G.R. No.

175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated
July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA
G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court
(RTC) of Makati City a Complaint for Rescission of Contract with Damages3 against petitioner Cargill
Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin
cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses
was to be made in January/February 1997 and payment was to be made by means of an Irrevocable
Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to
September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would
be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at
sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations
under the contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,4 wherein it argued that the alleged contract between the
parties, dated July 11, 1996, was never consummated because respondent never returned the
proposed agreement bearing its written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties
was whether or not the alleged contract between the parties was legally in existence and the RTC
was not the proper forum to ventilate such issue. It claimed that the contract contained an arbitration
clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties.5

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC
must either dismiss the case or suspend the proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for
rescission of contract and could not be changed by the subject arbitration clause. It cited cases
wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void
for being contrary to public policy since it provided that the arbitration award shall be final and
binding on both parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been
rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law
had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue
boiled down to whether the arbitration clause contained in the contract subject of the complaint is
valid and enforceable; that the arbitration clause did not violate any of the cited provisions of the
Arbitration Law.

On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:

Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its answer
within ten (10) days from receipt of a copy of this order.9

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss
the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the
court concerned only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of dismissal.
However, the RTC did not find the suspension of the proceedings warranted, since the Arbitration
Law contemplates an arbitration proceeding that must be conducted in the Philippines under the
jurisdiction and control of the RTC; and before an arbitrator who resides in the country; and that the
arbitral award is subject to court approval, disapproval and modification, and that there must be an
appeal from the judgment of the RTC. The RTC found that the arbitration clause in question
contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in
New York before a non-resident arbitrator (American Arbitration Association); that the arbitral award
shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law
to such an agreement would result in disregarding the other sections of the same law and rendered
them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order10 dated November
25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess
of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the
proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied
with.

Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC
Orders.
In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation
is both valid and constitutional; that arbitration as an alternative mode of dispute resolution has long
been accepted in our jurisdiction and expressly provided for in the Civil Code; that R.A. No. 876 (the
Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in
the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply
because the clause failed to comply with the requirements prescribed by the law. The CA found that
there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must
be conducted only in the Philippines and the arbitrators should be Philippine residents. It also found
that the RTC ruling effectively invalidated not only the disputed arbitration clause, but all other
agreements which provide for foreign arbitration. The CA did not find illegal or against public policy
the arbitration clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration
Law for the purpose of suspending the proceedings before the RTC, since in its Motion to
Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject
contract between the parties did not exist or it was invalid; that the said contract bearing the
arbitration clause was never consummated by the parties, thus, it was proper that such issue be first
resolved by the court through an appropriate trial; that the issue involved a question of fact that the
RTC should first resolve. Arbitration is not proper when one of the parties repudiated the existence
or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is
inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several
defenses, alternatively or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial
court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the arbitration
cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against petitioner on the alleged agreement
dated July 11, 2006 between the parties; and that the same agreement contained the arbitration
clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact remains that the agreement sued upon
provides for an arbitration clause; that respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the
parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and,
assuming that such agreement existed, there was an arbitration clause that should be enforced,
thus, the dispute must first be submitted to arbitration before an action can be instituted in court.
Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to
dismiss a complaint is when a condition precedent for filing the complaint has not been complied
with; and that submission to arbitration when such has been agreed upon is one such condition
precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in declining to
order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been ruled
that the arbitration agreement can be implemented notwithstanding that one of the parties thereto
repudiated the contract which contained such agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order
denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion
prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under
Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable
in this case, especially as to the doctrine of separability enunciated therein. Respondent argues that
even if the existence of the contract and the arbitration clause is conceded, the decisions of the RTC
and the CA declining referral of the dispute between the parties to arbitration would still be correct.
This is so because respondent's complaint filed in Civil Case No. 98-1376 presents the principal
issue of whether under the facts alleged in the complaint, respondent is entitled to rescind its
contract with petitioner and for the latter to pay damages; that such issue constitutes a judicial
question or one that requires the exercise of judicial function and cannot be the subject of arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the
same action several defenses, alternatively or hypothetically, even if such defenses are inconsistent
with each other refers to allegations in the pleadings, such as complaint, counterclaim, cross-claim,
third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that
petitioner's argument is premised on the existence of a contract with respondent containing a
provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis
of the contract, thus, respondent admitted the existence of all the provisions contained thereunder,
including the arbitration clause; that if respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest of the terms and conditions contained
thereunder notwithstanding that respondent may find some provisions to be adverse to its position;
that respondent’s citation of the Gonzales case, decided in 2005, to show that the validity of the
contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the
jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is
effective notwithstanding the fact that one of the parties thereto repudiated the main contract which
contained it.

We first address the procedural issue raised by respondent that petitioner’s petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong
remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales
case), wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal
from an RTC Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration
under R.A. No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered
with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted
with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite
the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum
Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of
review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under
Rule 65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course
of law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales'
petition for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was
the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary
period.

We found that Gonzales’ petition for certiorari raises a question of law, but not a question of
jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making
the determination that there was indeed an arbitration agreement. It had been held that as long as a
court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.14

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of
jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least suspend, the
proceedings a quo, despite the fact that the party’s agreement to arbitrate had not been complied
with. Notably, the RTC found the existence of the arbitration clause, since it said in its decision that
"hardly disputed is the fact that the arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would
result in the disregard of the afore-cited sections of the Arbitration Law and render them useless and
mere surplusages." However, notwithstanding the finding that an arbitration agreement existed, the
RTC denied petitioner's motion and directed petitioner to file an answer.

In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines
the court’s authority only to the determination of whether or not there is an agreement in writing
providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the proceedings shall be
dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer
Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the issue
of whether or not there is an agreement in writing providing for arbitration by directing petitioner to
file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess
of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of
law, petitioner’s resort to a petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be
brought under the arbitration law for the purpose of suspending the proceedings in the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction.16 R.A. No. 87617 authorizes arbitration of domestic disputes. Foreign arbitration, as a
system of settling commercial disputes of an international character, is likewise recognized.18 The
enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute
resolution systems, including arbitration, in the settlement of disputes.19

A contract is required for arbitration to take place and to be binding.20 Submission to arbitration is a
contract 21 and a clause in a contract providing that all matters in dispute between the parties shall
be referred to arbitration is a contract.22 The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the contract and is itself a contract.23

In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association, The
Arbitration Award shall be final and binding on both parties.

The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract
between the parties did not exist or was invalid and arbitration is not proper when one of the parties
repudiates the existence or validity of the contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause
providing for foreign arbitration, it is our considered opinion that the case at bench still cannot be
brought under the Arbitration Law for the purpose of suspending the proceedings before the trial
court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as
one of the grounds thereof, that the alleged contract between the parties do not legally exist or is
invalid. As posited by petitioner, it is their contention that the said contract, bearing the arbitration
clause, was never consummated by the parties. That being the case, it is but proper that such issue
be first resolved by the court through an appropriate trial. The issue involves a question of fact that
the trial court should first resolve.

Arbitration is not proper when one of the parties repudiates the existence or validity of the contract.
Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme
Court held that:

The question of validity of the contract containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or validity.
Indeed, litigants are enjoined from taking inconsistent positions....

Consequently, the petitioner herein cannot claim that the contract was never consummated and, at
the same time, invokes the arbitration clause provided for under the contract which it alleges to be
non-existent or invalid. Petitioner claims that private respondent's complaint lacks a cause of action
due to the absence of any valid contract between the parties. Apparently, the arbitration clause is
being invoked merely as a fallback position. The petitioner must first adduce evidence in support of
its claim that there is no valid contract between them and should the court a quo find the claim to be
meritorious, the parties may then be spared the rigors and expenses that arbitration in a foreign land
would surely entail.24

However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been
modified upon a motion for reconsideration in this wise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself. A contrary ruling would suggest that a party's
mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine, as well as jurisprudence applying it, seeks to
avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before
the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of
fraud, as it had already been determined that the case should have been brought before the regular
courts involving as it did judicial issues.26

In so ruling that the validity of the contract containing the arbitration agreement does not affect the
applicability of the arbitration clause itself, we then applied the doctrine of separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of whether
the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes
that the invalidity of the main contract, also referred to as the "container" contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the
arbitration clause/agreement still remains valid and enforceable.27

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with
Gonzales and the former's move was premised on the existence of a valid contract; while Gonzales,
who resisted the move of Climax-Arimco for arbitration, did not deny the existence of the contract but
merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims that
in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion
to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not
exist or was not consummated; thus, there is no room for the application of the separability doctrine,
since there is no container or main contract or an arbitration clause to speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall
not be regarded as invalid or non-existent just because the main contract is invalid or did not come
into existence, since the arbitration agreement shall be treated as a separate agreement
independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere
repudiation of the main contract is sufficient to avoid arbitration and that is exactly the situation that
the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the
main contract is not prevented from enforcing its arbitration clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between respondent
and petitioner. It is that contract which provides for an arbitration clause which states that "any
dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled
before the City of New York by the American Arbitration Association. The arbitration agreement
clearly expressed the parties' intention that any dispute between them as buyer and seller should be
referred to arbitration. It is for the arbitrator and not the courts to decide whether a contract between
the parties exists or is valid.

Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It
claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is
entitled to rescind the contract with damages; and that issue constitutes a judicial question or one
that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding.
Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the addendum contract and the other
contracts emanating from it, and that the complaint should have been filed with the regular courts as
it involved issues which are judicial in nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines
and Geosciences Bureau, of the Department of Environment and Natural Resources (DENR)
against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc,
seeking the declaration of nullity or termination of the addendum contract and the other contracts
emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for
lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it had
jurisdiction over the dispute maintaining that it was a mining dispute, since the subject complaint
arose from a contract between the parties which involved the exploration and exploitation of minerals
over the disputed area. Respondents assailed the order of the Panel of Arbitrators via a petition
1âwphi1

for certiorari before the CA. The CA granted the petition and declared that the Panel of Arbitrators
did not have jurisdiction over the complaint, since its jurisdiction was limited to the resolution of
mining disputes, such as those which raised a question of fact or matter requiring the technical
knowledge and experience of mining authorities and not when the complaint alleged fraud and
oppression which called for the interpretation and application of laws. The CA further ruled that the
petition should have been settled through arbitration under R.A. No. 876 − the Arbitration Law − as
provided under the addendum contract.

On a review on certiorari, we affirmed the CA’s finding that the Panel of Arbitrators who, under R.A.
No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and
decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for
declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those
mining disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the
adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on
mining disputes have recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between litigants
which are questions of a judicial nature that may be adjudicated only by the courts of justice. This
distinction is carried on even in Rep. Act No. 7942.28

We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents
with disregarding and ignoring the addendum contract, and acting in a fraudulent and oppressive
manner against petitioner, the complaint filed before the Panel was not a dispute involving rights to
mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial
issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it
does not involve the application of technical knowledge and expertise relating to mining. It is in this
context that we said that:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require
the application and interpretation of laws and jurisprudence which is necessarily a judicial function.29

In fact, We even clarified in our resolution on Gonzales’ motion for reconsideration that "when we
declared that the case should not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was
for the nullification of the main contract on the ground of fraud, as it had already been determined
that the case should have been brought before the regular courts involving as it did judicial issues."
We made such clarification in our resolution of the motion for reconsideration after ruling that the
parties in that case can proceed to arbitration under the Arbitration Law, as provided under the
Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution
dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and
SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their
dispute, pursuant to their July 11, 1996 agreement.

SO ORDERED.

G.R. No. 167022 April 4, 2011

LICOMCEN INCORPORATED, Petitioner,

vs.
FOUNDATION SPECIALISTS, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 169678

FOUNDATION SPECIALISTS, INC., Petitioner,

vs.
LICOMCEN INCORPORATED, Respondent.

DECISION

BRION, J.:

THE FACTS

The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the

business of operating shopping malls in the country.

In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a
lease contract over a lot located in the central business district of the city. Under the contract,
LICOMCEN was obliged to finance the construction of a commercial complex/mall to be known as
the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years,
and was, thereafter, required to turn over the ownership and operation to the City Government.1

For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its
engineering consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN
contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically,
the construction and installation of bored piles foundation.2 LICOMCEN and FSI signed the
Construction Agreement,3 and the accompanying Bid Documents4 and General Conditions of
Contract5 (GCC) on September 1, 1997. Immediately thereafter, FSI purchased the materials
needed for the Citimall6 project and began working in order to meet the 90-day deadline set by
LICOMCEN.

On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions
and the suspension of work on the Citimall project. FSI replied on December 18, 1997, expressing
concern over the revisions and the suspension, as it had fully mobilized its manpower and
equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of
accomplished work amounting to ₱3,627,818.00.7 A series of correspondence between LICOMCEN
and FSI then followed.

ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the
bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to
FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to
Manila.8 Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January
14, 1998.9

On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the
project,"10 in view of a pending administrative case against the officials of the City Government of
Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622).11 On January 19,
1998, ESCA formalized the suspension of construction activities and ordered the construction’s
demobilization until the case was resolved.12 In response, FSI sent ESCA a letter, dated February 3,
1998, requesting payment of costs incurred on account of the suspension which totaled
₱22,667,026.97.13 FSI repeated its demand for payment on March 3, 1998.14

ESCA replied to FSI’s demands for payment on March 24, 1998, objecting to some of the claims.15 It
denied the claim for the cost of the steel bars that were delivered, since the delivery was done in
complete disregard of its instructions. It further disclaimed liability for the other FSI claims based on
the suspension, as its cause was not due to LICOMCEN’s fault. FSI rejected ESCA’s evaluation of
its claims in its April 15, 1998 letter.16

On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of
₱29,232,672.83.17 Since LICOMCEN took no positive action on FSI’s demand for payment,18 FSI
filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on
October 2, 2002, docketed as CIAC Case No. 37-2002.19 In the arbitration petition, FSI demanded
payment of the following amounts:

a. Unpaid accomplished work billings……………. P 1,264,404.12

b. Material costs at site…………………………….. 15,143,638.51
c. Equipment and labor standby costs…………….. 3,058,984.34
d. Unrealized gross profit………………………….. 9,023,575.29
e. Attorney’s fees………………………………….. 300,000.00
f. Interest expenses …………... equivalent to 15%
of the total claim

LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to
indefinitely suspend the Citimall project due to the cases filed against it involving its Lease Contract
with the City Government of Legaspi. LICOMCEN also assailed the CIAC’s jurisdiction, contending
that FSI’s claims were matters not subject to arbitration under GC-61 of the GCC, but one that
should have been filed before the regular courts of Legaspi City pursuant to GC-05.20

During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the
CIAC’s jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to
draft the Terms of Reference.21

On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela
Omnibus Motion, insisting that FSI’s petition before the CIAC should be dismissed for lack of
jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until the issue of
jurisdiction was finally settled. The CIAC denied LICOMCEN’s motion in its February 20, 2003
order,22 finding that the question of jurisdiction depends on certain factual conditions that have yet to
be established by ample evidence. As the CIAC’s February 20, 2003 order stood uncontested, the
arbitration proceedings continued, with both parties actively participating.

The CIAC issued its decision on July 7, 2003,23 ruling in favor of FSI and awarding the following
amounts:

a. Unpaid accomplished work billings……………. ₱ 1,264,404.12

b. Material costs at site…………………………… 14,643,638.51
 c. Equipment and labor standby costs…………… 2,957,989.94
d. Unrealized gross profit………………………… 5,120,000.00

LICOMCEN was also required to bear the costs of arbitration in the total amount of ₱474,407.95.

LICOMCEN appealed the CIAC’s decision before the Court of Appeals (CA). On November 23,
2004, the CA upheld the CIAC’s decision, modifying only the amounts awarded by (a) reducing
LICOMCEN’s liability for material costs at site to ₱5,694,939.87, and (b) deleting its liability for
equipment and labor standby costs and unrealized gross profit; all the other awards were
affirmed.24 Both parties moved for the reconsideration of the CA’s Decision; LICOMCEN’s motion
was denied in the CA’s February 4, 2005 Resolution, while FSI’s motion was denied in the CA’s
September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari
before the Court.25

LICOMCEN’s Arguments

LICOMCEM principally raises the question of the CIAC’s jurisdiction, insisting that FSI’s claims are
non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION

Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor
[referring to FSI] or the Engineer [referring to ESCA] and the Contractor in connection with, or arising
out of the execution of the Works, such dispute shall first be referred to and settled by the
LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally
requested by either party to resolve the dispute, issue a written decision to the Engineer and
Contractor.

Such decision shall be final and binding upon the parties and the Contractor shall proceed with the
execution of the Works with due diligence notwithstanding any Contractor's objection to the decision
of the Engineer. If within a period of thirty (30) days from receipt of the LICOMCEN,
INCORPORATED's decision on the dispute, either party does not officially give notice to contest
such decision through arbitration, the said decision shall remain final and binding. However, should
any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision,
contest said decision, the dispute shall be submitted for arbitration under the Construction Industry
Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations
shall have full power to open up, revise and review any decision, opinion, direction, certificate or
valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or
arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being
called as a witness and giving evidence in the arbitration. It is understood that the obligations of the
LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of
the arbitration being conducted during the progress of the Works.26

LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works"
are subject to arbitration. LICOMCEN construes the phrase "execution of the Works" as referring to
the physical construction activities, since "Works" under the GCC specifically refer to the "structures
and facilities" required to be constructed and completed for the Citimall project.27 It considers FSI’s
claims as mere contractual monetary claims that should be litigated before the courts of Legaspi
City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.28

LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid
down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be referred to and settled
by LICOMCEN, which has 30 days to resolve it. If within a period of 30 days from receipt of
LICOMCEN’s decision on the dispute, either party does not officially give notice to contest such
decision through arbitration, the said decision shall remain final and binding. However, should any
party, within 30 days from receipt of LICOMCEN’s decision, contest said decision, the dispute shall
be submitted for arbitration under the Construction Industry Arbitration Law.

LICOMCEN considers its March 24, 1998 letter as its final decision on FSI’s claims, but declares that
FSI’s reply letter of April 15, 1998 is not the "notice to contest" required by GC-61 that authorizes
resort to arbitration before the CIAC. It posits that nothing in FSI’s April 15, 1998 letter states that
FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSI’s final demand
letter of March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN
declares that the letter was made three years after its March 24, 1998 letter, hence, long after the
30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on
October 2, 2002.29 Considering FSI’s delays in asserting its claims, LICOMCEN also contends that
FSI’s action is barred by laches.

