any evidence to show that conditions (a)
and (c) were complied with. Petitioner categorically stated in all its pleadings that
they were not. Surprisingly, respondent did not squarely argue this point. It relied
solely on petitioner’s failure to issue the certificate of completion, which prevented
the acquisition of a guarantee bond and thus resulted in the non-release of the
retention money. While it is true that respondent was entitled to a certificate of
completion as the issuance thereof was just a ministerial duty of petitioner
considering that the project had already been completed, the certificate was not
the only condition for said release. It was simply a pre-requisite for the issuance of
the guarantee bond. And there was no showing that the absence of the certificate
of completion was the only reason why no guarantee bond was issued.
If we were to apply the civil law rule of constructive fulfillment – the
condition shall be deemed fulfilled if the creditor voluntarily prevented its
fulfillment – then the submission of a guarantee bond may be deemed to have been
complied with. But we cannot apply the rule to conditions (a) and (c), which remain
as unfulfilled conditions-precedent. Since no proof was adduced that these two
conditions were complied with, petitioner’s obligation to release the retention
money had not, as yet, arisen. We would like to emphasize, though, that this is
without prejudice to respondent’s compliance with the unfulfilled conditions, after
which, release of the retention money must, perforce, follow.
On Respondent’s Right to Additional Overhead Cost
Respondent claimed P13,976,427.00 as additional overhead expenses
brought about by the delay in the completion of the project due to petitioner’s
own acts. The CIAC, however, awarded only a nominal amount which is 10% of
respondent’s claim because of its failure to present supporting documents to prove
such additional expenses. The arbitral tribunal observed that respondent only
presented its own computation without any other document to substantiate its
claim. The CA, in turn, affirmed the CIAC findings, ratiocinating that petitioner’s
failure to present countervailing evidence was an implied admission on its part that
the computation made by respondent was correct.
We beg to differ.
It is undisputed that the only piece of evidence presented by respondent
in support of its claim for additional overhead cost was its own computation of the
said expenses. It failed to adduce actual receipts, invoices, contracts and similar
documents. To be sure, respondent’s claim for overhead cost may be classified as
a claim for actual damages. Actual damages are those damages which the injured
party is entitled to recover for the wrong done and injuries received when none
were intended. They indicate such losses as are actually sustained and are
susceptible of measurement. As such, they must be proven with a reasonable
degree of certainty.[35]
This is not the first time that a contractor’s claim for additional overhead costs
was denied because of insufficiency or absence of evidence to support the same.
In Filipinas (Pre Fab Bldg.) Systems, Inc. v. MRT Development Corporation,[36] we
denied FSI’s claim because only “summaries,” and not actual receipts, were
presented during the hearing. Similarly, in the instant case, respondent, by
presenting only its own computation to substantiate its claim, is not entitled even
to the reduced amount of P1,397,642.70 which is 10% of its original claim. Instead,
we altogether deny its prayer for additional overhead costs.
On Respondent’s Right to the Cost of Foundation Excavation
As to respondent’s entitlement to the cost of excavation of foundation, we
find no cogent reason to disturb the CIAC’s conclusion, as modified by the CA.
Side trimmings and the excavation of foundation were not included in
respondent’s original scope of work. They were, however, undertaken by the
respondent upon the directive of petitioner, due to the previous contractor’s
refusal to resume its excavation work. These works, therefore, constitute an
additional claim of respondent over and above the original contract price. A
confirmation of these works had, in fact, been given by petitioner through Change
Order Nos. 3[37] and 4[38] where it agreed to pay P250,000.00 and P650,000.00,
respectively. This P900,000.00 negotiated amount referred specifically to side
trimmings and hauling out of adobe soil. It is unfortunate, though, that the parties
failed to arrive at a settlement as to respondent’s claim for the cost of excavation of
foundation.
The additional works having been undertaken by respondent, and the fact of
non-payment thereof having been established, we find no reason to disturb the
CIAC’s conclusion that respondent is entitled to its claim for the cost of excavation
of foundation. As to the propriety of the award, both the CIAC and the CA were in a
better position to compute the same considering that said issue is factual in
nature. Significantly, jurisprudence teaches that mathematical computations, as
well as the propriety of arbitral awards, are factual determinations[39] which are
better examined by the lower courts as trier of facts. Thus, we affirm the award
of P980,376.34 for foundation excavation.
On Petitioner’s Counterclaim for the Cost of Unfinished Works
During the construction period, the parties mutually agreed that some
items of work be deleted from respondent’s scope of work. Specifically, as claimed
by respondent, the following were deleted: a) masonry works and all related items
from the 6th floor to the roof deck; b) all exterior masonry works from the 4th floor
to the roof deck; and c) the garbage chute. This deletion was, however, denied by
petitioner. It, instead, claimed that the only modification it approved was the
reduction by three floors of the total number of floors to be constructed by
respondent.[40]
After a thorough review of the documents presented by both parties, both
the CIAC and the CA concluded that the unfinished works, i.e., masonry works,
were actually recognized and accepted by petitioner. It thus agreed to take over,
through its new contractor, the balance of work. The only consequence of such
acceptance was the deduction of the value of the unfinished works from the total
contract price.[41] This was the reason why the contract price was reduced from P84
million to P62,828,826.53. The deletion was, likewise, confirmed by respondent in
a letter dated August 21, 1998.[42]
Applying Article 1235[43] of the Civil Code, petitioner’s act exempted respondent from liability for the unfinished works. A person entering into a contract has a right to insist on its performance in all particulars, according to its meaning and spirit. But if he chooses to waive any of the terms introduced for his own benefit, he may do so.[44]When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.
In the instant case, petitioner was aware of the unfinished work of
respondent; yet, it did not raise any objection or protest. It, instead, voluntarily hired another contractor to perform the unfinished work, and opted to reduce the contract price. By removing from the contract price the value of the works deleted, it is as if said items were not included in the original terms, in the first place. Thus, as correctly concluded by the CIAC, and as affirmed by the CA, petitioner is not entitled to reimbursement from respondent for the expenses it incurred to complete the unfinished works.
On Petitioner’s Counterclaim for Liquidated Damage
In addition to its claim for the cost of masonry and other works, petitioner
demanded the payment of liquidated damages on the ground that respondent was
in default in the performance of its obligation.
Liquidated damages are those that the parties agree to be paid in case of a
breach. As worded, the amount agreed upon answers for damages suffered by the
owner due to delays in the completion of the project. Under Philip
pine laws, they are in the nature of penalties. They are attached to the
obligation in order to ensure performance.[45] As a pre-condition to such award,
however, there must be proof of the fact of delay in the performance of the
obligation.
Thus, the resolution of the issue of petitioner’s entitlement to liquidated
damages hinges on whether respondent was in default in the performance of its
obligation
The completion date of the construction project was initially fixed
on January 21, 1998. However, due to causes beyond the control of respondent,
the latter failed to perform its obligation as scheduled. The CIAC[46] and the CA
enumerated the causes of the delay, viz., the delayed issuance of building permit;[47] additional work undertaken by respondent, i.e., bulk excavation and side
trimmings;[48] delayed payment of progress billings;[49] delayed delivery of owner-
supplied construction materials;[50] and limitation of monthly accomplishment.[51] All these causes of respondent’s failure to complete the project on time were
attributable to petitioner’s fault.
Still, petitioner contends that even at the start and for the entire duration
of the construction, respondent was guilty of delay due to insufficient manpower
and lack of technical know-how.[52] Yet, petitioner allowed respondent to proceed
with the project; thus, petitioner cannot now be permitted to raise anew
respondent’s alleged delay. More importantly, respondent is not guilty of breach of
the obligation; hence, it cannot be held liable for liquidated damages.
On Petitioner’s Counterclaim for the Cost of Payroll Assistance and
Materials Accommodation
Finally, as to petitioner’s counterclaim for payroll assistance and materials
accommodation, we quote with approval the CA’s observation in this wise:
[W]ith respect to EELH’s [petitioner’s] claim for payroll and material assistance, a perusal of CIAC’s questioned Decision reveals that these were already taken into consideration and, were in fact, deducted from CICG’s [respondent’s] retention money itemized as unpaid billings amounting to P1,607,627.65.
On page 9 of CIAC’s Decision, the arbitral tribunal found that the total amount of payroll accommodation advanced by EELH [petitioner] for (sic) CICG [respondent] isP10,044,966.16, while the material assistance advanced by EELH [petitioner] is P2,837,645.26. These amounts were added together with other items and were deducted from the reduced contract price. Hence, as can be gleaned from page 13 of the CIAC’s Decision, EELH’s [petitioner’s] overpayment amounting to P1,607,627.65 already included EELH’s [petitioner’s] payroll accommodation and material accommodations.[53]
As can be gleaned from the appealed CA decision, the appellate court had
reviewed the case based on the petition and annexes, and weighed them against
the Comment of respondent and the decision of the arbitral tribunal to arrive at the
conclusion that the latter decision was based on substantial evidence. In
administrative or quasi-judicial bodies like the CIAC, a fact may be established if
supported by substantial evidence, or that amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion.[54]
It is well established that under Rule 45 of the Rules of Court, only
questions of law, not of fact, may be raised before the Supreme Court. It must be
stressed that this Court is not a trier of facts and it is not its function to re-examine
and weigh anew the respective evidence of the parties.[55] To be sure, findings of
fact of lower courts are deemed conclusive and binding upon the Supreme Court,
save only in clear exceptional cases.[56]
In view of the foregoing, after deducting from the final contract price the
retention money (that is yet to be released), the payments as well as the payroll
and material accommodations made by the petitioner, there was an overpayment
to respondent in the total amount of P1,607,627.65. From said amount shall be
deducted P980,376.34 due the respondent for the cost of foundation excavation.
On the other hand, as held by the CIAC and affirmed by the CA, petitioner is
entitled to its claim for punch list items amounting to P248,350.00.
Considering that the conditions set forth in the contract have not yet been
complied with, the release of the retention money shall be held in abeyance. Thus,
respondent is liable to petitioner for the payment of P875,601.31, which is the
difference between the overpayment and the cost of foundation excavation, plus
the cost of punch list items.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals dated November 3, 2004 and its
Resolution datedMay 10, 2005 in CA-G.R. SP No. 58980, are MODIFIED by deleting
the award of additional overhead cost amounting to P1,397,642.70.
The petitioner is directed to issue to respondent the required certificate of
completion in order to enable the latter to obtain the corresponding guarantee
bond. In view of the non-fulfillment of the conditions-precedent, the release of the
retention money is hereby held in abeyance. Thus, respondent is ordered to pay
the petitioner P875,601.31 subject to the return of the amount when respondent
shall have complied with the conditions aforesaid.
SO ORDERED.
