Heunghwa Industry Co., Ltd. v. DJ Builders
Since the parties agreed
Corporation, G.R. No.
169095, December 8, 2008
Facts:
Heunghwa Industry Co., Ltd. (petitioner) is was able to
secure a contract with the Department of Public Works
and Highways (DPWH) to construct the Roxas-
Langogan Road in Palawan.
Petitioner entered into a subcontract agreement with
respondent DJ Builders Corporation to do earthwork,
sub base course and box culvert of said project. The
agreement contained an arbitration clause. The
agreed price was not fully paid, hence, respondent filed
before the Regional Trial Court (RTC) for "Breach of
Contract, Collection of Sum of Money with Application
for Preliminary Injunction, Preliminary Attachment, and
Prayer for Temporary Restraining Order and Damages".
Petitioner averred that it was not obliged to pay DJ
builders because the latter caused the stoppage of work.
Petitioner further claimed that it failed to collect from the
DPWH due to respondent's poor equipment
performance. Parties submit specific issues, such as
manpower and equipment standby time, unrecouped
mobilization expenses, retention, discrepancy of billings,
and price escalation for fuel and oil usage. The said
motion was granted by the RTC.
Petitioner, filed with the RTC a motion to withdraw the
Order which referred the case to the CIAC, claiming it
never authorized the referral. Petitioner filed in the CIAC
its opposition to the second motion to declare it in
default, with a motion to dismiss informing the CIAC that
it was abandoning the submission of the case to it and
asserting that the RTC had original and exclusive
jurisdiction over Civil Case No. 3421, including the five
issues referred to the CIAC.
Respondent opposed the motion contending that
petitioner was already estopped from asking for the
recall of the Order.
In other words, petitioner is questioning the jurisdiction of
the CIAC; while respondent is questioning the
jurisdiction of the RTC over the case.
On appeal, CA: CA ruled against petitioner's main
argument that the arbitration clause found in the
subcontract agreement between the parties did not refer
to CIAC as the arbitral body. The CA held that the CIAC
had jurisdiction over the controversy because the
construction agreement contained a provision to submit
any dispute for arbitration, and there was a joint motion
to submit certain issues to the CIAC for arbitration.35
Anent petitioner's argument that its previous lawyer was
not authorized to submit the case for arbitration, the CA
held that what is required for a dispute to fall under the
jurisdiction of the CIAC is for the parties to agree to
submit to voluntary arbitration.
to submit to voluntary arbitration in the construction
contract, the authorization insisted upon by petitioner
was a mere superfluity.36
The CA further cited National Irrigation Administration v.
Court of Appeals37 (NIA), where this Court ruled that
active participation in the arbitration proceedings serves
to estop a party from denying that it had in fact agreed to
submit the dispute for arbitration.
Issue: whether or not the CIAC or the RTC has the
jurisdiction over the case.
Held:
Executive Order 100850 grants to the CIAC original and
exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties
involved in construction in the Philippines. In the case at
the bar, it is undeniable that the controversy involves a
construction dispute as can be seen from the issues
referred to the CIAC, to wit:
1. Manpower and equipment standby time;
2. Unrecouped mobilization expenses;
3. Retention;
4. Discrepancy of billings; and
5. Price escalation for fuel and oil usage
The Court notes that the Subcontract
Agreement52 between the parties provides an arbitration
clause, to wit:
Article 7
Arbitration
7. Any controversy or claim between the Contractor and
the Subcontractor arising out of or related to this
Subcontract, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the same
manner and under the same procedure as provided
in the Prime Contract with Respect to claims between
the Owner and the Contractor
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.
Under the present Rules of Procedure, for a particular
construction contract to fall within the jurisdiction of
CIAC, it is merely required that the parties agree to
submit the same to voluntary arbitration. Unlike in the
original version of Section 1, as applied in the Tesco
case, the law as it now stands does not provide that the
parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain
and clear that as long as the parties agree to submit
to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will
not be precluded from electing to submit their
dispute before the CIAC because this right has been
vested upon each party by law, i.e., E.O. No. 1008
Based on the foregoing, there are two acts which may
vest the CIAC with jurisdiction over a construction
dispute. One is the presence of an arbitration clause in a
construction contract, and the other is the agreement by
the parties to submit the dispute to the CIAC.
The first act is applicable to the case at bar. The bare
fact that the parties incorporated an arbitration clause in
their contract is sufficient to vest the CIAC with
jurisdiction over any construction controversy or claim
between the parties. The rule is explicit that the CIAC
has jurisdiction notwithstanding any reference made to
another arbitral body.
To stress, the CIAC was already vested with jurisdiction
the moment both parties agreed to incorporate an
arbitration clause in the sub-contract agreement. Thus, a
subsequent consent by the parties would be superfluous
and unnecessary.
In section 4.2 of the CIAC Rules, the failure despite due
notice which amounts to a refusal of the Respondent to
arbitrate, shall not stay the proceedings notwithstanding
the absence or lack of participation of the
Respondent. In such case, CIAC shall appoint the
arbitrator/s in accordance with these Rules. Arbitration
proceedings shall continue, and the award shall be
made after receiving the evidence of the Claimant.
Therefore, the proceedings cannot then be voided
merely because of the non-participation of petitioner.
Section 4.2 of the CIAC Rules is clear and it leaves no
room for interpretation. Therefore, petitioner's prayer that
the case be remanded to CIAC in order that it may be
given an opportunity to present evidence is untenable.