With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its
liability for material costs at site for the reinforcing steel bars in the amount of ₱5,694,939.87,
computed as follows30:

2nd initial rebar requirements purchased from Pag-Asa Steel Works,

Inc……………………………….. ₱ 799,506.83
Reinforcing steel bars purchased from ARCA Industrial Sales (total net
weight of 744,197.66 kilograms) – 50% of net amount due………………. 5,395,433.04

Subtotal……………………………………………. 6,194,939.87
Less
Purchase cost of steel bars by Ramon
Quinquileria…………………………………….. (500,000.00)
TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT
SITE……………... 5,694,939.87

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or
goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the
Contractor but not yet used, and which delivery has been certified by the Engineer."31 None of these
requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars
delivered in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars
were delivered not at the site of the Citimall project, but at FSI’s batching plant called Tuanzon
compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the
delivery was done in violation of ESCA’s instruction to ship only 50% of the materials. Advised as
early as December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in
January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI willingly
incurred for itself.32

Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be
minimized by the fact that FSI incurred no actual damage from the purchase and delivery of the steel
bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for ₱500,000.00 to a
third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a
ridiculously low price of ₱ 4.00/kilo, when the prevailing rate was ₱20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCEN’s liability. LICOMCEN also wants FSI to
account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI
would be unjustly enriched at LICOMCEN’s expense, receiving payment for materials not delivered
to LICOMCEN.33

LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of
arbitration. The ruling was apparently based on the finding that LICOMCEN’s "failure or refusal to
meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration."34 LICOMCEN asserts that it was FSI’s decision to proceed with the delivery of the steel
bars that actually caused the dispute; it insists that it is not the party at fault which should bear the
arbitration costs.35

FSI’s Arguments

FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted
the awards for equipment and labor standby costs and unrealized profits.

Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel
bars. Under GC-42, it is enough that the materials were delivered to the contractor, although not
used. FSI said that the 744 metric tons of steel bars were ordered and paid for by it for the Citimall
project as early as November 1997. If LICOMCEN contends that these were procured for other
projects FSI also had in Legaspi City, it should have presented proof of this claim, but it failed to do
so.36

ESCA’s January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to
Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were ordered and
paid for long before the notice to suspend was given; by then, it was too late to stop the delivery. FSI
also claims that since it believed in good faith that the Citimall project was simply suspended, it
expected work to resume soon after and decided to proceed with the shipment.37

Contrary to LICOMCEN’s arguments, GC-42 of the GCC does not require delivery of the materials at
the site of the Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the
Tuanzon compound, where the steel bars were actually delivered, is very close to the Citimall project
site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to
prepare the materials and equipment to be used, rather than stock them in the crowded job/project
site. FSI also asserts that it was useless to have the delivery certified by ESCA because by then the
Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA
and LICOMCEN themselves had prevented from happening.38

The CA deleted the awards for equipment and labor standby costs on the ground that FSI’s
documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN never
questioned the list of employees and equipments employed and rented by FSI for the duration of the
suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While
LICOMCEN cited several other cases in its petition for review on certiorari as grounds for
suspending the works, its letters/notices of suspension only referred to one case, OMB-ADM-1-97-
0622, an administrative case before the Ombudsman that was dismissed as early as October 12,
1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no restraining
order or injunction was issued in any of these cases to justify the suspension of the Citimall
project.40 FSI posits that LICOMCEN’s true intent was to terminate its contract with it, but, to avoid
paying damages for breach of contract, simply declared it as "indefinitely suspended." That
LICOMCEN conducted another public bidding for the "new designs" is a telling indication of
LICOMCEN’s intent to ease out FSI.41 Thus, FSI states that LICOMCEN’s bad faith in indefinitely
suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that
"[t]he contractor shall have no claim for anticipated profits on the work thus terminated,"42 will not
apply because the stipulation refers to a contract lawfully and properly terminated. FSI seeks to
recover unrealized profits under Articles 1170 and 2201 of the Civil Code.

THE COURT’S RULING

The jurisdiction of the CIAC

The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to
establish an arbitral machinery that would expeditiously settle construction industry disputes. The
prompt resolution of problems arising from or connected with the construction industry was
considered of necessary and vital for the fulfillment of national development goals, as the
construction industry provides employment to a large segment of the national labor force and is a
leading contributor to the gross national product.43 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
tribunal’s 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 CIAC’s 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) are
arbitrable before it.
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.

In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,47 the Court
declared that "the bare fact that the parties x x x 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 arbitration clause in the construction contract ipso facto vested the CIAC with
jurisdiction."

Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no
intent to limit resort to arbitration only to disputes relating to the physical construction activities.

First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be
interpreted at its widest signification. Under GC-61, the voluntary arbitration clause covers any
dispute of any kind, not only arising of out the execution of the works but also in connection
therewith. The payments, demand and disputed issues in this case – namely, work billings, material
costs, equipment and labor standby costs, unrealized profits – all arose because of the construction
activities and/or are connected or related to these activities. In other words, they are there because
of the construction activities. Attorney’s fees and interests payment, on the other hand, are costs
directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all
the disputed items.

Second and more importantly, in insisting that contractual money claims can be resolved only
through court action, LICOMCEN deliberately ignores one of the exceptions to the general rule
stated in GC-05:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.

The second exception clause authorizes the submission to arbitration of any dispute between
LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.

If the CIAC’s jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be
subjected to a condition precedent. GC-61 requires a party disagreeing with LICOMCEN’s decision
to "officially give notice to contest such decision through arbitration" within 30 days from receipt of
the decision. However, FSI’s April 15, 1998 letter is not the notice contemplated by GC-61; it never
mentioned FSI’s plan to submit the dispute to arbitration and instead requested LICOMCEN to
reevaluate its claims. Notwithstanding FSI’s failure to make a proper and timely notice, LICOMCEN’s
decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude
resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is
for the parties to agree to submit their dispute to voluntary arbitration:

[T]he 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 vest
CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.48

The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the Philippines.49 This jurisdiction
cannot be altered by stipulations restricting the nature of construction disputes, appointing another
arbitral body, or making that body’s decision final and binding.

The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore,
affirmed.

The validity of the indefinite

suspension of the works on the
Citimall project

Before the Court rules on each of FSI’s contractual monetary claims, we deem it important to
discuss the validity of LICOMCEN’s indefinite suspension of the works on the Citimall project. We
quote below two contractual stipulations relevant to this issue:

GC-38. SUSPENSION OF WORKS

The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to
suspend the Works wholly or partly by written order for such period as may be deemed necessary,
due to unfavorable weather or other conditions considered unfavorable for the prosecution of the
Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for
workers or the general public, or failure or refusal to carry out valid orders, or due to change of plans
to suit field conditions as found necessary during construction, or to other factors or causes which, in
the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the
work wholly or partly directed.

In case of total suspension or suspension of activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to any fault of the Contractor, the elapsed
time between the effective order for suspending work and the order to resume work shall be allowed
the Contractor by adjusting the time allowed for his execution of the Contract Works.

The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of
work when conditions to resume work shall have become favorable or the reasons for the
suspension have been duly corrected.50
GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE
CONTRACT

xxxx

2. For Convenience of LICOMCEN, INCORPORATED

If any time before completion of work under the Contract it shall be found by the LICOMCEN,
INCORPORATED that reasons beyond the control of the parties render it impossible or against the
interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN,
INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and
terminate the Contract in whole or in part. Upon the issuance of such notice of termination, the
Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN,
INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and
only until such time or times as the LICOMCEN, INCORPORATED/Engineer may direct.51

Under these stipulations, we consider LICOMCEN’s initial suspension of the works valid. GC-38
authorizes the suspension of the works for factors or causes which ESCA deems necessary in the
interests of the works and LICOMCEN. The factors or causes of suspension may pertain to a
change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of
ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in
LICOMCEN’s January 15, 1998 letter and ESCA’s January 19, 1998 and February 17, 1998 letters.
It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in
any of the cases filed against LICOMCEN before it can suspend the works. The language of GC-38
gives ESCA/LICOMCEN sufficient discretion to determine whether the existence of a particular
situation or condition necessitates the suspension of the works and serves the interests of
LICOMCEN. 1avvphi 1

Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully
prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38
requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when conditions to
resume work shall have become favorable or the reasons for the suspension have been duly
corrected." The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in
their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but
neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other
cases52 may justify the continued suspension of the works, but LICOMCEN never bothered to inform
FSI of the existence of these cases until the arbitration proceedings commenced. By May 28, 2002,
the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the Citimall
project;53 again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a
rebidding of the Citimall project based on the new design.54 LICOMCEN’s claim that the rebidding
was conducted merely to get cost estimates for the new design goes against the established
practice in the construction industry. We find the CIAC’s discussion on this matter relevant:

But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was
issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral
Tribunal finds said act of asking for bids, without any intention of awarding the project to the lowest
and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be
branded as fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a
set of the new plans, which amount was non-refundable. The presence of x x x deceit makes the
whole story repugnant and unacceptable.55
LICOMCEN’s omissions and the imprudent rebidding of the Citimall project are telling indications of
LICOMCEN’s intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants
LICOMCEN ample discretion to determine what reasons render it against its interest to complete the
work – in this case, the pendency of the other cases and the revised designs for the Citimall project.
Given this authority, the Court fails to the see the logic why LICOMCEN had to resort to an
"indefinite suspension" of the works, instead of outrightly terminating the contract in exercise of its
rights under GC-42(2).

We now proceed to discuss the effects of these findings with regard to FSI’s monetary claims
against LICOMCEN.

The claim for material costs at site

GC-42 of the GCC states:

GC-42 PAYMENT FOR TERMINATED CONTRACT

If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed,
satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of
termination, at the rates and prices provided for in the Contract and in addition:

1. The cost of partially accomplished items of additional or extra work agreed upon by the
LICOMCEN, INCORPORATED and the Contractor.

2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works
which have been delivered to the Contractor but not yet used and which delivery has been
certified by the Engineer.

3. The reasonable cost of demobilization

For any payment due the Contractor under the above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any outstanding balance due from the Contractor for
advances in respect to mobilization and materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.56

For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that

a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;

b. the materials or goods were delivered to the Contractor but not yet used; and

c. the delivery was certified by the Engineer.

Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable
for the cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the
extent of LICOMCEN’s liability because the CA opined that it should be limited only to 50% of the
cost of the steel bars. A review of the records compels us to uphold the CA’s finding.

Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCA’s
January 6, 1998 letter reads:
As per our information to you on December 16, 1997, a major revision in the design of the Legaspi
Citimall necessitated a change in the bored piles requirement of the project. The change involved a
substantial reduction in the number and length of piles.

We expected that you would have suspended the deliveries of the steel bars until the new design
has been approved.

According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.

In order to avoid double handling, storage, security problems, we suggest that only 50% of the total
requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where
storage and security is better.

In order for us to consider additional cost due to the shipping of the excess steel bars, we need to
know the actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot
consider the additional cost if you have had the chance to delay the shipping of the steel bars.57

From the above, it appears that FSI was informed of the necessity of suspending the works as early
as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply
with the order to suspend the work.58 Though ESCA’s December 16, 1997 notice may not have been
categorical in ordering the suspension of the works, FSI’s reply letter of December 18, 1997
indicated that it actually complied with the notice to suspend, as it said, "We hope for the early
resolution of the new foundation plan and the resumption of work."59 Despite the suspension, FSI
claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a)
the steel bars were ordered as early as November 1997 and were already loaded in Manila and
expected to arrive in Legaspi City by December 23, 1997, and (b) it expected immediate resumption
of work to meet the 90-day deadline.60

Records, however, disclose that these claims are not entirely accurate. The memorandum of
agreement and sale covering the steel bars specifically stated that these would be withdrawn from
the Cagayan de Oro depot, not Manila61; indeed, the bill of lading stated that the steel bars were
loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on
January 14, 1998.62 The loading and delivery of the steel bar thus happened after FSI received
ESCA’s December 16, 1997 and January 6, 1998 letters – days after the instruction to suspend the
works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the
extension of the period to complete the works. The relevant portion of
GC-38 states:

In case of total suspension x x x and the cause of which is not due to any fault of the Contractor
[FSI], the elapsed time between the effective order for suspending work and the order to resume
work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract
Works.63

The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de
Oro to Legaspi City, thus negates both FSI’s

argument and the CIAC’s ruling64 that there was no necessity to stop the shipment so as to meet the
90-day deadline. These circumstances prove that FSI acted imprudently in proceeding with the
delivery, contrary to LICOMCEN’s instructions. The CA was correct in holding LICOMCEN liable for
only 50% of the costs of the steel bars delivered.
The claim for equipment and
labor standby costs

The Court upholds the CA’s ruling deleting the award for equipment and labor standby costs. We
quote in agreement pertinent portions of the CA decision:

The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and
maintained at the construction site during the suspension of the project with the prorated rentals
incurred x x x. To the mind of this Court, these lists are not sufficient to establish the fact that indeed
[FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of
equipments is a mere index or catalog of the equipments, which may be utilized at the construction
site. It is not the best evidence to prove that said equipment were in fact rented and maintained at
the construction site during the suspension of the work. x x x [FSI] should have presented the lease
contracts or any similar documents such as receipts of payments x x x. Likewise, the list of
employees does not in anyway prove that those employees in the list were indeed at the
construction site or were required to be on call should their services be needed and were being paid
their salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We
deny the claim for equipment and labor standby costs.65

The claim for unrealized profit

FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:

GC-41. LICOMCEN, INCORPORATED’s RIGHT TO SUSPEND WORK OR TERMINATE THE

CONTRACT

xxxx

2. For Convenience of the LICOMCEN, INCORPORATED

x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the
Contract, but the Contractor shall receive compensation for reasonable expenses incurred in good
faith for the performance of the Contract and for reasonable expenses associated with termination of
the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such
expenses. The Contractor [FSI] shall have no claim for anticipated profits on the work thus
terminated, nor any other claim, except for the work actually performed at the time of complete
discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer
to be done.

The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated,
which was not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit"
from the prohibited claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in
in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the
contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from
the language of the contract itself, according to its plain and ordinary meaning."66 If the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control.67

Nonetheless, on account of our earlier discussion of LICOMCEN’s failure to observe the proper
procedure in terminating the contract by declaring that it was merely indefinitely suspended, we
deem that FSI is entitled to the payment of nominal damages. Nominal damages may be awarded to
a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating
or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him.68 Its award
is, thus, not for the purpose of indemnification for a loss but for the recognition and vindication of a
right. A violation of the plaintiff’s right, even if only technical, is sufficient to support an award of
nominal damages.69 FSI is entitled to recover the amount of ₱100,000.00 as nominal damages.

The liability for costs of arbitration

Under the parties’ Terms of Reference, executed before the CIAC, the costs of arbitration shall be
equally divided between them, subject to the CIAC’s determination of which of the parties shall
eventually shoulder the amount.70 The CIAC eventually ruled that since LICOMCEN was the party at
fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was
LICOMCEN’s imprudent declaration of indefinitely suspending the works that caused the dispute
between it and FSI. LICOMCEN should bear the costs of arbitration.

WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN

INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23,
2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award
of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN
INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:

a. ₱1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;

b. ₱5,694,939.87 for material costs at site; and

c. ₱100,000.00 for nominal damages.

LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.

SO ORDERED.

G.R. Nos. 159561-62 October 3, 2012

R.V. SANTOS COMPANY, INC., Petitioner,

vs.
BELLE CORPORATION, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

For disposition of the Court is a Petition for Review on Certiorari, assailing the Court of Appeals'
Decision1 dated March 7, 2003 and Resolution2 dated August 20, 2003 in the consolidated cases
docketed as CA-G.R. SP Nos. 60217 and 60224. In its Decision dated March 7, 2003, the Court of
Appeals affirmed the July 28, 2000 Decision3 in CIAC Case No. 45-99 of the Construction Industry
Arbitration Commission (CIAC), which, among others, (a) ordered RV Santos Company, Inc.
(RVSCI) to refund the amount of P4,940,108.58 to Belle Corporation (Belle), and (b) denied Belle’s
claim for liquidated damages and RVSCI’s counterclaims for unpaid billings and attorney’s fees. In
the assailed August 20, 2003 Resolution, the Court of Appeals denied the parties’ respective
motions for reconsideration of its March 7, 2003 Decision.

The present controversy arose from a Request for Adjudication4 filed by Belle with the CIAC on
November 3, 1999. According to the Complaint5 attached to said Request, Belle and RVSCI entered
into a Construction Contract on July 14, 1997. As stipulated therein, RVSCI undertook to construct a
detailed underground electrical network for Belle’s Tagaytay Woodlands Condominium Project
located in Tagaytay City6 with a project cost that shall not be more than Twenty-Two Million Pesos
(P22,000,000.00), inclusive of all taxes, government fees and the service fee under the
Contract.7 Likewise under said contract, Belle advanced to RVSCI fifty percent (50%) of the contract
price in the amount of Eleven Million Pesos (P11,000,000.00)8 for which RVSCI issued to Belle an
official receipt9 dated August 8, 1997.

Some time thereafter, RVSCI commenced work on the project. Under Article VII(A) of the
Construction Contract, the project was supposed to be completed and ready for operation within 180
calendar days from receipt by RVSCI of the notice to commence from Belle, provided that all civil
related works necessary for the execution of the project works were in place. However, the project
was allegedly not completed within the stipulated time frame.

On March 17, 1998, Belle’s Woodlands General Committee supposedly set April 21, 1998 as the
target date for completion of the Log Home Units in Woodlands. In a Memorandum10 dated April 14,
1998, Belle purportedly informed RVSCI of the target date and urged the latter to complete the
project on or before said deadline. Still the project was not completed on April 21, 1998.

Subsequently, in June 1998, Belle placed additional work orders with RVSCI, who in turn made the
following cost estimates for the additional work:

Additional Order No. 1 P3,854,400.00

Installation of 7 units of Load break
switch, 102 units of kw-hrs. meters
and fabrication of 21 sets of Bus ducts
Additional Order No. 2 541,528.54

Supply and installation of one (1) unit

MDP-DTIA
Additional Order No. 3 158,612.00

Various work orders issued to RVSCI ----------------------

P4,554,540.5411

Belle admittedly approved RVSCI’s cost estimates for Additional Order Nos. 1 and 2 but the former
allegedly did not approve the cost estimate for Additional Order No. 3 which Belle estimated should
only cost P22,442.47. Nonetheless, RVSCI proceeded to implement Additional Order Nos. 1 and 3
while Belle itself accomplished Additional Order No. 2.

On August 10, 1998, RVSCI submitted its Progress Billing12 to Belle, claiming 53.3% accomplishment
of the project, including the work done for Additional Order No. 1, as set forth above. RVSCI claimed
that the value of the work accomplished under the August 10, 1998 Progress Billing was
P7,159,216.63 on the main project and P1,768,000.00 on the additional work order. After deducting
50% of the Progress Billing on the main project, the total amount billed by RVSCI was
P5,347,608.03. Purportedly relying on RVSCI’s representations, Belle’s project engineer
recommended approval of the Progress Billing.

Subsequently, however, Belle reputedly made its own assessment of the work accomplished by
RVSCI and determined that it was only worth P4,676,724.64. Belle supposedly relayed its findings to
RVSCI.13

On September 30, 1998, while negotiations were allegedly on-going between the parties regarding
the payment of the Progress Billing, Belle claimed that RVSCI unceremoniously abandoned the
project without prior notice and forced Belle to take over the construction work therein. Belle
purportedly sent a Memorandum14 dated December 15, 1998 to RVSCI to convey its "extreme
disappointment" over the latter’s abandonment of the project.