ABS-CBN BROADCASTING G.R. No. 169332CORPORATION,
Petitioner, Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA, AZCUNA and
LEONARDO-DE CASTRO, JJ. WORLD INTERACTIVENETWORK SYSTEMS (WINS)JAPAN CO., LTD., Respondent. Promulgated: February 11, 2008 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N CORONA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks
to set aside the February 16, 2005 decision[1] and August 16, 2005 resolution[2] of
the Court of Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation
entered into a licensing agreement with respondent World Interactive Network
Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws of
Japan. Under the agreement, respondent was granted the exclusive license to
distribute and sublicense the distribution of the television service known as “The
Filipino Channel” (TFC) in Japan. By virtue thereof, petitioner undertook to transmit
the TFC programming signals to respondent which the latter received through its
decoders and distributed to its subscribers.
A dispute arose between the parties when petitioner accused respondent of
inserting nine episodes of WINS WEEKLY, a weekly 35-minute community news
program for Filipinos in Japan, into the TFC programming from March to May 2002.
[3] Petitioner claimed that these were “unauthorized insertions” constituting a
material breach of their agreement. Consequently, on May 9, 2002,[4] petitioner
notified respondent of its intention to terminate the agreement effective June 10,
2002.
Thereafter, respondent filed an arbitration suit pursuant to the arbitration
clause of its agreement with petitioner. It contended that the airing of WINS
WEEKLY was made with petitioner's prior approval. It also alleged that petitioner
only threatened to terminate their agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees. Respondent also prayed for
damages for petitioner's alleged grant of an exclusive distribution license to another
entity, NHK (Japan Broadcasting Corporation).[5]
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator.
They stipulated on the following issues in their terms of reference (TOR)[6]:
1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent [herein petitioner]?
2. Did such broadcast constitute a material breach of the
agreement that is a ground for termination of the agreement in accordance with Section 13 (a) thereof?
3. If so, was the breach seasonably cured under the same
contractual provision of Section 13 (a)?
4. Which party is entitled to the payment of damages they claim and to the other reliefs prayed for?
xxx xxx xxx
The arbitrator found in favor of respondent.[7] He held that petitioner gave its
approval to respondent for the airing of WINS WEEKLY as shown by a series of
written exchanges between the parties. He also ruled that, had there really been a
material breach of the agreement, petitioner should have terminated the same
instead of sending a mere notice to terminate said agreement. The arbitrator found
that petitioner threatened to terminate the agreement due to its desire to compel
respondent to re-negotiate the terms thereof for higher fees. He further stated that
even if respondent committed a breach of the agreement, the same was seasonably
cured. He then allowed respondent to recover temperate damages, attorney's fees
and one-half of the amount it paid as arbitrator's fee.
Petitioner filed in the CA a petition for review under Rule 43 of the Rules of
Court or, in the alternative, a petition for certiorari under Rule 65 of the same Rules,
with application for temporary restraining order and writ of preliminary injunction.
It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law
and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the arbitrator.
Respondent, on the other hand, filed a petition for confirmation of arbitral
award before the Regional Trial Court (RTC) of Quezon City, Branch 93, docketed as
Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA seeking to
enjoin the RTC of Quezon City from further proceeding with the hearing of
respondent's petition for confirmation of arbitral award. After the petition was
admitted by the appellate court, the RTC of Quezon City issued an order holding in
abeyance any further action on respondent's petition as the assailed decision of the
arbitrator had already become the subject of an appeal in the CA. Respondent filed
a motion for reconsideration but no resolution has been issued by the lower court
to date.[8]
On February 16, 2005, the CA rendered the assailed decision dismissing ABS-
CBN’s petition for lack of jurisdiction. It stated that as the TOR itself provided that
the arbitrator's decision shall be final and unappealable and that no motion for
reconsideration shall be filed, then the petition for review must fail. It ruled that it is
the RTC which has jurisdiction over questions relating to arbitration. It held that the
only instance it can exercise jurisdiction over an arbitral award is an appeal from the
trial court's decision confirming, vacating or modifying the arbitral award. It further
stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in
arbitration cases only if the courts refuse or neglect to inquire into the facts of an
arbitrator's award. The dispositive portion of the CA decision read:
WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The application for a writ of injunction and temporary restraining order is likewise DENIED. The Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for the Petition for Confirmation of Arbitral Award. SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this
petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first
filed a petition to vacate the award in the RTC and only in case of denial could it
elevate the matter to the CA via a petition for review under Rule 43 and (b) the
assailed decision implied that an aggrieved party to an arbitral award does not have
the option of directly filing a petition for review under Rule 43 or a petition for
certiorari under Rule 65 with the CA even if the issues raised pertain to errors of
fact and law or grave abuse of discretion, as the case may be, and not dependent
upon such grounds as enumerated under Section 24 (petition to vacate an arbitral
award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part
of the CA.
The issue before us is whether or not an aggrieved party in a voluntary
arbitration dispute may avail of, directly in the CA, a petition for review under Rule
43 or a petition for certiorari under Rule 65 of the Rules of Court, instead of filing a
petition to vacate the award in the RTC when the grounds invoked to overturn the
arbitrator’s decision are other than those for a petition to vacate an arbitral award
enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC,
which has jurisdiction over questions relating to arbitration,[9] such as a petition to
vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to vacate
an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.
Based on the foregoing provisions, the law itself clearly provides that the
RTC must issue an order vacating an arbitral award only “in any one of the . . .
cases” enumerated therein. Under the legal maxim in statutory
construction expressio unius est exclusio alterius, the explicit mention of one thing
in a statute means the elimination of others not specifically mentioned. As RA 876
did not expressly provide for errors of fact and/or law and grave abuse of discretion
(proper grounds for a petition for review under Rule 43 and a petition for certiorari
under Rule 65, respectively) as grounds for maintaining a petition to vacate an
arbitral award in the RTC, it necessarily follows that a party may not avail of the
latter remedy on the grounds of errors of fact and/or law or grave abuse of
discretion to overturn an arbitral award.
Adamson v. Court of Appeals[10] gave ample warning that a petition to vacate
filed in the RTC which is not based on the grounds enumerated in Section 24 of RA
876 should be dismissed. In that case, the trial court vacated the arbitral award
seemingly based on grounds included in Section 24 of RA 876 but a closer reading
thereof revealed otherwise. On appeal, the CA reversed the decision of the trial
court and affirmed the arbitral award. In affirming the CA, we held:
The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that xxx private respondents (petitioners herein) have failed to substantiate with any evidence their claim of partiality. Significantly, even as respondent judge ruled against the arbitrator's award, he could not find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was not made on the basis of any of the grounds provided by law.
xxx xxx xxx It is clear, therefore, that the award was vacated not because of evident partiality of the arbitrators but because the latter interpreted the contract in a way which was not favorable to herein petitioners and because it considered that herein private respondents, by submitting the controversy to arbitration, was seeking to renege on its obligations under the contract.
xxx xxx xxx It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed the arbitration award involved herein, but because the respondent appellate court
found that the trial court had no legal basis for vacating the award. (Emphasis supplied).
In cases not falling under any of the aforementioned grounds to vacate an
award, the Court has already made several pronouncements that a petition for
review under Rule 43 or a petition for certiorari under Rule 65 may be availed of in
the CA. Which one would depend on the grounds relied upon by petitioner.
In Luzon Development Bank v. Association of Luzon Development Bank
Employees,[11] the Court held that a voluntary arbitrator is properly classified as a
“quasi-judicial instrumentality” and is, thus, within the ambit of Section 9 (3) of the
Judiciary Reorganization Act, as amended. Under this section, the Court of Appeals
shall exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees’ Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall within the
exclusive appellate jurisdiction of the CA. This decision was taken into consideration
in approving Section 1 of Rule 43 of the Rules of Court.[12] Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act Number 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,[13] Manila Midtown
Hotel v. Borromeo,[14] and Nippon Paint Employees Union-Olalia v. Court of Appeals.
[15] These cases held that the proper remedy from the adverse decision of a
voluntary arbitrator, if errors of fact and/or law are raised, is a petition for review
under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail
of a petition for review under Rule 43 under the circumstances of this case is
correct.
As to petitioner's arguments that a petition for certiorari under Rule 65 may
also be resorted to, we hold the same to be in accordance with the Constitution
and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)
As may be gleaned from the above stated provision, it is well within the
power and jurisdiction of the Court to inquire whether any instrumentality of the
Government, such as a voluntary arbitrator, has gravely abused its discretion in the
exercise of its functions and prerogatives. Any agreement stipulating that “the
decision of the arbitrator shall be final and unappealable” and “that no further
judicial recourse if either party disagrees with the whole or any part of the
arbitrator's award may be availed of” cannot be held to preclude in proper cases
the power of judicial review which is inherent in courts.[16] We will not hesitate to
review a voluntary arbitrator's award where there is a showing of grave abuse of
authority or discretion and such is properly raised in a petition for certiorari[17] and
there is no appeal, nor any plain, speedy remedy in the course of law.[18]
Significantly, Insular Savings Bank v. Far East Bank and Trust
Company[19] definitively outlined several judicial remedies an aggrieved party to an
arbitral award may undertake: (1) a petition in the proper RTC to issue an order to vacate
the award on the grounds provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of the Rules of Court on questions of fact, of law, or mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator have acted without or in excess of his jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction.
Nevertheless, although petitioner’s position on the judicial remedies available
to it was correct, we sustain the dismissal of its petition by the CA. The remedy
petitioner availed of, entitled “alternative petition for review under Rule 43 or
petition for certiorari under Rule 65,” was wrong.
Time and again, we have ruled that the remedies of appeal and certiorari are
mutually exclusive and not alternative or successive.[20]
Proper issues that may be raised in a petition for review under Rule 43 pertain
to errors of fact, law or mixed questions of fact and law.[21] While a petition for
certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave
abuse of discretion amounting to a lack or excess of jurisdiction.[22] Moreover, it
cannot be availed of where appeal is the proper remedy or as a substitute for a
lapsed appeal.[23]
In the case at bar, the questions raised by petitioner in its alternative
petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF “WINS WEEKLY” WAS DULY AUTHORIZED BY ABS-CBN. B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT. C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE BREACH. D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS. E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF P850,000.00. F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
A careful reading of the assigned errors reveals that the real issues calling for
the CA's resolution were less the alleged grave abuse of discretion exercised by the
arbitrator and more about the arbitrator’s appreciation of the issues and evidence
presented by the parties. Therefore, the issues clearly fall under the classification of
errors of fact and law — questions which may be passed upon by the CA via a
petition for review under Rule 43. Petitioner cleverly crafted its assignment of
errors in such a way as to straddle both judicial remedies, that is, by alleging serious
errors of fact and law (in which case a petition for review under Rule 43 would be
proper) and grave abuse of discretion (because of which a petition for certiorari
under Rule 65 would be permissible).
It must be emphasized that every lawyer should be familiar with the
distinctions between the two remedies for it is not the duty of the courts to
determine under which rule the petition should fall.
[24] Petitioner's ploy was fatal to its
cause. An appeal taken either to this Court or the CA by the wrong or
inappropriate mode shall be dismissed.[25] Thus, the alternative petition filed in the
CA, being an inappropriate mode of appeal, should have been dismissed outright by
the CA.
WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision
and August 16, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 81940
directing the Regional Trial Court of Quezon City, Branch 93 to proceed with the
trial of the petition for confirmation of arbitral award is AFFIRMED.