Petitioner had its chance and lost it, more importantly so,
by its own choice. This Court will not afford a relief that is
apparently inconsistent with the law.
LICOMCEN INC vs Foundation Specialist
Facts: The dispute arose between mall developer
Licomcen, Inc. and contractor Foundation Specialists,
Inc. (FSI) over the suspension of certain works and the
payment of billings and other amounts. Licomcen and
FSI had a Construction Agreement, with General
Conditions of Contract (GCC), whereby FSI undertook to
construct and install bored piles foundation for the LCC
Citimall project in Legazpi City.
Immediately after signing the agreement, FSI began
work on the project but in January 1998, Licomcen
ordered it to halt construction due to an administrative
case filed against officials of the City Government of
Legazpi and Licomcen before the Ombudsman. The
suspension was formalized through a letter of
Licomcens engineering consultant, E.S. de Castro &
Associates (ESCA), to FSI on January 19, 1998. In its
reply letters, FSI claimed payment for work and
materials. ESCA rejected FSIs claims in a letter dated
March 24, 1998.
Three years later, FSI sent a final demand letter to
Licomcen for payment of its claims. As this letter was
ignored, FSI filed a request for arbitration with the CIAC
in October 2002, claiming upaid billings, costs,
unrealized profit, attorneys fees and interest. Licomcen
contested the request, arguing, among others, that (a)
the claims were non-arbitrable because the arbitration
clause provides for the arbitration of disputes in
connection with, or arising out of the execution of the
Works, but FSIs money claims do not involve a dispute
as to the execution of the Works since they do not
involve an issue as to physical construction activities;
and (b) FSI failed to comply with the condition precedent
that a dispute must first be referred to Licomcen for
resolution, and such resolution may only be assailed
within 30 days from receipt thereof through a notice to
contest through arbitration.
The CIAC ruled in favor of FSI, which decision was
upheld with some modification by the Court of Appeals.
Both parties moved for reconsideration, which was
denied.
Issue:
1.) Expansive interpretation of arbitration clause
Held:
Section 4 of E.O. 1008 states:
Sec. 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
dispute 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 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.
The jurisdiction of courts and quasi-judicial bodies is
determined by the Constitution and the law.44 It cannot
be fixed by the will of the parties to a dispute;45 the
parties can neither expand nor diminish a tribunals
jurisdiction by stipulation or agreement. The text of
Section 4 of E.O. 1008 is broad enough to cover any
dispute arising from, or connected with construction
contracts, whether these involve mere contractual
money claims or execution of the works.46 Considering
the intent behind the law and the broad language
adopted, LICOMCEN erred in insisting on its restrictive
interpretation of GC-61. The CIACs jurisdiction cannot
be limited by the parties stipulation that only disputes in
connection with or arising out of the physical
construction activities (execution of the works)
arearbitrable before it.
The Supreme Court ruled that the CIACs jurisdiction
cannot be limited by the parties stipulation that only
disputes in connection with or arising out of the
execution of the Works arearbitrable before the said
agency. According to the Supreme Court, the mere fact
that the parties incorporated an arbitration clause in their
contract ipso facto vested the CIAC with jurisdiction over
any construction controversy or claim between the
parties.
The Supreme Court also added that the parties did not
intend to limit resort to arbitration only to disputes
relating to physical construction activities, holding that
an arbitration clause pursuant to E.O 1008
[Construction Industry Arbitration Law] should be
interpreted at its widest signification. The Tribunal
liberally applied the parties arbitration clause so that
FSIs money claims were considered connected with or
arising out of construction activities, thereby making
such claims arbitrable.
2.) CIAC jurisdiction not subject to condition precedent
In fact, all that is required for the CIAC to acquire
jurisdiction is for the parties to a construction contract to
agree to submit their dispute to arbitration. Section 1,
Article III of the 1988 CIAC Rules of Procedure (as
amended by CIAC Resolution Nos. 2-91 and 3-93)
states:
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.
On the principle that the CIACs jurisdiction can neither
be enlarged nor diminished by the parties, the Supreme
Court also held that such jurisdiction cannot be subject
to a condition precedent. Hence, even if FSI failed to
timely contest Licomcens denial of its money claims by
filing a proper notice of arbitration within 30 days from
the denial, the Supreme Court ruled that the CIAC
acquired jurisdiction of the parties dispute due to the
mere presence of an arbitration clause in their
construction contract.
HUTAMA-RSEA Joint Operations, Inc v. Citra
Metro Manila Tollways Corp
Facts:Respondent is the general contractor and
operator of the Skyway project. Petitioner and
respondent entered into an Engineering Procurement
Construction Contract (EPCC) whereby petitioner would
undertake the construction of Stage 1 of the Skyway
Project. During said construction, petitioner wrote
respondent on several occasions requesting payment of
the formers interim billings, pursuant to provisions of the
EPCC/ however, respondent only partially paid the
interim billings. Respondent failed to do so despite
demands to pay its outstanding balance. Petitioner filed
with CIAC a request for arbitration to enforce its money
claims against respondent.
CIAC ruled that it had jurisdiction over the same. CA
reversed.
Issue: WON CIAC has jurisdiction despite the EPCC
provision requiring prior referral by the parties of their
dispute to the Dispute Adjudication Board
HELD:
Section 4 of Executive Order No. 100818 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.
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 xx." 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.
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.

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.

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