On January 11, 1999, the parties’ representatives met and during that meeting RVSCI allegedly
advised Belle that it will not return to the site until the outstanding balance due to it is paid.15

Meanwhile, on January 22, 1999, Belle made an additional payment for electrical works to RVSCI in
the amount of P476,503.30. This payment was evidenced by an official receipt16 issued by RVSCI.
Belle likewise remitted the amount of P122,491.14 to the Bureau of Internal Revenue representing
the withholding tax due from RVSCI.

In February 1999, Belle engaged the services of an assessor, R.A. Mojica and Partners (R.A.
Mojica), to determine the value of the work done by RVSCI. After it conducted an electrical works
audit, R.A. Mojica reported to Belle that the work accomplished by RVSCI on the main project only
amounted to P4,868,443.59 and not P7,159,216.05 as billed by RVSCI.17

In Belle’s view, it had overpaid RVSCI, based on the following computation:

Downpayment P11,000,000.00

Withholding Tax Payable 122,491.14

Additional Payment for electrical works
(Billing #01) 476,503.33
===============
P11,598,994.44

LESS:

Actual Value of Work Accomplished 4,868,443.59

Approved Change of Specifications and

Additional Work Orders 1,790,442.70

-------------------
NET DUE TO BELLE P 4,940,108.15 18
RVSCI allegedly refused to return the excess payment despite repeated demands. Thus, relying on
the arbitration clause in the Construction Contract, Belle brought the matter before the CIAC and
prayed that RVSCI be directed to (a) reimburse Belle the amount of P4,940,108.15, and (b) pay
Belle the amount of P2,200,000.00 as liquidated damages.19

By way of defense, RVSCI claimed that its August 10, 1998 Progress Billing was a result of a
"bilateral assessment" by the representatives of both parties and was, in fact,
approved/recommended for payment by Belle’s representatives. RVSCI complained that Belle
segregated the project into two phases (Phase 1 and Phase 2) with Phase 1 comprising the area
already worked on by RVSCI and Phase 2 comprising the "unworked" area. It was Belle which
advised RVSCI in a meeting on January 11, 1999 that the former was suspending Phase 2 of the
project due to economic difficulties. RVSCI allegedly made several demands for payment of its
Progress Billing but Belle ignored said demands. Thus, in view of Belle’s suspension of the work and
the nonpayment of the progress billing, RVSCI was purportedly forced to stop work on the project,
despite being fully prepared to comply with its obligations under the contract. RVSCI further asserted
that it was not notified of, nor made privy to, the audit work conducted by R.A. Mojica and therefore
RVSCI was not bound by such audit. Insisting on the accuracy of its Progress Billing, RVSCI
interposed a counterclaim against Belle for the payment of the amount of P4,312,170.95, computed
thus:

Progress Billing P 7,159,216.05

Remaining MDPs for delivery
Under original contract (11 sets @
P327,128.54) P 3,598,413.94

Approved Change of
Specifications and Additional
Work Order/s (dated August 10, 1998
and September 30, 1998) P 4,554,540.95
P
Total
15,312,170.95
P
Less: Advance Payment
11,000,000.00

Net Due to RVSCI P 4,312,170.95 20

RVSCI prayed for the dismissal of the Complaint and for the CIAC to order Belle to pay the following
amounts: (a) P4,312,170.95 as balance of RVSCI’s progress billing(s), (b) P500,000.00 as moral
damages, and (c) P500,000.00 as attorney’s fees and costs of suit.21

At the preliminary conference, the parties agreed on the Terms of Reference for the arbitration of
their respective claims. According to the Terms of Reference, the admitted facts and the issues to be
resolved by the arbitration panel were as follows:

II. ADMITTED FACTS

The parties admit the following:

1. Their respective identity/juridical existence and circumstances.

2. The genuineness and due execution of the Contract (attached as Annex A of the
Complaint) for the construction of a detailed underground electrical network for the Tagaytay
Woodlands Condominium Project in Tagaytay City entered into by the parties on 14 July
1997 for a contract price of P22,000,000.00.

3. Article IV, Section 4.2 of the Construction Contract which provide (sic) that the "Contractor
RVSCI guarantees and warrants that the total project cost shall not be more than
P22,000,000.00, inclusive of all taxes and government fees and the service fee under the
Contract."

4. Sec. 6.2(a), Art. VI of the Construction Contract which provides that: "Owner Belle shall
advance to Contractor an amount equivalent to 50% of the Contract Price or the amount of
P11,000,000.00, as down payment for the construction, upon execution of the Contract,
receipt of which is hereby acknowledged by Contractor. Progress payments to be made by
Owner to Contractor, proportionate to the percentage of accomplishment of the Project, shall
be deducted from the balance of the Contract Price. The same proportion of the down
payment shall also be deducted from billing progress payments."

5. The payment made by Claimant to Respondent in the amount of P11,000,000.00 as

acknowledged to have been received under Official Receipt No. 0706 issued by the latter on
8 August 1997 (attached as Annex B of the Complaint).

6. The following proposed cost estimate of the Respondent on Claimant’s additional work
orders in June 1998:

Additional Order No. 1 Installation of 7 units of Load break

switch, 102 units of kw-hrs. meters and
fabrication of 21 sets of Bus ducts. P3,854,400.00
Additional Order No. 2 Supply and installation of one (1) unit
MDP-DTIA 541,528.54
Additional Order No. 3 Various work orders issued to RVSCI 158,612.00
--------------------
P4,554,540.54
=============

7. Claimant approved Respondent’s proposed estimates on Additional Orders Nos. 1 and 2,

but disputed the cost estimate of Additional Order No. 3. Thereafter, Respondent proceeded
to implement additional Orders Nos. 1 and 3.

8. Progress Billing No. 1 (attached as Annex D of the Complaint) which Claimant received on
10 August 1998.

9. On 11 January 1999, the parties’ representatives met to discuss the reasons for
Respondent’s failure/refusal to return to the Site. These representatives were Fernando R.
Santico, Edgardo F. Villarino & Rudy P. Aninipot, for the Claimant, and Renato V. Santos &
Joey C. Caldeo, for the Respondent.
 10. Claimant made additional payment to Respondent for electrical works on 22 January
1999 amounting to P476,503.30 as per Official Receipt No. 0717 issued by Respondent
(attached as Annex G of the Complaint).

11. Existence of Respondent’s letter to Claimant dated 4 May 1999 re: Underground
Electrical Utilities (attached as Annex A of the Reply).

xxxx

IV. ISSUES TO BE DETERMINED

1. Is Claimant entitled to its claims for overpayment? If so, how much should be returned to
the Claimant?

1.1 How much was the work accomplished by Respondent in the project?

1.2 Whether or not Respondent has manufactured/produced and/or installed 11 sets

of Main Distribution Panels? If so, is Claimant liable and for how much should it be
liable to pay Respondent for their cost/value?

1.3 Whether or not Respondent is entitled to its claim for unpaid billings?

2. Is Claimant entitled to its claim for liquidated damages? If so, how much by way of
liquidated damages should be awarded to it?

2.1 Was Respondent justified in suspending its work?

2.2 Is Respondent justified in declining to return to work?

3. Is Respondent entitled to its counterclaim for attorney’s fees? If so, how much is Claimant
liable to Respondent for such claim?22

The Terms of Reference further indicated the parties’ agreement that the presentation of their
testimonial evidence shall be by way of affidavits of witnesses. Hearings were held on March 24 and
28, 2000. Thereafter, the parties submitted their draft Decisions to the arbitral tribunal.

In a Decision dated July 28, 2000, the CIAC found that, under the Construction Contract23 and
industry practice, Belle had the right to the true value of the work performed by RVSCI upon
termination. Further, the CIAC ruled that according to the Uniform General Conditions of Contract for
Private Construction (CIAP Document 102), approval of a progress billing is provisional24 and is
subject to final review and approval before acceptance of the completed work and prior to final
payment.25 Hence, Belle was within its rights to make a reevaluation of the work accomplishment of
RVSCI. Finding that Engr. Raladin A. Mojica qualified as an expert witness, the CIAC gave weight to
the results of the re-survey done by R.A. Mojica and held that Belle indeed made an overpayment to
RVSCI. Since the date when RVSCI commenced work on the Project and the supposed completion
date cannot be determined, the CIAC found no basis to award liquidated damages in favor of Belle.
The arbitral tribunal likewise denied RVSCI’s counterclaims. Thus, the dispositive portion of the
CIAC Decision reads:

WHEREFORE, award is hereby made as follows:

 1. Claimant’s Belle’s claim for refund of P4,940,108.58, representing overpayment to the
Respondent is hereby granted. Respondent is, therefore, ordered to pay this amount to
Claimant with interest at the rate of 6% per annum from the date of this Award.

2. Claimant’s claim for liquidated damages and Respondent’s counterclaims for an alleged
balance due and unpaid on progress billings and for attorney’s fees are denied.

3. Arbitration fees and expenses shall be shared by the parties pro rata on the basis of the
amount of their claims and counterclaims.

4. The amount of P4,940,108.58 found in paragraph 1 of this Award to be due the Claimant
plus interest at 6% per annum shall further earn interest at the rate of 12% per annum from
the time this decision becomes final and executory and the total amount found to be due
remains unpaid.26

Both Belle and RVSCI filed petitions for review under Rule 43 of the Rules of Court to assail the
foregoing CIAC Decision with the Court of Appeals, which were docketed as CA-G.R. SP No. 60217
and CA-G.R. SP No. 60224, respectively. Upon motion by the parties, the cases were consolidated
and after due proceedings, the Court of Appeals issued a Decision dated March 7, 2003, dismissing
the petitions and affirming the CIAC Decision. The separate motions for reconsideration of the
parties were likewise denied by the Court of Appeals in a Resolution dated August 20, 2003.