Costs against petitioner.
SO ORDERED.
DIESEL CONSTRUCTION CO., G.R. No. 154885INC., Petitioner, - versus - UPSI PROPERTY HOLDINGS, INC., Respondent. x------------------------------------------------xUPSI PROPERTY HOLDINGS, INC., G.R. No. 154937 Petitioner, Present: QUISUMBING, J., Chairperson, - versus - CARPIO MORALES, TINGA, VELASCO, JR., and CHICO-NAZARIO,* JJ. DIESEL CONSTRUCTION CO., INC. Promulgated:and FGU INSURANCE CORP., Respondents. March 24, 2008x-----------------------------------------------------------------------------------------x
D E C I S I O N
VELASCO, JR., J.:
The Case
Before the Court are these petitions for review under Rule 45 separately
interposed by Diesel Construction Co., Inc. (Diesel) and UPSI Property Holdings, Inc.
(UPSI) to set aside the Decision[1] dated April 16, 2002 as partly modified in a
Resolution[2] of August 21, 2002, both rendered by the Court of Appeals (CA) in CA-
G.R. SP No. 68340, entitled UPSI Property Holdings, Inc. v. Diesel Construction Co.,
Inc., and FGU Insurance Corporation. The CA Decision modified the Decision
dated December 14, 2001 of the Arbitral Tribunal of the Construction Industry
Arbitration Commission (CIAC) in CIAC Case No. 18-2001, while the CA Resolution
granted in part the motion of Diesel for reconsideration and denied a similar motion
of UPSI.
The Facts
The facts, as found in the CA Decision under review, are as follows:
On August 26, 1995, Diesel, as Contractor, and UPSI, as Owner, entered into a
Construction Agreement[3] (Agreement) for the interior architectural construction
works for the 14th to 16th floors of the UPSI Building 3 Meditel/Condotel Project
(Project) located on Gen. Luna St., Ermita, Manila. Under the Agreement, as
amended, Diesel, for PhP 12,739,099, agreed to undertake the Project, payable by
progress billing.[4] As stipulated, Diesel posted, through FGU Insurance Corp. (FGU),
a performance bond in favor of UPSI.[5]
Inter alia, the Agreement contained provisions on contract works and Project
completion, extensions of contract period, change/extra works orders, delays, and
damages for negative slippage.
Tasked to oversee Diesel’s work progress were: Grace S. Reyes Designs, Inc.
for interior design and architecture, D.L. Varias and Associates as Construction
Manager, and Ryder Hunt Loacor, Inc. as Quantity Surveyor.[6]
Under the Agreement, the Project prosecution proper was to start on August
2, 1999, to run for a period of 90 days or until November 8, 1999. The parties later
agreed to move the commencement date to August 21, 1999, a development
necessitating the corresponding movement of the completion date to November
20, 1999.
Of particular relevance to this case is the section obliging the contractor, in
case of unjustifiable delay, to pay the owner liquidated damages in the amount
equivalent to one-fifth (1/5) of one (1) percent of the total Project cost for each
calendar day of delay.[7]
In the course of the Project implementation, change orders were effected and
extensions sought. At one time or another, Diesel requested for extension owing to
the following causes or delaying factors: (1) manual hauling of materials from the
14th to 16th floors; (2) delayed supply of marble; (3) various change orders; and (4)
delay in the installation of shower assembly.[8]
UPSI, it would appear, disapproved the desired extensions on the basis of
the foregoing causes, thus putting Diesel in a state of default for a given contract
work. And for every default situation, UPSI assessed Diesel for liquidated damages
in the form of deductions from Diesel’s progress payments, as stipulated in the
Agreement.[9]
Apparently irked by and excepting from the actions taken by UPSI, Diesel,
thru its Project manager, sent, on March 16, 2000, a letter notice to UPSI stating
that the Project has been completed as of that date. UPSI, however, disregarded
the notice, and refused to accept delivery of the contracted premises, claiming that
Diesel had abandoned the Project unfinished. Apart therefrom, UPSI withheld
Diesel’s 10% “retention money” and refused to pay the unpaid balance of the
contract price.[10]
It is upon the foregoing factual backdrop that Diesel filed a complaint
before the CIAC, praying that UPSI be compelled to pay the unpaid balance of the
contract price, plus damages and attorney’s fees. In an answer with counterclaim,
UPSI denied liability, accused Diesel of abandoning a project yet to be finished, and
prayed for repayment of expenses it allegedly incurred for completing the Project
and for a declaration that the deductions it made for liquidated damages were
proper. UPSI also sought payment of attorney’s fees.[11]
After due hearing following a protracted legal sparring, the Arbitral
Tribunal of the CIAC, on December 14, 2001, in CIAC Case No. 18-2001, rendered
judgment for Diesel, albeit for an amount lesser than its original demand. To be
precise, the CIAC ordered UPSI to pay Diesel the total amount of PhP 4,027,861.60,
broken down as follows: PhP 3,661,692.60, representing the unpaid balance of the
contract price; and PhP 366,169 as attorney’s fees. In the same decision, the CIAC
dismissed UPSI’s counterclaim[12]and assessed it for arbitration costs in the amount
of PhP 298,406.03.[13]
In time, UPSI went to the CA on a petition for review, docketed as CA-G.R.
SP No. 68340. Eventually, the appellate court rendered its assailed Decision
dated April 16, 2002, modifying that of the CIAC, thus:
WHEREFORE, premises considered, the petition is
GRANTED and the questioned Decision is MODIFIED in this wise: a. The claim of [UPSI] for liquidated damages is
GRANTED to the extent of PESOS: ONE MILLION THREE HUNDRED NINE THOUSAND AND FIVE HUNDRED (P1,309,500.00) representing forty-five (45) days of delay at P29,100 per diem;
b. We hold that [Diesel] substantially complied with the Construction Contract and is therefore entitled to one hundred percent (100%) payment of the contract price. Therefore, the claim of [Diesel] for an unpaid balance of PESOS:
TWO MILLION FOUR HUNDRED FORTY-ONE THOUSAND FOUR HUNDRED EIGHTY TWO and SIXTY FOUR centavos (P2,441,482.64), which amount already includes the retention on the additional works or Change Orders, is GRANTED, minus liquidated damages. In sum, [UPSI] is held liable to [Diesel] in the amount of PESOS: ONE MILLION ONE HUNDRED THIRTY ONE THOUSAND NINE HUNDRED EIGHTY TWO and sixty four centavos (P1,131,982.64), with legal interest until the same is fully paid;
c. The parties are liable equally for the payment of arbitration costs;
d. All claims for attorney’s fees are DISMISSED; ande. Since there is still due and owing from UPSI an
amount of money in favor of Diesel, respondent FGU is DISCHARGED as surety for Diesel.
Costs de officio.SO ORDERED.[14]
Therefrom, Diesel and UPSI each sought reconsideration. On August 21, 2002,
the CA issued its equally assailed Resolution denying reconsideration to UPSI, but
partially granting Diesel’s motion, disposing as follows: WHEREFORE, the Motion for Reconsideration of [Diesel]
is partially GRANTED. The liquidated damages are hereby reduced to P1,146,519.00 (45 days multiplied by P25,478.20 per diem). However, in accordance with the main opinion, We hold that [UPSI] is liable to [Diesel] for the total amount of P3,661,692.64, representing the unpaid balance of the contract price plus the ten-percent retention, from which the liquidated damages, must, of course, be deducted. Thus, in sum, as amended, We hold that petitioner is still liable to respondent Diesel in the amount of P2,515,173.64, with legal interest until the same is fully paid.
The main opinion, in all other respects, STANDS. SO ORDERED.[15]
Hence, these separate petitions are before us.
Per its Resolution of March 17, 2003, the Court ordered the consolidation
of the petitions.
The Issues
In its petition in G.R. No. 154885, Diesel raises the following issues:
1. Whether or not the [CA] has the discretion, indeed the
jurisdiction, to pass upon the qualifications of the individual members of the CIAC Arbitral Tribunal and declare them to be non-technocrats and not exceptionally well-versed in the construction industry warranting reversal and nullification of the tribunal’s findings.
2. Whether or not the [CA] may intervene to annul the findings of a highly specialized agency, like the CIAC, on the ground that essentially the question to be resolved goes to the very heart of the substantiality of evidence, when in so doing, [CA] merely substituted its own conjectural opinion to that of the CIAC Arbitral Tribunal’s well-supported findings and award.
3. Whether or not the [CA] erred in its findings, which
are contrary to the findings of the CIAC Arbitral Tribunal.[16]
On the other hand, in G.R. No. 154937, UPSI presents the following issues:I
Whether or not portion of the Decision dated April 16, 2002 of the Honorable [CA] denying additional expenses to complete the unfinished and abandoned work of [Diesel], is null and void for being contrary to clean and convincing evidence on record.
II
Whether or not portion of the Decision x x x of the [CA] finding delay of only forty five (45) days is null and void for being not in accord with contractual stipulations upon which the controversy arise.
III
Whether or not the resolution of the Honorable Court of Appeals denying the herein petitioner’s motion for reconsideration and partially granting the respondent’s motion for reconsideration is likewise null and void as it does not serve its purpose for being more on expounding than rectifying errors.[17]
The issues shall be discussed in seriatim.
The Court’s Ruling
We resolve to modify the assailed CA Decision.
First Issue
Diesel maintains that the CA erred in its declaration that it may review the
CIAC’s decision considering the doctrine on the binding effect of conclusions of fact
of highly specialized agencies, such as the CIAC, when supported by substantial
evidence.
The above contention is erroneous and, as couched, misleading.
As is noted, the CA, in its assailed resolution, dismissed as untenable Diesel’s
position that the factual findings of the CIAC are binding on and concludes the
appellate court. The CA went to clarify, however, that the general rule is that
factual conclusions of highly specialized bodies are given great weight and even
finality when supported by substantial evidence. Given this perspective, the CA was
correct in holding that it may validly review and even overturn such conclusion of
facts when the matter of its being adequately supported by substantial evidence
duly adduced on record comes to the fore and is raised as an issue.
Well-established jurisprudence has it that “[t]he consequent policy and
practice underlying our Administrative Law is that courts of justice should respect
the findings of fact of said administrative agencies, unless there is absolutely no
evidence in support thereof or such evidence is clearly, manifestly and patently
insubstantial.”[18]
There can be no serious dispute about the correctness of the CA’s above
posture. However, what the appellate court stated later to belabor its point strikes
the Court as specious and uncalled for. Wrote the CA:
This dictum finds greater application in the case of the CIAC because x x x as pointed out by petitioner in its Comment, the doctrine of primary jurisdiction relied upon by [Diesel] is diluted by the indubitable fact that the CIAC panel x x x is not at all composed of technocrats, or persons exceptionally well-versed in the construction industry. For instance, its chair x x x is a statistician; another member, x x x a former magistrate, is a member of the Bar. Doubtless, these two are preeminent in their fields, and their competence and proficiency in their chosen professions are unimpeachable. However, when it comes to determining findings of fact with respect to the matter before Us, the said panel which they partly comprise cannot claim to have any special advantage over the members of this Court.[19]
The question of whether or not the findings of fact of the CIAC are
supported by substantial evidence has no causal connection to the personal
qualifications of the members of the arbitration panel. Surely, a person’s
undergraduate or postgraduate degrees, as the case may be, can hardly be invoked
as the sole, fool proof basis to determine that person’s qualification to hold a
certain position. One’s work experiences and attendance in relevant seminars and
trainings would perhaps be the more important factors in gauging a person’s fitness
to a certain undertaking.
Correlatively, Diesel, obviously having in mind the disputable presumption
of regularity, correctly argues that highly specialized agencies are presumed to have
the necessary technical expertise in their line of authority. In other words, the
members of the Arbitral Tribunal of the CIAC have in their favor the presumption of
possessing the necessary qualifications and competence exacted by law. A party in
whose favor the legal presumption exists may rely on and invoke such legal
presumption to establish a fact in issue. One need not introduce evidence to prove
that the fact for a presumption is prima facie proof of the fact presumed.[20]
To set the records straight, however, the CA did not cast aspersion on the
competence let alone the bona fides of the members of the Arbitral Tribunal to
arbitrate. In context, what the appellate court said––in reaction to Diesel’s negative
commentary about the CA’s expertise on construction matters––is that the said
members do not really enjoy a special advantage over the members of the CA in
terms of fleshing out the facts from the evidence on record.
In any event, the fact remains that the CA stands justified in reviewing the
CIAC decision.
Second and Third Issues
The next two issues, being interrelated, shall be discussed jointly.
Diesel submits that the CA, in reaching its decision, substituted its own
conjectural opinion to that of the CIAC’s well-grounded findings and award.
Even as Diesel’s submission has little to commend itself, we deem it prudent
to address its concern by reviewing the incongruent determinations of the CIAC and
CA and the factual premises holding such determinations together.
As it were, the CA reduced the award for unpaid balance of the contract cost
from PhP 3,661,692.60, as earlier fixed by the CIAC, to PhP 2,441,482.64, although it
would consider the reduction and revert to the original CIAC figure. Unlike the CIAC
which found the award of liquidated damages to be without basis, the CA was of a
different disposition and awarded UPSI PhP 1,309,500, only to reduce the same to
PhP 1,146,519 in its assailed resolution. Also, the CA struck out the CIAC award of
PhP 366,169 to Diesel for attorney’s fees. Additionally, the CIAC’s ruling making
UPSI alone liable for the costs of arbitration was modified by the CA, which directed
UPSI and Diesel to equally share the burden.
The CIAC found Diesel not to have incurred delay, thus negating UPSI’s
entitlement to liquidated damages. The CA, on the other hand, found Diesel to have
been in delay for 45 days.
In determining whether or not Diesel was in delay, the CIAC and CA first
turned on the question of Diesel’s claimed entitlement to have the Project period
extended, an excusable delay being chargeable against the threshold 90-day
completion period. Both were one in saying that occurrence of certain events gave
Diesel the right to an extension, but differed on the matter of length of the
extension, and on the nature of the delay, that is, whether the delay is excusable or
not. The CA deemed the delay, and the resulting extension of 14 days, arising from
the manual hauling of materials, as undeserved. But the CIAC saw it otherwise for
the reason that Frederick W. Crespillo, the witness UPSI presented to refute the
allegation of Diesel’s entitlement to time extension for the manual hauling of
materials, was incompetent to testify on the issue. As CIAC observed, Crespillo
lacked personal knowledge of the real situation at the worksite.
The CIAC’s reasoning, however, is flawed, assuming that the onus rested on
UPSI, instead of on Diesel, to prove that the delay in the execution of the Project
was excusable. Diesel explained that there was no place for its own hoisting
machine at the Project site as the assigned location was being used by the General
Contractor, while the alternative location was not feasible due to power constraint.
Moreover, Diesel could not use the site elevator of the General Contractor as its
personnel were only permitted to use the same for one hour every day at PhP 600
per hour.
The provisions in the Agreement on excusable delays read:
2.3 Excusable delays: The Contractor shall inform the owner in a timely manner, of any delay caused by the following: 2.3.a Acts of God, such as storm, floods or earthquakes. 2.3.b Civil disturbance, such as riots, revolutions, insurrection. 2.3.c Any government acts, decrees, general orders or regulations limiting the performance of the work. 2.3.d Wars (declared or not). 2.3.e Any delays initiated by the Owner or his personnel which are clearly outside the control of the Contractor. 2.3.1 Delays caused by the foregoing shall be excusable. A new schedule or adjustments in contract time shall be negotiated with the Owner. As time is of the essence of this agreement, all other delays shall not be excusable.[21]
As may be noted, a common thread runs among the events listed above, that
is, the delaying event is unforeseeable and/or its occurrence is beyond the control
of Diesel as contractor. Here, the lack of a location to establish Diesel’s own hoisting
machine can hardly be tagged as a foreseeable event. As the CA aptly observed: [U]nder the terms of the contract, it is Diesel that would formulate the schedule to be followed in the completion of the works; therefore, it was encumbent upon Diesel to take into account all factors that would come into play in the course of the project. From the records it appears that the General Contractor x
x x had been in the premises ahead of Diesel; hence it would have been a simple matter for Diesel to have conferred with the former’s officer if the use of its equipment would be viable. Likewise, it would not have been too much trouble for Diesel to have made a prior request from UPSI for the use of its freight elevator – in the face of the denial thereof, it could have made the necessary remedial measures x x x. In other words, those delays were foreseeable on the part of Diesel, with the application of even ordinary diligence. But Diesel did all of those when construction was about to commence. Therefore, We hold that the delays occasioned by Diesel’s inability to install its hoisting machine x x x [were] attributable solely to Diesel, and thus the resultant delay cannot be charged against the ninety-day period for the termination of the construction.[22]
There can be no quibbling that the delay caused by the manual hauling of
materials is not excusable and, hence, cannot validly be set up as ground for an
extension. Thus, the CA excluded the delay caused thereby and only allowed Diesel
a total extension period of 85 days. Such extension, according to that court,
effectively translated to a delay of 45 days in the completion of the project. The CA,
in its assailed decision, explained why:
7. All told, We find, and so hold, that [Diesel] has incurred in delay. x x x However, under the circumstances wherein UPSI was responsible for some of the delay, it would be most unfair to charge Diesel with two hundred and forty (240) days of delay, so much so that it would still owe UPSI, even after liquidated damages have eaten up the retention and unpaid balance, the amount of [P4,340,000.00]. Thus, based on Our own calculations, We deem it more in accord with the spirit of the contract, as amended, x x x to assess Diesel with an unjustifiable delay of forty-five (45) days only; hence, at the rate of 1/5 of one percent as stated in the contract, [or at P1,309,500.00], which should be deducted from the total unpaid balance of [P2,441,482.64], which amount already includes the retention on the additional works or Change Orders.[23]
The CA, in its questioned resolution, expounded on how it arrived at the
figure of 45-day delay in this wise:
7. x x x We likewise cannot give Our assent to the
asseveration of [Diesel] that Our calculations as to the number of days of delay have no basis. For indeed, the same was arrived at after taking a holistic view of the entire circumstances attendant to the instant case. x x x
But prescinding from the above, the basis for Our ruling
should not be hard to discern. To disabuse the mind of [Diesel] that the forty-five day delay was plucked from out of the blue, allow Us to let the records speak. The records will show that while the original target date for the completion x x x was 19 November 1999 x x x, there is a total of eighty-five (85) days of extension which are justifiable and sanctioned by [UPSI], to wit: thirty (30) days as authorized on 27 January 2000 by UPSI’s Construction Manager x x x; thirty (30) days as again consented to by the same Construction Manager on 24 February 2000 x x x; and twenty-five (25) days on 16 March 2000 by Rider Hunt and Liacom x x x. The rest of the days claimed by Diesel were, of course, found by Us to be unjustified in the main opinion. Hence, the project should have been finished by February 12, 2000. However, by 22 March 2000, as certified to by Grace S. Reyes Designs, Inc. the project was only 97.56% finished, meaning while it was substantially finished, it was not wholly finished. By 25 March 2000, the same consultant conditionally accepted some floors but were still punch listed, so that from 12 February 2000 to 25 March 2000 was a period of forty-one (41) days. Allowing four (4) more days for the punch listed items to be accomplished, and for the “general cleaning” mentioned by Grace S. Reyes Designs, Inc., to be done, which to Us is a reasonable length of time, equals forty-five (45) days.
This is why We find the [conclusion] made by the CIAC, x
x x that there was no delay whatsoever in the work done by [Diesel], too patently absurd for Us to offer Our unconditional assent.[24]
Aside from the fact that the CA seemingly assumed contradictory positions
in the span of two paragraphs, its holding immediately adverted to above is
patently erroneous. The CA completely failed to factor in the change orders of UPSI
to Diesel––the directives effectively extending the Project completion time at the
behest of UPSI.
Section V of the Agreement on the subject Change Orders reads: V. CHANGES IN SCOPE OF WORK AND EXTRA WORK Any changes or extra work in the SCOPE OF WORK
recommended by the INTERIOR DESIGNER/ARCHITECT or directed and approved by the OWNER shall be presented to the CONTRACTOR. Within the shortest time possible, the CONTRACTOR x x x shall also inform the OWNER if such changes shall require a new schedule and/or revised completion date.
The Parties shall then negotiate mutually agreeable
terms x x x. The CONTRACTOR shall not perform any change order or extra work until the covering terms are agreed upon [in writing and signed by the parties].[25]
Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4 on February
3, 2, 8, and 9, 2000 respectively. Thereafter, Diesel submitted a Schedule of
Completion of Additional Works[26] under which Diesel committed to undertake CO
No. 1 for 30 days from February 10, 2000; CO No. 2 for 21 days from January 6,
2000; CO No. 3 for 15 days, subject to UPSI’s acceptance of Diesel’s proposal; and
CO No. 4 for 10 days after the receipt of the items from UPSI.
The CIAC found that the COs were actually implemented on the following
dates:
CO No. 1 – February 9 to March 3, 2000CO No. 3 – February 24 to March 10, 2000CO No. 4 – March 16 to April 7, 2000[27]
Hence, as correctly held by the CIAC, UPSI, no less, effectively moved the
completion date, through the various COs, to April 7, 2000.
Moreover, as evidenced by UPSI’s Progress Report No. 19 for the period
ending March 22, 2000, Diesel’s scope of work, as of that date, was already 97.56%
complete.[28] Such level of work accomplishment would, by any rational norm, be
considered as substantial to warrant full payment of the contract amount, less
actual damages suffered by UPSI. Article 1234 of the Civil Code says as much, “If
the obligation had been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee.”