RVSCI elevated the matter to this Court and questioned the Court of Appeals’ March 7, 2003
Decision and August 20, 2003 Resolution through the present petition for review on certiorari under
Rule 45. The grounds relied upon by RVSCI were:

I. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT THE SURVEYOR’S

ELECTRICAL WORK AUDIT WAS COMPETENT AND MUST BE GIVEN WEIGHT.

II. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT BELLE MAY
WITHDRAW ITS APPROVAL OF THE PROGRESS BILLING PURSUANT TO ARTICLES
VI(2)(C) AND XIII(4) OF THE CONTRACT.

III. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT RVSCI IS NOT
ENTITLED TO AN AWARD FOR DAMAGES.27

Anent the first ground, RVSCI argued that R.A. Mojica’s electrical work audit that was unilaterally
commissioned by Belle was not binding on the former since (a) it was not authorized by the Contract
and was done without the consent or participation of RVSCI; (b) assuming that the Contract allowed
Belle to commission such audit, it was incomplete as it failed to cover the entire work performed by
RVSCI as shown by its Progress Billing and Bill of Quantities, allegedly approved by Belle; and (c)
the audit was tainted by obvious partiality since R.A. Mojica was a regular contractor of Belle and a
competitor of RVSCI.

With respect to the second ground, it is RVSCI’s contention that Article VI, Section 6.2(c) of the
Construction Contract merely differentiate acceptance by Belle of RVSCI’s work accomplishment
from time to time from Belle’s final acceptance of work upon completion of the entire project. Also
RVSCI claims that Article XIII, Section 13.4 only allows Belle to determine the true value of the
works in cases of termination of the Contract upon occurrence of any of the events of default
enumerated under Article XIII, Section 13.1 and said provision has no application in instances of
justified suspension of works due to Belle’s breach of the Contract. In any event, it is RVSCI’s view
that neither Article VI, Section 6.2(c) nor Article XIII, Section 13.4 allows Belle to withdraw its
previous approval of RVSCI’s Progress Billing, contrary to the rulings of both the CIAC and the Court
of Appeals. Assuming without conceding that Article XIII, Section 13.4 of the Contract applies in this
instance, RVSCI believes that the final determination of the value of the works should be made by
(a) both parties or (b) an independent third party mutually commissioned by them.

As for the last ground, RVSCI asserts that the CIAC and the Court of Appeals erred in denying
RVSCI’s claim for damages in view of Belle’s breach of the Contract by its unjustified refusal or
failure to pay the Progress Billing.

On the other hand, Belle claims that the Petition should be dismissed for raising questions of fact,
which are improper in a petition under Rule 45 of the Rules of Court, without showing that this case
fell under the recognized exceptions under jurisprudence. On the merits of the Petition, Belle argued
that it had the right to determine the true value of work done and nothing in the Contract limited that
right. According to Belle, the CIAC and the Court of Appeals properly relied on Article VI, Section
6.2(c) and Article XIII, 13.4 of the Contract and on industry practice in upholding Belle’s right for a re-
evaluation of RVSCI’s actual work accomplishment. Thus, the CIAC and the appellate court
allegedly were correct in giving weight to the electrical audit report made by R.A. Mojica. Belle
further propounds that the lower tribunals correctly did not grant RVSCI any award for damages
considering that RVSCI did not prove such damages as it had, in fact, been overpaid. As for
RVSCI’s claim for the value of materials and equipment purportedly left at the site, the same was not
included in the Terms of Reference and RVSCI was not allowed by the CIAC to present evidence on
the same. Thus, this matter cannot be raised for the first time on appeal.

After a thorough review of the issues raised by the parties, the Court finds no merit in the Petition.

On the procedural issue:

It must be stressed that in petitions for review under Rule 45 only questions of law may be raised,
unless the petitioner shows that the case falls under the recognized exceptions. In Makati Sports
Club, Inc. v. Cheng,28 we explained, thus:

At the outset, we note that this recourse is a petition for review on certiorari under Rule 45 of the
Rules of Court. Under Section 1 of the Rule, such a petition shall raise only questions of law which
must be distinctly alleged in the appropriate pleading. In a case involving a question of law, the
resolution of the issue must rest solely on what the law provides for a given set of facts drawn from
the evidence presented. Stated differently, there should be nothing in dispute as to the state of facts;
the issue to be resolved is merely the correctness of the conclusion drawn from the said facts. Once
it is clear that the issue invites a review of the probative value of the evidence presented, the
question posed is one of fact. If the query requires a reevaluation of the credibility of witnesses, or
the existence or relevance of surrounding circumstances and their relation to each other, then the
issue is necessarily factual.29 (Emphases supplied, citation omitted.)

In cases decided by the CIAC, the above rule finds even more stringent application. As we
previously observed in one case:

Executive Order No. 1008, as amended, provides, in its Section 19, as follows:

"Sec. 19. Finality of Awards. — The arbitral award shall be binding upon the parties. It shall be final
and inappealable except on questions of law which shall be appealable to the Supreme Court."

Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the
Supreme Court - which is not a trier of facts - in respect of an arbitral award rendered under the
aegis of the CIAC. Consideration of the animating purpose of voluntary arbitration in general, and
arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above
principle embodied in Section 19 that the Arbitral Tribunal’s findings of fact shall be final and
unappealable.

xxxx

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in
any other area for that matter, the Court will not assist one or the other or even both parties in any
effort to subvert or defeat that objective for their private purposes. The Court will not review the
factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended
the facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here had recourse to arbitration and chose
the arbitrators themselves; they must have had confidence in such arbitrators. The Court will not,
therefore, permit the parties to relitigate before it the issues of facts previously presented and argued
before the Arbitral Tribunal, save only where a very clear showing is made that, in reaching its
factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as
to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. Prototypical examples
would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of
a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through
fraud or the corruption of arbitrators. Any other, more relaxed, rule would result in setting at naught
the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile
institution.30 (Emphasis supplied, citations omitted.)

In another case, we have also held that:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals. In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves
affirmatively that: (1) the award was procured by corruption, fraud or other undue means;

(2) there was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators were
guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or
more of the arbitrators were disqualified to act as such under Section nine of Republic Act No. 876
and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or (5) 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.

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the
corruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the
CIAC, and (3) when a party is deprived of administrative due process.31 (Citations omitted.)
In the case at bar, petitioner indeed raises factual matters in the present controversy which this
Court may not look into under a petition for review on certiorari. We likewise find that this case is not
among the exceptions to this settled rule. Nevertheless, even if we were to excuse this procedural
infirmity of the petition, we are still not inclined to reverse the lower tribunals’ findings on the merits
of the case.

On the substantive matters:

Whether the third party audit report
commissioned by Belle is admissible and
may be given weight

To recapitulate, petitioner assailed R.A. Mojica’s audit report on the following grounds: (a) that there
was no provision in the Construction Contract allowing Belle to unilaterally conduct an audit of
petitioner’s work; (b) assuming the Contract allows such an audit, it nonetheless failed to include all
the work done by petitioner; and (c) it was tainted by bias and partiality since R.A. Mojica was a
regular, long time contractor of Belle.

On this issue, we uphold the CIAC and the Court of Appeals in their allowance of the third party audit
report done by R.A. Mojica.

First, while there was no provision in the Construction Contract expressly authorizing Belle to secure
the services of a third party auditor to determine the value of the work accomplished by petitioner
RVSCI, there is likewise no provision prohibiting the same. Certainly, RVSCI failed to point to any
contractual stipulation preventing RVSCI to seek expert opinion regarding the value of RVSCI’s
accomplishment or the accuracy of the Progress Billing, whether prior or subsequent to the approval
of such billing.

Second, the mere fact that the audit was unilateral, or was not participated in by petitioner, did not
render the same objectionable. There is nothing in the Construction Contract which obligates Belle
to inform RVSCI or to secure the latter’s participation should the former decide to commission an
audit of the work accomplished. On the contrary, in case of termination due to default of the
contractor, Article XIII, Section 13.4 of the Construction Contract explicitly allows Belle to unilaterally
evaluate the value of the work and the only condition is that it be done in good faith. Even assuming
arguendo we accept RVSCI’s contentions that it justifiably suspended work and that Article XIII,
Section 13.4 merely covers instances of default and not situations of justified suspension of works,
we see no reason why the procedure for cessation of work due to default cannot be applied to other
instances of cessation of work, particularly in the absence of a contractual provision governing
termination or suspension of works in situations not involving a default.

Verily, the fact that the parties agreed to a unilateral valuation of the work by the owner in the event
of a termination of the contract due to default signifies that the parties, including RVSCI, did not find
anything abhorrent in a one-sided valuation at the time of the execution of the contract. If RVSCI
believed that this was unfair or that its participation should be required in a review or audit of its
work, then it should not have acquiesced to such a provision in the first place and instead insisted on
a stipulation prohibiting a unilateral audit of its work.

Third, bias on the part of a witness cannot be presumed. It is a basic rule that good faith is always
presumed and bad faith must be proved.32 In a previous case, we have held that the witness’
employment relationship with, or financial dependence on, the party presenting his testimony would
not be sufficient reason to discredit said witness and label his testimony as biased and unworthy of
credence.33 Analogously, that Belle and R.A. Mojica had a long standing business relationship does
not necessarily mean that the latter’s report was tainted with irregularity, especially in the absence of
evidence that the audit report was indeed inaccurate or erroneous. It must be emphasized as well
that RVSCI had ample opportunity to cross-examine Engr. Mojica with respect to the particulars of
his company’s audit report.