The fact that the laborers of Diesel were still at the work site as of March
22, 2000 is a reflection of its honest intention to keep its part of the bargain and
complete the Project. Thus, when Diesel attempted to turn over the premises to
UPSI, claiming it had completed the Project on March 15, 2000, Diesel could no
longer be considered to be in delay. Likewise, the CIAC cited the Uniform General
Conditions of Contract for Private Construction (CIAP Document 102), wherein it is
stated that no liquidated damages for delay beyond the completion time shall
accrue after the date of substantial completion of the work.[29]
In all, Diesel cannot be considered as in delay and, hence, is not amenable
under the Agreement for liquidated damages.
As to the issue of attorney’s fees, Diesel insists that bad faith tainted UPSI’s
act of imposing liquidated damages on account of its (Diesel’s) alleged delay. And,
this prompted Diesel to file its petition for arbitration. Thus, the CIAC granted
Diesel an award of PhP 366,169 as attorney’s fees. However, the CA reversed the
CIAC on the award, it being its finding that Diesel was in delay.
The Court resolves to reinstate the CIAC’s award of attorney’s fees, there
being sufficient justification for this kind of disposition. As earlier discussed, Diesel
was not strictly in delay in the completion of the Project. No valid reason, therefore,
obtains for UPSI to withhold the retention money or to refuse to pay the unpaid
balance of the contract price. Indeed, the retention and nonpayment were, to us,
as was to the CIAC, resorted to by UPSI out of whim, thus forcing the hand of Diesel
to sue to recover what is rightfully due. Thus, the grant of attorney’s fees would be
justifiable under Art. 2208 of the Civil Code, thus:
Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation x x x cannot be recovered, except:
x x x x (5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim.
And for the same reason justifying the award of attorney’s fees, arbitration
costs ought to be charged against UPSI, too.
Fourth Issue
UPSI urges a review of the factual basis for the parallel denial by the CIAC
and CA of its claim for additional expenses to complete the Project. UPSI states that
the reality of Diesel having abandoned the Project before its agreed completion is
supported by clear and convincing evidence.
The Court cannot accord the desired review. It is settled rule that the
Court, not being a trier of facts, is under no obligation to examine, winnow, and
weigh anew evidence adduced below. This general rule is, of course, not absolute.
In Superlines Transportation Company, Inc. v. Philippine National Construction
Company, the Court enumerated the recognized exceptions to be:
x x x (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.[30] (Emphasis supplied.)
In the instant case, the factual findings of the CIAC and CA, with regard to
the completion of the Project and UPSI’s entitlement to recover expenses allegedly
incurred to finish the Project, do not fall under any one of these exceptions. As
things stand, the factual findings of the CIAC and CA are supported by evidence
presented during the hearing before the Arbitral Tribunal. Consider what the CIAC
wrote:This Tribunal finds overwhelming evidence to prove that
accomplishment as of the alleged “period of takeover” was 95.87% as of March 3, 2000 and increased to 97.56% on March 15, 2000 based on Progress Report # 18. x x x This is supported by the statement of [UPSI’s] witness, Mr. Crespillo x x x where he conceded that such admissions and statements bound [UPSI, the Owner]. By that time, [Diesel] had substantially completed the
project and only needed to correct the items included in the punchlist.[31]
The CA seconded what the CIAC said, thus:
6. Neither are We prepared to sustain UPSI’s
argument that Diesel left the work unfinished and pulled-out all of its workmen from the project. This claim is belied by the assessment of its own Construction Manager in Progress Report No. 19 for the period “ending 22 March 2000,” wherein it was plaintly stated that as of that period, with respect to Diesel, there were still twenty-three laborers on site with the project “97.56%” complete x x x. This indicates that the contracted works of Diesel were substantially completed with only minor corrections x x x, thus contradicting the avowal of UPSI that the work was abandoned in such a state that necessitated the engagement of another contractor for the project to be finished. It was therefore not right for UPSI to have declined the turn-over and refused the full payment of the contract price, x x x.[32]
Given the 97.56% work accomplishment tendered by Diesel, UPSI’s theory
of abandonment and of its having spent a sum to complete the work must fall on its
face. We can concede hypothetically that UPSI undertook what it characterized as
“additional or rectification” works on the Project. But as both the CIAC and CA held,
UPSI failed to show that such “additional or rectification” works, if there be any,
were the necessary result of the faulty workmanship of Diesel.
The Court perceives of no reason to doubt, much less disturb, the
coinciding findings of the CIAC and CA on the matter.
The foregoing notwithstanding and considering that Diesel may only be
credited for 97.56% work accomplishment, UPSI ought to be compensated, by way
of damages, in the amount corresponding to the value of the 2.44% unfinished
portion (100% – 97.56% = 2.44%). In absolute terms, 2.44% of the total Project cost
translates to PhP 310,834.01. This disposition is no more than adhering to the
command of Art. 1234 of the Civil Code.
The fifth and sixth issues have already been discussed earlier and need not
detain us any longer.
WHEREFORE, Diesel’s petition is PARTIALLY GRANTED and UPSI’s Petition
is DENIED with qualification. The assailed Decision dated April 16, 2002 and
Resolution dated August 21, 2002 of the CA are MODIFIED, as follows:
(1) The award for liquidated damages is DELETED;
(2) The award to Diesel for the unpaid balance of the contract price of
PhP 3,661,692.64 is AFFIRMED;
(3) UPSI shall pay the costs of arbitration before the CIAC in the amount
of PhP 298,406.03;
(4) Diesel is awarded attorney’s fees in the amount of PhP 366,169; and
(5) UPSI is awarded damages in the amount of PhP 310,834.01, the same
to be deducted from the retention money, if there still be any, and, if necessary,
from the amount referred to in item (2) immediately above.
In summary, the aggregate award to Diesel shall be PhP
3,717,027.64. From this amount shall be deducted the award of actual damages of
PhP 310,834.01 to UPSI which shall pay the costs of arbitration in the amount of
PhP 298,406.03.
FGU is released from liability for the performance bond that it issued in
favor of Diesel.
No costs.
SO ORDERED.KOREA TECHNOLOGIES CO., G.R. No. 143581LTD., Petitioner, Present: - versus - QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES,HON. ALBERTO A. LERMA, in TINGA, andhis capacity as Presiding Judge of VELASCO, JR., JJ.Branch 256 of Regional Trial Court of Muntinlupa City, andPACIFIC GENERAL STEEL Promulgated:MANUFACTURINGCORPORATION, Respondents. January 7, 2008 x-----------------------------------------------------------------------------------------x
D E C I S I O N
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving
disputes, particularly in civil and commercial disputes. Arbitration along with
mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile
methods have long been favored by this Court. The petition before us puts at issue
an arbitration clause in a contract mutually agreed upon by the parties stipulating
that they would submit themselves to arbitration in a foreign country. Regrettably,
instead of hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation
which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG)
Cylinder manufacturing plants, while private respondent Pacific General Steel
Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract[1] whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The
contract was executed in the Philippines. On April 7, 1997, the parties executed,
in Korea, an Amendment for Contract No. KLP-970301 dated March 5,
1997[2] amending the terms of payment. The contract and its amendment
stipulated that KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES
would install and initiate the operation of the plant for which PGSMC bound itself to
pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease[3] with
Worth Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property with
a 4,032-square meter warehouse building to house the LPG manufacturing
plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a
10% annual increment clause. Subsequently, the machineries, equipment, and
facilities for the manufacture of LPG cylinders were shipped, delivered, and installed
in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate[4] executed by the parties on
January 22, 1998, after the installation of the plant, the initial operation could not
be conducted as PGSMC encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No.
0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413
dated March 30, 1998 for PhP 4,500,000.[5]
When KOGIES deposited the checks, these were dishonored for the reason
“PAYMENT STOPPED.” Thus, on May 8, 1998, KOGIES sent a demand letter[6] to
PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case
of nonpayment. On the same date, the wife of PGSMC’s President faxed a letter
dated May 7, 1998to KOGIES’ President who was then staying at
a Makati City hotel. She complained that not only did KOGIES deliver a different
brand of hydraulic press from that agreed upon but it had not delivered several
equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES
were fully funded but the payments were stopped for reasons previously made
known to KOGIES.[7]
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their
Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity
and lowered the quality of the machineries and equipment it delivered to PGSMC,
and that PGSMC would dismantle and transfer the machineries, equipment, and
facilities installed in the Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No.
98-03813 against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC
could not unilaterally rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations by KOGIES. It also insisted
that their disputes should be settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of
its June 1, 1998 letter threatening that the machineries, equipment, and facilities
installed in the plant would be dismantled and transferred on July 4, 1998. Thus,
on July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean
Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the
Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance,
docketed as Civil Case No. 98-117[8] against PGSMC before the Muntinlupa City
Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO)
on July 4, 1998, which was subsequently extended until July 22, 1998. In its
complaint, KOGIES alleged that PGSMC had initially admitted that the checks that
were stopped were not funded but later on claimed that it stopped payment of the
checks for the reason that “their value was not received” as the former allegedly
breached their contract by “altering the quantity and lowering the quality of the
machinery and equipment” installed in the plant and failed to make the plant
operational although it earlier certified to the contrary as shown in a January 22,
1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their
Contract, as amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter
threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES
was not entitled to the TRO since Art. 15, the arbitration clause, was null and void
for being against public policy as it ousts the local courts of jurisdiction over the
instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim[9] asserting that it had the full right to dismantle and transfer the
machineries and equipment because it had paid for them in full as stipulated in the
contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks
for failing to completely install and make the plant operational; and that KOGIES
was liable for damages amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment. Moreover, PGSMC averred
that it has already paid PhP 2,257,920 in rent (covering January to July 1998) to
Worth and it was not willing to further shoulder the cost of renting the premises of
the plant considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for a writ of preliminary injunction,
reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the
machineries and equipment as shown in the contract such that KOGIES no longer
had proprietary rights over them. And finally, the RTC held that Art. 15 of the
Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties. KOGIES’
prayer for an injunctive writ was denied.[10] The dispositive portion of the Order
stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant from dismantling the machineries and facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site: and therefore denies plaintiff’s application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.[11] KOGIES denied it had altered the quantity and lowered the quality
of the machinery, equipment, and facilities it delivered to the plant. It claimed that
it had performed all the undertakings under the contract and had already produced
certified samples of LPG cylinders. It averred that whatever was unfinished was
PGSMC’s fault since it failed to procure raw materials due to lack of funds. KOGIES,
relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,[12] insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss[13] answering PGSMC’s memorandum of July 22, 1998 and seeking dismissal
of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its Motion for
Reconsideration[14] of the July 23, 1998 Order denying its application for
an injunctive writ claiming that the contract was not merely for machinery and
facilities worth USD 1,224,000 but was for the sale of an “LPG manufacturing plant”
consisting of “supply of all the machinery and facilities” and “transfer of
technology” for a total contract price of USD 1,530,000 such that the dismantling
and transfer of the machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid
owner/seller of the plant. Moreover, KOGIES points out that the arbitration clause
under Art. 15 of the Contract as amended was a valid arbitration stipulation under
Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.),
Inc.[15]
In the meantime, PGSMC filed a Motion for Inspection of Things[16] to
determine whether there was indeed alteration of the quantity and lowering of
quality of the machineries and equipment, and whether these were properly
installed. KOGIES opposed the motion positing that the queries and issues raised in
the motion for inspection fell under the coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial court issued an Order (1) granting
PGSMC’s motion for inspection; (2) denying KOGIES’ motion for reconsideration of
the July 23, 1998 RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration[17] of the September 21, 1998 RTC Order granting inspection of the
plant and denying dismissal of PGSMC’s compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of
its October 2, 1998 urgent motion for reconsideration, KOGIES filed before the
Court of Appeals (CA) a petition for certiorari[18] docketed as CA-G.R. SP No. 49249,
seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and
praying for the issuance of writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct
the RTC to enforce the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent
motion for reconsideration and directed the Branch Sheriff to proceed with the
inspection of the machineries and equipment in the plant on October 28, 1998.[19]
Thereafter, KOGIES filed a Supplement to the Petition[20] in CA-G.R. SP No.
49249 informing the CA about the October 19, 1998 RTC Order. It also reiterated its
prayer for the issuance of the writs of prohibition, mandamus and preliminary
injunction which was not acted upon by the CA. KOGIES asserted that the Branch
Sheriff did not have the technical expertise to ascertain whether or not the
machineries and equipment conformed to the specifications in the contract and
were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriff’s
Report[21] finding that the enumerated machineries and equipment were not fully
and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision[22] affirming the
RTC Orders and dismissing the petition for certiorari filed by KOGIES. The CA found
that the RTC did not gravely abuse its discretion in issuing the assailed July 23,
1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES’
contention that the total contract price for USD 1,530,000 was for the whole plant
and had not been fully paid was contrary to the finding of the RTC that PGSMC fully
paid the price of USD 1,224,000, which was for all the machineries and
equipment. According to the CA, this determination by the RTC was a factual
finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with
the lower court that an arbitration clause which provided for a final determination
of the legal rights of the parties to the contract by arbitration was against public
policy.
On the issue of nonpayment of docket fees and non-attachment of a
certificate of non-forum shopping by PGSMC, the CA held that the counterclaims of
PGSMC were compulsory ones and payment of docket fees was not required since
the Answer with counterclaim was not an initiatory pleading. For the same reason,
the CA said a certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed
prematurely since KOGIES did not wait for the resolution of its urgent motion for
reconsideration of the September 21, 1998 RTC Order which was the plain, speedy,
and adequate remedy available. According to the CA, the RTC must be given the
opportunity to correct any alleged error it has committed, and that since the
assailed orders were interlocutory, these cannot be the subject of a petition for
certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS “A QUESTION OF FACT” “BEYOND THE AMBIT OF A PETITION FOR CERTIORARI” INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW; b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING “CONTRARY TO PUBLIC POLICY” AND FOR OUSTING THE COURTS OF JURISDICTION; c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF; e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING “INTERLOCUTORY IN NATURE;” f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY “WITHOUT MERIT.”[23]
The Court’s Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaimsand cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should
have paid docket fees and filed a certificate of non-forum shopping, and that its
failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in
its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with
Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing
counterclaim or cross-claimstates, “A compulsory counterclaim or a cross-claim that
a defending party has at the time he files his answer shall be contained therein.”
On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said
counterclaims being compulsory in nature. We stress, however, that
effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-
SC, docket fees are now required to be paid in compulsory counterclaim or cross-
claims.
As to the failure to submit a certificate of forum shopping, PGSMC’s
Answer is not an initiatory pleading which requires a certification against forum
shopping under Sec. 5[24] of Rule 7, 1997 Revised Rules of Civil Procedure. It is a
responsive pleading, hence, the courts a quo did not commit reversible error in
denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,[25] the CA also pronounced that “certiorari and
Prohibition are neither the remedies to question the propriety of an interlocutory
order of the trial court.”[26] The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case
which was not assailable in an action for certiorari since the denial of a motion to
quash required the accused to plead and to continue with the trial, and whatever
objections the accused had in his motion to quash can then be used as part of his
defense and subsequently can be raised as errors on his appeal if the judgment of
the trial court is adverse to him. The general rule is that interlocutory orders
cannot be challenged by an appeal.[27] Thus, in Yamaoka v. Pescarich Manufacturing
Corporation, we held:
The proper remedy in such cases is an ordinary appeal
from an adverse judgment on the merits, incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory orders would result in the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from the appellate court as often as a trial court is perceived to have made an error in any of its interlocutory rulings. However, where the assailed interlocutory order was issued with grave abuse of discretion or patently erroneous and the remedy of appeal would not afford adequate and expeditious relief, the Court allows certiorari as a mode of redress.[28]
Also, appeals from interlocutory orders would open the floodgates to
endless occasions for dilatory motions. Thus, where the interlocutory order was
issued without or in excess of jurisdiction or with grave abuse of discretion, the
remedy is certiorari.[29]
The alleged grave abuse of discretion of the respondent court equivalent
to lack of jurisdiction in the issuance of the two assailed orders coupled with the
fact that there is no plain, speedy, and adequate remedy in the ordinary course of
law amply provides the basis for allowing the resort to a petition for certiorari
under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the
petition for certiorari. Note that KOGIES’ motion for reconsideration of the July 23,
1998 RTC Order which denied the issuance of the injunctive writ had already been
denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory order via a
petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court a
quo. The reason behind the rule is “to enable the lower court, in the first instance,
to pass upon and correct its mistakes without the intervention of the higher
court.”[30]
The September 21, 1998 RTC Order directing the branch sheriff to inspect
the plant, equipment, and facilities when he is not competent and knowledgeable
on said matters is evidently flawed and devoid of any legal support. Moreover,
there is an urgent necessity to resolve the issue on the dismantling of the facilities
and any further delay would prejudice the interests of KOGIES. Indeed, there is real
and imminent threat of irreparable destruction or substantial damage to KOGIES’
equipment and machineries. We find the resort to certiorari based on the gravely
abusive orders of the trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the
arbitration clause. It provides:
Article 15. Arbitration.—All disputes, controversies, or
differences which may arise between the parties, out of or in relation to or in connection with this Contract or for the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration
clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where
the contract is made governs. Lex loci contractus. The contract in this case was
perfected here in the Philippines. Therefore, our laws ought to
govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award. Art.
2044 provides, “Any stipulation that the arbitrators’ award or decision shall be
final, is valid, without prejudice to Articles 2038, 2039 and 2040.” (Emphasis
supplied.)
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,[34] may be voided, rescinded, or annulled, but these would not denigrate the finality
of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the
parties. It has not been shown to be contrary to any law, or against morals, good
customs, public order, or public policy. There has been no showing that the parties
have not dealt with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,[35] we held that submission to arbitration
is a contract and that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract.[36] Again in Del
Monte Corporation-USA v. Court of Appeals, we likewise ruled that “[t]he provision
to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract.”[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done
in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB,
and that the arbitral award is final and binding, is not contrary to public policy. This
Court has sanctioned the validity of arbitration clauses in a catena of cases. In the
1957 case ofEastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this Court had
occasion to rule that an arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals,
we held that “[i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,
this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Code’s
provisions on arbitration.”[39] And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of
settling disputes, arbitration––along with mediation, conciliation and negotiation––is encouraged by the Supreme Court. 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.[40]
Having said that the instant arbitration clause is not against public policy,
we come to the question on what governs an arbitration clause specifying that in
case of any dispute arising from the contract, an arbitral panel will be constituted in
a foreign country and the arbitration rules of the foreign country would govern and
its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign arbitral body
is chosen by the parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model
Law on International Commercial Arbitration[41] of the United Nations Commission
on International Trade Law (UNCITRAL) in the New York Convention on June 21,
1985, the Philippinescommitted itself to be bound by the Model Law. We have
even incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known
as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize
the Use of an Alternative Dispute Resolution System in the Philippines and to
Establish the Office for Alternative Dispute Resolution, and for Other
Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model
Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.––International commercial arbitration shall be governed by the Model Law on International Commercial Arbitration (the “Model Law”) adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for enactment by the General Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix “A”.
SEC. 20. Interpretation of Model Law.––In interpreting
the Model Law, regard shall be had to its international origin and to the need for uniformity in its interpretation and resort may be made to the travaux preparatories and the report of the Secretary General of the United Nations Commission on International Trade Law dated March 25, 1985 entitled, “International Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264.”
While RA 9285 was passed only in 2004, it nonetheless applies in the
instant case since it is a procedural law which has a retroactive effect. Likewise,
KOGIES filed its application for arbitration before the KCAB on July 1, 1998 and it is
still pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are
construed to be applicable to actions pending and undetermined at the time of
their passage, and are deemed retroactive in that sense and to that extent. As a
general rule, the retroactive application of procedural laws does not violate any
personal rights because no vested right has yet attached nor arisen from them.[42]
Among the pertinent features of RA 9285 applying and incorporating the
UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause, and mandates
the referral to arbitration in such cases, thus:
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 requests not later than 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.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the
arbitration clause to be final and binding are not immediately enforceable or cannot
be implemented immediately. Sec. 35[43] of the UNCITRAL Model Law stipulates the
requirement for the arbitral award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse
recognition or enforcement on the grounds provided for. RA 9285 incorporated
these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made in party to the New York Convention.
x x x x SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.––The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity, recognize and enforce a non-convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a court of a foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional
Trial Court, shall be enforced in the same manner as final and executory decisions of courts of law of the Philippines x x x x
SEC. 47. Venue and Jurisdiction.––Proceedings for
recognition and enforcement of an arbitration agreement or for vacations, setting aside, correction or modification of an arbitral award, and any application with a court for arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of business; or (iv) in the National Judicial Capital Region, at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.––In a special
proceeding for recognition and enforcement of an arbitral award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot be served notice at such address, at such party’s last known address. The notice shall be sent al least fifteen (15) days before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are
deemed not as a judgment of a foreign court but as a foreign arbitral award, and
when confirmed, are enforced as final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral
award is similar to judgments or awards given by some of our quasi-judicial bodies,
like the National Labor Relations Commission and Mines Adjudication Board, whose
final judgments are stipulated to be final and binding, but not immediately
executory in the sense that they may still be judicially reviewed, upon the instance
of any party. Therefore, the final foreign arbitral awards are similarly situated in
that they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC
with specific authority and jurisdiction to set aside, reject, or vacate a foreign
arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model
Law. Secs. 42 and 45 provide: SEC. 42. Application of the New York Convention.––The
New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made is party to the New York Convention.
If the application for rejection or suspension of
enforcement of an award has been made, the Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security.
x x x x
SEC. 45. Rejection of a Foreign Arbitral Award.––A party
to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedures and rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign arbitral award is
subject to judicial review by the RTC which can set aside, reject, or vacate it. In this
sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by
KOGIES is applicable insofar as the foreign arbitral awards, while final and binding,
do not oust courts of jurisdiction since these arbitral awards are not absolute and
without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has
made it clear that all arbitral awards, whether domestic or foreign, are subject to
judicial review on specific grounds provided for.(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or
foreign arbitral tribunal and an award given by a local arbitral tribunal are the
specific grounds or conditions that vest jurisdiction over our courts to review the
awards.