To be sure, RVSCI is not precluded from proffering evidence to rebut the findings of R.A. Mojica.
However, RVSCI did not present or point to documents, invoices, and receipts to show that the
amounts and quantities in the audit report were not correct, nor did RVSCI convincingly substantiate
its assertion that it had completed work in other areas of the project that was not included in said
report. RVSCI merely relied on its own Progress Billing as supposedly signed by Belle’s
representatives. However, it is that Progress Billing which was later questioned by Belle on the
suspicion that the same was bloated and inaccurate. Thus, Belle had a third party conduct an audit
of RVSCI’s actual work accomplishment. As the CIAC noted, there was nothing to prevent RVSCI to
secure the services of its own expert witness to contest the findings of R.A. Mojica and buttress the
accuracy of its Progress Billing with supporting documents other than such billing but RVSCI did not.

Hence, we find no error on the part of the CIAC and the Court of Appeals in relying on the third party
audit report and giving it due weight in the resolution of the present case.

Whether Belle’s approval of the Progress

Billing is final and binding and may no
longer be withdrawn

After careful consideration of the contentions of the parties, we agree with the CIAC’s finding, as
affirmed by the Court of Appeals, that the owner’s approval of progress billing is merely provisional.
This much can be gleaned from Article VI, Section 6.2(c) of the Construction Contract which states
that "[t]he acceptance of work from time to time for the purpose of making progress payment shall
not be considered as final acceptance of the work under the Contract." There can be no other
interpretation of the said provision but that progress billings are but preliminary estimates of the
value of the periodic accomplishments of the contractor. Otherwise, there would be no need to
include Article VI, Section 6.2(c) in the Contract since final acceptance of the contractor’s work
would come as a matter of course if progress billings were, as RVSCI contends, final and binding
upon the owner. On the contrary, progress billings and final acceptance of the work were clearly still
subject to review by the owner.

Moreover, we see no reason to disturb the CIAC ruling that the foregoing contractual provision is
consistent with industry practice, as can be deduced from Articles 22.02, 22.04 and 22.09 of CIAP
Document 102 which pertinently state:

22.02 REQUESTS FOR PAYMENT: The Contractor may submit periodically but not more than once
each month a Request for Payment for work done. The Contractor shall furnish the Owner all
reasonable facilities required for obtaining the necessary information relative to the progress and
execution of the Work. x x x.

xxxx

22.04 CONDITIONS RELATIVE TO PAYMENTS: The Owner shall estimate the value of work
accomplished by the Contractor using as basis the schedule stipulated in the Breakdown of Work
and Corresponding Value. Such estimate of the Owner of the amount of work performed shall be
taken as the basis for the compensation to be received by the Contractor. While such preliminary
estimates of amount and quantity shall not be required to be made by strict measurement or with
exactness, they must be made as close as possible to the actual percentage of work
accomplishment.
xxxx

22.09 ACCEPTANCE AND FINAL PAYMENT: Whenever the Contractor notifies the Owner that the
Work under the Contract has been completely performed by the Contractor, the Owner shall proceed
to verify the work, shall make the final estimates, certify to the completion of the work, and accept
the same.

From the above-quoted provisions, it is readily apparent that, whether in the case of progress billings
or of turn-over of completed work, the owner has the right to verify the contractor’s actual work
accomplishment prior to payment.

In all, we approve the CIAC’s pronouncement that "[t]he owner is, therefore, not estopped from
questioning a prior evaluation of the percentage of accomplishment of the contractor and to
downgrade such accomplishment after re-evaluation. It is the right of every owner to re-evaluate or
re-measure the work of its contractor during the progress of the work."34

Whether Belle should be made liable to RVSCI for damages

Anent the third issue, it is apropos to state here that the rationale underlying the owner’s right to
seek an evaluation of the contractor’s work is the right to pay only the true value of the work as may
be reasonably determined under the circumstances.

This is consistent with the law against unjust enrichment under Article 22 of the Civil Code which
states that "every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him." Expounding on this provision in a recent case, we have held
that "the principle of unjust enrichment essentially contemplates payment when there is no duty to
pay, and the person who receives the payment has no right to receive it."35

In the case at bar, we uphold the CIAC’s factual finding that the value of the total work accomplished
by RVSCI on the main project was P4,868,443.59 while the cost of the additional work amounted to
P1,768,000.00 plus P22,442.27, for a total of P6,658,885.86. On the other hand, Belle had made
payments in the total amount of P11,598,994.44.36 It is thus undeniable that RVSCI had received
payments from Belle in excess of the value of its work accomplishment. In light of this overpayment,
it seems specious for RVSCI to claim that it has suffered damages from Belle’s refusal to pay its
Progress Billing, which had been proven to be excessive and inaccurate. Bearing in mind the law
and jurisprudence on unjust enrichment, we hold that RVSCI is indeed liable to return what it had
received beyond the actual value of the work it had done for Belle.1âwphi1

On a related note, this Court cannot grant RVSCI’s claim for the value of materials and equipment
allegedly left at the site. As observed by the CIAC, this particular claim was not included in the
Terms of Reference and, hence, could not be litigated upon or proved during the CIAC proceedings.

In conclusion, the CIAC rightly dismissed RVSCI's counterclaims for lack of merit.

WHEREFORE, the instant petition for review is DENIED. The Decision dated March 7, 2003 and the
Resolution dated August 20, 2003 of the Court 'of Appeals in CA-G.R. SP Nos. 60224 and 60217
are AFFIRMED.

SO ORDERED.
G.R. No. 172525 October 20, 2010

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner,

vs.
RRN INCORPORATED,* Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that
the Decision1 of the Court of Appeals (CA) dated February 22, 2006, affirming the Decision of the
Construction Industry Arbitration Commission (CIAC), and the CA Resolution2 dated April 26, 2006,
denying herein petitioner's motion for reconsideration, be reversed and set aside.

The facts, as accurately narrated in the CA Decision, are as follows.

Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic corporation

organized under Philippine laws. Private respondent RRN Incorporated (hereinafter respondent) is
likewise a domestic corporation organized under Philippine laws.

Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid account
which consists of unpaid portions of the sub-contract, variations and unused materials in the total
sum of ₱5,275,184.17 and legal interest in the amount of ₱442,014.73. Petitioner filed a
counterclaim for overpayment in the amount of ₱2,512,997.96.

The parties admitted several facts before the CIAC. It was shown that petitioner and respondent
executed an Agreement and Conditions of Sub-contract (hereafter Agreement signed on June 11,
1996 and June 14, 1996, respectively. Respondent signified its willingness to accept and perform for
petitioner in any of its projects, a part or the whole of the works more particularly described in
Conditions of Sub-Contract and other Sub-contract documents.

On June 11, 2002, the parties executed a "Supply of Manpower, Tools/Equipment, Consumables for
the Electrical Works-Power and Equipment Supply, Bus Duct Installation" for the Phillip Morris
Greenfield Project (hereafter Project) covered by Purchase Order Nos. 4501200300-000274 and
4501200300-000275 amounting to ₱15,724,000.00 and ₱9,276,000.00 respectively, or a total
amount of ₱25,000,000.00. The parties also agreed that respondent will perform variation orders in
the Project. In connection with the Project, petitioner supplied manpower chargeable against
respondent.

Respondent was not able to finish the entire works with petitioner due to financial difficulties.
Petitioner paid respondent a total amount of ₱26,547,624.76. On June 25, 2005 [should read 2003],
respondent, through its former counsel sent a letter to petitioner demanding for the payment of its
unpaid balance amounting to ₱5,275,184.17. Petitioner claimed material back charges in the amount
of ₱4,063,633.43. On September 26, 2003, respondent only acknowledged ₱2,371,895.33 as
material back charges. Thereafter, on October 16, 2003, respondent sent another letter to petitioner
for them to meet and settle their dispute.

On January 8, 2004, respondent sent another letter to petitioner regarding the cost of equipment
rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a letter to
respondent denying any unpaid account and the failure in their negotiations for amicable settlement.
On September 3, 2004, respondent, through its new counsel, advised petitioner of their intention to
submit the matter to arbitration. Thereafter, their dispute was submitted to arbitration. During the
preliminary conference, the parties agreed in their Terms of Reference to resolve eight issues, to wit:

1. What should be the basis in evaluating the variation cost?

1.1 How much is the variation cost?

2. Is the Respondent (petitioner in the instant case) justified in charging claimant (herein
respondent) the equipment rental fee and for the use of the scaffoldings? If so, how much
should be charged to Claimant?

3. What should be the basis in evaluating the total cost of materials supplied by Respondent
to the Project which is chargeable to Claimant?

3.1 How much is the total cost of materials supply chargeable to Claimant?

4. How much is the value of the remaining works left undone by the Claimant in the project?

5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the
value thereof?

6. Is the Respondent entitled to its claim for an overpayment in the amount of

₱2,512,997.96?

7. Is Claimant entitled to its claim for interest? If so, how much?

8. Who between the parties shall bear the cost of Arbitration?

The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The
dispositive portion of said decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is ordered to
pay claimant its unpaid account in the sum of ₱3,728,960.54 plus legal interest of 6% reckoned from
June 25, 2003 up to the filing of the case on October 11, 2004 and 12% of ₱3,728,960.54 from the
finality of the judgment until fully paid and arbitration cost of ₱104,333.82 representing claimant's
share of the arbitration cost which respondent should reimburse.

SO ORDERED.]

Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue No.
2 in so far as the amount of ₱440,000.00 awarded as back charges for the use of scaffoldings. x x x3

On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the CIAC.
The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof that the parties had an
agreement regarding charges for respondent's use of the manlift. As to the other charges for
materials, the CA held that the evidence on record amply supports the CIAC findings. Petitioner
moved for reconsideration of said ruling, but the same was denied per Resolution dated April 26,
2006.

Hence, this petition where it is alleged that:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN
IT DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT OF
₱511,000.00 DESPITE EVIDENCE ON RECORD THAT RESPONDENT RRN ACTUALLY USED
AND BENEFITED FROM THE MANLIFT EQUIPMENT.