For foreign or international arbitral awards which must first be confirmed
by the RTC, the grounds for setting aside, rejecting or vacating the award by the RTC
are provided under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the
RTC pursuant to Sec. 23 of RA 876[44] and shall be recognized as final and executory
decisions of the RTC,[45] they may only be assailed before the RTC and vacated on
the grounds provided under Sec. 25 of RA 876.[46]
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of
an aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or
corrects an arbitral award, thus: SEC. 46. Appeal from Court Decision or Arbitral Awards.—
A decision of the Regional Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in accordance with the rules and procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the
court confirming an arbitral award shall be required by the appellate court to post a counterbond executed in favor of the prevailing party equal to the amount of the award in accordance with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before
this Court through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to
the foreign arbitration as it bound itself through the subject contract. While it may
have misgivings on the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly protected by the law which
requires that the arbitral award that may be rendered by KCAB must be confirmed
here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an
arbitration clause, stipulating that the arbitral award is final and binding, does not
oust our courts of jurisdiction as the international arbitral award, the award of
which is not absolute and without exceptions, is still judicially reviewable under
certain conditions provided for by the UNCITRAL Model Law on ICA as applied and
incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which
provides that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and
binding on the parties, and not contrary to public policy; consequently, being bound
to the contract of arbitration, a party may not unilaterally rescind or terminate the
contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los
Angeles[47] and reiterated in succeeding cases,[48] that the act of treating a contract
as rescinded on account of infractions by the other contracting party is valid albeit
provisional as it can be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an arbitration clause in a
contract is availing, neither of the parties can unilaterally treat the contract as
rescinded since whatever infractions or breaches by a party or differences arising
from the contract must be brought first and resolved by arbitration, and not
through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were properly
installed and operational in the plant in Carmona, Cavite; the ownership of
equipment and payment of the contract price; and whether there was substantial
compliance by KOGIES in the production of the samples, given the alleged fact that
PGSMC could not supply the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998,
KOGIES instituted an Application for Arbitration before the KCAB
in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is
incumbent upon PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMC’s
Motion for Inspection of Things on September 21, 1998, as the subject matter of
the motion is under the primary jurisdiction of the mutually agreed arbitral body,
the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch
Sheriff from the inspection made on October 28, 1998, as ordered by the trial court
on October 19, 1998, is of no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries as installed in the
plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC
Orders pertaining to the grant of the inspection of the equipment and machineries
have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the
total contract price of USD 1,530,000 was for the whole plant and its installation is
beyond the ambit of a Petition for Certiorari.
Petitioner’s position is untenable.
It is settled that questions of fact cannot be raised in an original action for
certiorari.[49] Whether or not there was full payment for the machineries and
equipment and installation is indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order
of the RTC in resolving the issue on the ownership of the plant when it is the arbitral
body (KCAB) and not the RTC which has jurisdiction and authority over the said
issue. The RTC’s determination of such factual issue constitutes grave abuse of
discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ
paving the way for PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the factual milieu of the instant
case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral body to
decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant
interim measures to protect vested rights of the parties. Sec. 28 pertinently
provides:
SEC. 28. Grant of interim Measure of Protection.—(a) It
is not incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification thereof, may be made with the arbitral or to the extent that the arbitral tribunal has no power to act or is unable to act effectivity, the request may be made with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written communication of said nomination and acceptance has been received by the party making the request.
(b) The following rules on interim or provisional relief
shall be observed: Any party may request that provisional relief be granted
against the adverse party. Such relief may be granted: (i) to prevent irreparable loss or injury;(ii) to provide security for the performance of any
obligation;(iii) to produce or preserve any evidence; or(iv) to compel any other appropriate act or omission. (c) The order granting provisional relief may be
conditioned upon the provision of security or any act or omission specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be
liable for all damages resulting from noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the order’s judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an “interim
measure” of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx (2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to: (a) Maintain or restore the status quo pending determination of the dispute; (b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; (c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) Preserve evidence that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and
jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro
Corporation, we were explicit that even “the pendency of an arbitral proceeding
does not foreclose resort to the courts for provisional reliefs.” We explicated this
way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the application of a party to a judicial authority for interim or conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as the “Alternative Dispute Resolution Act of 2004,” allows the filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively.[50]
It is thus beyond cavil that the RTC has authority and jurisdiction to grant
interim measures of protection.
Secondly, considering that the equipment and machineries are in the
possession of PGSMC, it has the right to protect and preserve the equipment and
machineries in the best way it can. Considering that the LPG plant was non-
operational, PGSMC has the right to dismantle and transfer the equipment and
machineries either for their protection and preservation or for the better way to
make good use of them which is ineluctably within the management discretion of
PGSMC.
Thirdly, and of greater import is the reason that maintaining the
equipment and machineries in Worth’s property is not to the best interest of
PGSMC due to the prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for
1998 alone without considering the 10% annual rent increment in maintaining the
plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions
relating to the preservation or transfer of the equipment and machineries as an
interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the non-recognition by the lower
courts of the arbitral clause, has accorded an interim measure of protection to
PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been
paid a substantial amount based on the contract. Moreover, KOGIES is amply
protected by the arbitral action it has instituted before the KCAB, the award of
which can be enforced in our jurisdiction through the RTC. Besides, by our decision,
PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause
of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and
transfer the subject equipment and machineries, it does not have the right to
convey or dispose of the same considering the pending arbitral proceedings to
settle the differences of the parties. PGSMC therefore must preserve and maintain
the subject equipment and machineries with the diligence of a good father of a
family[51] until final resolution of the arbitral proceedings and enforcement of the
award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil
Case No. 98-117 are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the
arbitration of their dispute and differences arising from the subject Contract before
the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment
and machineries, if it had not done so, and ORDERED to preserve and maintain
them until the finality of whatever arbitral award is given in the arbitration
proceedings.
No pronouncement as to costs.
SO ORDERED.
FG.R. No. 55159 December 22, 1989
PHILIPPINE AIRLINES, INC., petitioner vs.NATIONAL LABOR RELATIONS COMMISSION and ARMANDO DOLINA, respondents.
Ermitano Manzano & Associates for petitioner.
Solon Garcia collaborating counsel for petitioner.
CORTES, J.:
Petitioner impugns in this petition for certiorari that part of the public respondent National Labor Relations Commission's (NLRC) decision in NLRC Case No. RB-IV-9319-77 which ordered petitioner to restore private respondent Dolina to its payroll, and to pay his salaries from 1 April 1979 "until this case is finally resolved" [Rollo, p. 33]. Petitioner contends that public respondent NLRC gravely abused its discretion considering that in the same decision public respondent affirmed the decision of the Labor Arbiter in toto granting respondent's application for clearance to dismiss the private respondent.
The pertinent facts are as follows:
Private respondent Dolina was admitted to the Philippine Airlines (PAL) Aviation School for training as a pilot beginning 16 January 1973. The training agreement bound PAL to provide regular and permanent employment to Dolina upon completion of the training course. On 25 January 1974, Dolina completed the course, and undertook an equipment qualification course up to 4 October 1974. On 9 October 1974, the Civil Aeronautics Administration issued him a license as Commercial Pilot and PAL then extended him a temporary appointment for six (6) months as Limited First Officer. When his appointment was due to expire on 30 April 1975, Dolina had only logged eighty four (84) hours and fifty five (55) minutes flying time, short of the minimum 500 flying hours required for regularization as First Officer. To enable him to complete the requirement, his employment was extended for another six months which appointment was described as "permanent." On 31 October 1975, when his appointment was again due to expire, he was still short of the minimum flying time requirement such that his appointment was again extended up to 30 April 1976. During this third extension of his appointment, Dolina completed the 500 flying hours requirement, and thus on 31 March 1976 he applied for regularization as First Officer. Pending his physical examination by the chief Flight Surgeon, his appointment was again extended to 31 October 1976. On 17 August 1976, Dolina took a psychological examination wherein
his "Adaptability Rating" was found to be "unacceptable" [Annex "L" to the Petition. p. 8; Rollo, p. 116]. On 23 September 1976, complainant was again subjected to an examination and interview by the Pilot Acceptance Qualifications Board as part of the regularization process, which examination revealed the following:
xxx xxx xxx
b. Armando Dolina - After thorough evaluation of the candidate's past records, his performance and the result of his medical examination as submitted by the Medical Sub-Department, the Board finds Mr. A. Dolina not qualified for regular employment in the Company.
xxx xxx xxx
[NLRC Decision, pp. 3-4; Rollo, pp. 25-26].
Conformably, the Board recommended the termination of the complainant pursuant to which PAL filed a clearance application [Rollo, p. 34] for Dolina's termination. In the meantime Dolina was placed under preventive suspension effective 1 October 1976. Dolina countered with a complaint for illegal dismissal on 6 October 1976 [Rollo, 35]. On 26 January 1977 the Officer-in-Charge of the Department of Labor Regional Office No. IV lifted the preventive suspension, and ordered petitioner to reinstate Dolina to his former position with full backwages from 1 October 1976 up to actual reinstatement. The issue of termination and damages was referred to the Executive Labor Arbiter for compulsory arbitration [Rollo, p. 71].
Petitioner appealed the order lifting Dolina's suspension to the Secretary of Labor. However, on 2 March 1977, pending the resolution of petitioner's appeal, the parties signed an agreement before the Undersecretary of Labor, the terms of which are as follows:
AGREEMENT
The undersigned parties hereby agree to the following:
1 While pending final resolution of the complaint of Mr. Armando Dolina against the Philippine Airlines, he shall be considered in the payroll effective 1 October 1976.
2 The order of Regional Director Vicente Leogardo for the reinstatement with backwages of Mr. Dolina is hereby rendered moot and academic.
3 The parties shall consider this arrangement pending final resolution of the case by arbitration.
xxx xxx xxx
Subsequently, on 30 May 1977, the Acting Secretary of Labor issued an order finding that the propriety of the suspension had been rendered moot and academic by the above agreement and referred the case for compulsory arbitration to the Executive Labor Arbiter [Annex "J" to the Petition; Rollo, p. 85]. On 23 March 1979, the Labor Arbiter rendered its decision, the dispositive portion of which reads as follows:
IN VIEW OF ALL THE FOREGOING, it is our considered opinion that there is merit on the application for clearance, and therefore, the same should be as it is hereby GRANTED. Consequently, the oppositor's TERMINATION IS IN ORDER.
Since the termination is upheld, perforce the claim for moral damages is denied. Besides pursuant to P.D. No. 1367 dated May 1, 1978, this office is devoid of jurisdiction to entertain said claim.
SO ORDERED. [Decision of Labor Arbiter, p. 12; Rollo, p. 97].
By virtue of the above decision, PAL removed Dolina from its payroll effective 1 April 1979. Dolina then appealed the Labor Arbiter's decision to the public respondent NLRC on 29 April 1979 and there filed a motion praying that PAL be ordered to return him to PAL's payroll, contending that the Labor Arbiter's decision was not yet final because of his timely appeal. PAL opposed the motion claiming that it was no longer obliged to return Dolina to its payroll since the decision of the Labor Arbiter dated 23 March 1979 in its favor was a final resolution of the case by arbitration [Annex "N" to the Petition, p. 1; Rollo, p. 137].
On 8 February 1980, public respondent NLRC rendered its decision containing the assailed portion to wit:
xxx xxx xxx
In fine it is our considered view that the respondent's application for clearance to dismiss the complainant has sufficiently surmounted the test of validity.
Be that as it may, we are not in accord with the discontinuation of the payment of complainant's salaries. The agreement of the parties stipulated in no uncertain terms that the complainant [Dolina] is to be carried in respondent's payroll until this case is finally resolved. As things stand, the main issue is still being litigated. The complainant, therefore, must be restored to the payroll and paid for his salaries from 1 April 1979, the date he was dropped from the respondent's payroll.
WHEREFORE, the Decision appealed from should be as it is hereby affirmed in toto. However the respondent is ordered to restore the complainant to its payroll and to pay his salaries from 1 April 1979 until this case is finally resolved.
SO ORDERED. [NLRC Decision, pp. 10-11; Rollo, pp. 32-33; Italics supplied]
Hence, this petition, with a prayer for a temporary restraining order. The Court issued a temporary restraining order on 10 October 1980. Private respondent Dolina failed to file his comment and the Solicitor General submitted his own Comment supporting the stand of petitioner. Due to the adverse stand of the Solicitor General, public respondent NLRC submitted its own Comment.
The issue before the Court is whether or not the NLRC committed grave abuse of discretion in holding that private respondent Dolina was entitled to his salaries from 1 April 1979 "until this case is finally resolved."
PAL contends that inasmuch as the respondent Commission acting en banc had affirmed in toto the decision of the Labor Arbiter granting petitioner the clearance for the dismissal of private respondent Dolina, it is an act of grave abuse of discretion amounting to lack of jurisdiction on its part to order petitioner to pay private respondent's salaries from 1 April 1979 until the case is finally terminated. PAL contends that said stipulation refers only to the resolution of the case by arbitration and said arbitration of the case was terminated when the Labor Arbiter rendered its decision dated 23 March 1979. PAL argues that the arbitration of the case is limited to and comprises merely the proceedings before the Labor Arbiter such that when the latter renders a decision, arbitration of the dispute is terminated .
Public respondent NLRC on the other hand contends that arbitration is a continuing process from the time the case is referred by the Secretary of Labor to the Arbitration Branch until the final judgment is had on appeal. Since the Labor Arbiter's decision in favor of petitioner did not finally resolve the case in view of the timely appeal by private respondent from said decision, the case was not yet finally terminated by arbitration and Dolina is entitled to be placed in petitioner's payroll until the complaint is finally resolved.
The above contentions call for the proper interpretation of the agreement between the parties, specifically the third stipulation containing the clause "pending final resolution of the case by arbitration."
It is a basic rule in interpretation of contracts that the circumstances under which an instrument was made, including the situation of the subject thereof and the parties to it, may be considered so that the intention of the contracting parties may be judged correctly [Art. 1371, Civil Code of the Philippines; Section 11, Rule 130, Rules of Court; Lim v. Court of Appeals, G.R. No. L-40258, September 11, 1980, 99 SCRA 668.] In the instant case, the stipulation in the 2 March 1977 agreement that Dolina shag be included in the payroll of PAL until final resolution of the case by arbitration was intended to supersede the order of the Regional Director which, by stipulation of the parties, was rendered moot and academic. In lieu of reinstatement and the payment of his backwages, private respondent was included in petitioner's payroll, effective from the time he was preventively suspended until final resolution of the case by arbitration, without having to perform any work for the petitioner. In entering into the agreement, the parties could not have intended to include in the clause "final resolution of the case by arbitration" the whole adjudicatory process, including appeal. For if it were so, even proceedings on certiorari before this Court would be embraced by the term "arbitration" and private respondent will continue to receive monthly salary without rendering any service to the petitioner regardless of the outcome of the proceedings before the Labor Arbiter, for as long as one of the parties appeal to the NLRC and until the case is finally resolved by this Court. This is clearly an absurdity which could not have been contemplated by the parties.
Neither can proceedings on appeal before the NLRC en banc be considered as part of the arbitration proceeding. In its broad sense, arbitration is the reference of a dispute to an impartial third person, chosen by the parties or appointed by statutory authority to hear and decide the case in controversy [Chan Linte v. Law Union and Rock, Ins. Co., 42 Phil. 548 (1921)]. When the consent of one of the parties is enforced by statutory provisions, the proceeding is referred to as compulsory arbitration. In labor cases, compulsory arbitration is the process of settlement of labor disputes by a government agency which has the authority to investigate and to make an award which is binding on all the parties [See Wood v.
Seattle, 23 Wash. 1, 62 P 135, 52 LRA 369 (1920); Amalgamated Association v. Wisconsin Employees' Relations Board, 340 U.S. 383-410,95 L. Ed. 381 (1951)]. Under the Labor Code, it is the Labor Arbiter who is clothed with the authority to conduct compulsory arbitration on cases involving termination disputes [Article 217, Pres. Decree No. 442, as amended]. When the Labor Arbiter renders his decision, compulsory arbitration is deemed terminated because by then the hearing and determination of the controversy has ended. Any appeal raised by an aggrieved party from the Labor Arbiter's decision is already beyond the scope of arbitration since in the appeal stage, the NLRC en banc merely reviews the Labor Arbiter's decision for errors of fact or law and no longer duplicates the proceedings before the Labor Arbiter. Thus, the clause "pending final resolution of the case by arbitration" should be understood to be limited only to the proceedings before the Labor Arbiter, such that when the latter rendered his decision, the case was finally resolved by arbitration.
More important, however, is the fact that the NLRC's order for the continued payment of Dolina's salaries is inconsistent with its affirmance of the Labor Arbiter's decision upholding the validity of Dolina's dismissal. In affirming the Labor Arbiter's decision granting the termination clearance, the NLRC held that:
With respect to the issue of whether or not the complainant's [Dolina] dismissal was sufficiently grounded, we are not persuaded that the respondent [herein petitioner PAL] is under obligation to employ him as regular employee simply because he was certified physically fit and technically to proficient by the CAA.
This is understandable for it concerns the safety of its properties, and above all, the safety of the lives and properties of its passengers, which by law it is committed to transport safely. In the absence, therefore, of any showing that its standards are unreasonable and discriminatory, which we do not find here, We cannot disturb them. We can only say that for exercising extraordinary diligence in the selection of its pilots, We join the public in commending it.
xxx xxx xxx
In fine, it is Our considered view that the respondent's application for clearance to dismiss the complainant has sufficiently surmounted the test of validity.
In view of the above finding of valid dismissal, the NLRC had no authority to order the continued payment of Dolina's salaries from 1 April 1979 until the case is finally
resolved. The NLRC's order would result in compensating Dolina for services no longer rendered and when he is no longer in PAL's employ. This is contrary to the age-old rule of "a fair day's wage for a fair day's labor" which continues to govern the relation between labor and capital and remains a basic factor in determining employees' wages [Durabilt Recapping Plant & Co. v. National Labor Relations Commission, G.R. No. 76746, July 27, 1987, 152 SCRA 328]. So that, if there is no work performed by the employee there can be no wage or pay unless the laborer was able, willing and ready to work but was prevented by management or was illegally locked out, suspended or dismissed. Where the employee's dismissal was for a just cause, it would neither be fair nor just to allow the employee to recover something he has not earned and could not have earned [Santos v. National Labor Relations Commission, G.R. No. 76721, September 21, 1987, 154 SCRA 166].
Moreover, in ordering the continued payment of Dolina's salaries from 1 April 1979 until the case is finally resolved, the NLRC in effect ordered the payment of backwages to Dolina notwithstanding its finding of a valid dismissal.
This is clearly untenable.
In the first place, backwages in general are granted on grounds of equity for earnings which a worker or employee has lost due to his illegal dismissal [New Manila Candy Workers Union (NACONWA-PAFLU) v. Court of Industrial Relations, G.R. No. L-29728, October 30, 1978, 86 SCRA 37; Durabilt Recapping Plant & Co. v. National Labor Relations Commission, supra; Chong Guan Trading v. National Labor Relations Commission, G. R. No. 81471, April 26, 1989; Santos v. National Labor Relations Commission, supra]. Where, as in this case, the dismissal was for a just cause, there is no factual or legal basis for ordering the payment of backwages. The order of the NLRC for the continued payment of Dolina's salaries would allow the latter to unjustly enrich himself at the expense of the petitioner. This Court has reiterated time and again that the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer [Colgate Palmolive Philippines, Inc. v. Ople, G.R. No. 73681, June 30,1988,163 SCRA 323]. In this case, the NLRC chose not to adhere with fidelity to this doctrine.
Secondly, NLRC's order for continued payment of Dolina's salary from 1 April 1979 up to the final resolution of the case would place Dolina in a better position than those workers who were found to have been illegally dismissed by their employer. For in the latter case, the backwages that can be recovered by the worker is limited to three years [Mercury Drug Co., Inc. v. Court of Industrial Relations, G.R. No. L-23357, April 30, 1974, 56 SCRA 694; Philippine Airlines, Inc. v. National Labor Relations Commission, G.R. No. 64809, November 29, 1983, 126 SCRA 223; Madrigal & Co., Inc. v. Zamora, G.R. No. L-48237, Madrigal & Co., Inc. v. Minister of Labor, G.R. No. L-49023, June 30,1987] while Dolina, whose dismissal was found to be
valid, can recover approximately ten years backwages, which corresponds to the period from 1 April 1979 until "final resolution" of the instant case.
Considering the foregoing, the Court holds that respondent NLRC's order for the continued payment of Dolina's salaries from "l April 1979 until the case is finally resolved" is contrary to law and established jurisprudence and the NLRC acted in excess of its jurisdiction in issuing the assailed order. In the recent case of Llora Motors, Inc. v. Drilon, G.R. No. 82895, November 7, 1989 the Court held as an act without or in excess of jurisdiction the portion of the Labor Arbiter's award, which required the employer to pay to its employee an amount equivalent to a half month's pay for every year of service as retirement benefits, for being without basis either in law or contract. Similarly, there is in this case an excess of jurisdiction on the part of the NLRC in ordering the continued payment of Dolina's salaries "from 1 April 1979 until the case is finally resolved."
WHEREFORE, that part of the dispositive portion of the decision of the National Labor Relations Commission in NLRC CASE NO. RB-IV-9319-77 requiring petitioner to restore private respondent to its payroll and ordering the payment of his salaries from 1 April 1979 until the case is finally resolved is hereby declared NULL and VOID and SET ASIDE. The temporary Restraining Order issued by the Court on 10 October 1980 is made PERMANENT.
SO ORDERED.