II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE

HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE HONORABLE
SUPREME COURT.

III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE
CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:

A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT

OF MATERIAL SUPPLY, WHICH INCLUDED THE INVENTORIED MATERIALS.

B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO

ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE
MATERIALS CAME FROM RESPONDENT RRN OR FROM PETITIONER AND THAT IT
WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID MATERIALS AS PART OF
REMAINING WORKS THAT PETITIONER TOOK OVER FROM RESPONDENT RRN.

C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM

OR DOUBLE ENTRY BECAUSE IN THE COMPUTATION OF THE FINAL ACCOUNT,
RESPONDENT RRN WAS CREDITED THE FULL CONTRACT PRICE AND THE COST OF
VARIATIONS, WHICH INCLUDED THE INVENTORIED MATERIALS.

IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE

COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY
DISREGARDED THE PROVISION OF THE SUBCONTRACT, WHICH ALLOWED PAYMENT OF
ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING WORKS THAT
PRIVATE RESPONDENT ADMITTEDLY FAILED TO COMPLETE.

V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT

COMPLETELY DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER
IN COMPLETING THE REMAINING WORKS.

VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED
THE CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT
RRN.4

The petition is bereft of merit.

Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear
that what petitioner seeks is for this Court to recalibrate the evidence it has presented before the
CIAC. It insists that its evidence sufficiently proves that it is entitled to payment for respondent's use
of its manlift equipment, and even absent proof of the supposed agreement on the charges petitioner
may impose on respondent for the use of said equipment, respondent should be made to pay based
on the principle of unjust enrichment. Petitioner also questions the amounts awarded by the CIAC for
inventoried materials, and costs incurred by petitioner for completing the work left unfinished by
respondent.
As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,5 to
wit:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but also finality, especially when affirmed by the Court of Appeals. In particular,
factual findings of construction arbitrators are final and conclusive and not reviewable by
this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves
affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there
was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators were guilty of
misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or more of
the arbitrators were disqualified to act as such under Section nine of Republic Act No. 876 and
willfully refrained from disclosing such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or (5) 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. 1avv p++i1

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the
corruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the
CIAC, and (3) when a party is deprived of administrative due process.6

A perusal of the records would reveal that none of the aforementioned circumstances, which would
justify exemption of this case from the general rule, are present here. Such being the case, the
Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze anew the
evidence presented before the arbitration body.7

Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the
Court in University of the Philippines v. Philab Industries, Inc.8 is highly instructive, thus:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations
of others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that
another party knowingly received something of value to which he was not entitled and that the state
of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a
term used to depict result or effect of failure to make remuneration of or for property or benefits
received under circumstances that give rise to legal or equitable obligation to account for them; to be
entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust
enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the
doctrine of restitution.

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him.

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the
defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the
defendant is without just or legal ground, and (4) that the plaintiff has no other action based on
contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is no
other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action
under any other institution of positive law, that action must be resorted to, and the principle of accion
in rem verso will not lie.9

As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's free
use of the manlift was without legal ground based on the provisions of their contract. Thus, the third
requisite, i.e., that the enrichment of respondent is without just or legal ground, is missing. In
addition, petitioner's claim is based on contract, hence, the fourth requisite − that the plaintiff has no
other action based on contract, quasi-contract, crime or quasi-delict − is also absent. Clearly, the
principle of unjust enrichment is not applicable in this case.

The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting
its claims for costs of some materials.

Again, these issues are purely factual and cannot be properly addressed in this petition for review
on certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and
Construction Corp.,10 it was emphasized that mathematical computations, the propriety of arbitral
awards, claims for "other costs" and "abandonment" are factual questions. Since the discussions of
the CIAC and the CA in their respective Decisions show that its factual findings are supported by
substantial evidence, there is no reason why this Court should not accord finality to said findings.
Verily, to accede to petitioner's request for a recalibration of its evidence, which had been thoroughly
studied by both the CIAC and the CA would result in negating the objective of Executive Order No.
1008, which created an arbitration body to ensure the prompt and efficient settlement of disputes in
the construction industry. Thus, the Court held in Uniwide Sales Realty and Resources Corporation
v. Titan-Ikeda Construction and Development Corporation,11 that:

x x x The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that
such body had "misapprehended facts" and will not pass upon issues which are, at bottom, issues of
fact, no matter how cleverly disguised they might be as "legal questions." The parties here had
recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts
previously presented and argued before the Arbitral Tribunal, save only where a clear showing is
made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious
and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction.12

As discussed above, there is nothing in the records that point to any grave abuse of discretion
committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with
prevailing jurisprudence.13
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated
February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.

G.R. No. 179628 January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner,

vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.

DECISION

DEL CASTILLO, J.:

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law.
Section 41 of Executive Order (E.O.) No. I 008, otherwise known as the Construction Industry
Arbitration Law, "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."2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the
Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 96815.

Factual Antecedents

On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction
Contract Agreement (CCA)6 with Aegean Construction and Development Corporation (Aegean) for
the construction of a six-storey commercial building in Tomas Morato corner E. Rodriguez Avenue,
Quezon City.7 To guarantee its full and faithful compliance with the terms and conditions of the CCA,
Aegean posted performance bonds secured by petitioner The Manila Insurance Company,
Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra Strata).9

On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses
filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a Complaint,10 docketed as
Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on the performance bonds
they issued in the amounts of ₱2,760,000.00 and ₱4,440,000.00, respectively.11

Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party Complaint,13 with
attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.

Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states no
cause of action16 and that the filing of the Complaint is premature due to the failure of respondent-
spouses to implead the principal contractor, Aegean.17 The RTC, however, denied the motion in an
Order18 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and Cross-
claim,19 followed by a Third Party Complaint20 against Aegean and spouses Ronald and Susana
Nicdao.

During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by respondent-
spouses and Aegean contained an arbitration clause.21

Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of
jurisdiction.
Ruling of the Regional Trial Court

On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for
reconsideration but their motions were denied by the RTC in its subsequent Order24 dated
September 11, 2006.

Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.25

Ruling of the Court of Appeals

On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that the
presence of an arbitration clause in the CCA does not merit a dismissal of the case because under
the CCA, it is only when there are differences in the interpretation of Article I of the construction
agreement that the parties can resort to arbitration.27 The CA also found no grave abuse of discretion
on the part of the RTC when it disregarded the fact that the CCA was not yet signed at the time
petitioner issued the performance bond on February 29, 2000.28 The CA explained that the
performance bond was intended to be coterminous with the construction of the building.29 It pointed
out that "if the delivery of the original contract is contemporaneous with the delivery of the surety’s
obligation, each contract becomes completed at the same time, and the consideration which
supports the principal contract likewise supports the subsidiary one."30 The CA likewise said that,
although the contract of surety is only an accessory to the principal contract, the surety’s liability is
direct, primary and absolute.31 Thus:

WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion
attended the issuance of the order of the public respondent denying the petitioner’s motion to
dismiss.

IT IS SO ORDERED.32

Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated September
7, 2007.

Issues

Hence, this petition raising the following issues:

A.

THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE
DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION
AGREEMENT THAT THE PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.

B.

THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD

OF A SOLIDARY GUARANTOR.

C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE
WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA
INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34

Petitioner’s Arguments

Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when
there is difference in the interpretation of the contract documents stated in Article I of the
CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has original and
exclusive jurisdiction over construction disputes, such as the instant case.36

Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor
instead of a solidary guarantor.37 Petitioner argues that while a surety is bound solidarily with the
obligor, this does not make the surety a solidary co-debtor.38 A surety or guarantor is liable only if the
debtor is himself liable.39 In this case, since respondent-spouses and Aegean agreed to submit any
dispute for arbitration before the CIAC, it is imperative that the dispute between respondent-spouses
and Aegean must first be referred to arbitration in order to establish the liability of Aegean.40 In other
words, unless the liability of Aegean is determined, the filing of the instant case is premature.41

Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution
of the CCA.42 Petitioner claims that since there was no existing contract at the time the performance
bond was executed, respondent-spouses have no cause of action against petitioner.43 Thus, the
complaint should be dismissed.44

Respondent spouses’ Arguments

Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case
because there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the
CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for arbitration
proceedings.47 Respondent-spouses also insist that petitioner as a surety is directly and equally
bound with the principal.48 The fact that the performance bond was issued prior to the execution of
the CCA also does not affect the latter’s validity because the performance bond is coterminous with
the construction of the building.49

Our Ruling

The petition has merit.

Nature of the liability of the surety

A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees
the performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the provisions of Act No. 536, as
amended by Act No. 2206."50 We have consistently held that a surety’s liability is joint and several,
limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in
relation to the principal contract between the obligor and the obligee.51 It bears stressing, however,
that although the contract of suretyship is secondary to the principal contract, the surety’s liability to
the obligee is nevertheless direct, primary, and absolute.52
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety)
to collect on the performance bond it issued. Petitioner, however, seeks the dismissal of the
Complaint on the grounds of lack of cause of action and lack of jurisdiction.

The respondent-spouses have cause of action against the petitioner; the performance bond is
coterminous with the CCA

Petitioner claims that respondent-spouses have no cause of action against it because at the time it
issued the performance bond, the CCA was not yet signed by respondent-spouses and Aegean.

We do not agree.

A careful reading of the Performance Bond reveals that the "bond is coterminous with the final
acceptance of the project."53 Thus, the fact that it was issued prior to the execution of the CCA does
not affect its validity or effectivity.

But while there is a cause of action against petitioner, the complaint must still be dismissed for lack
of jurisdiction.

The CIAC has jurisdiction over the case

Section 4 of E.O. No. 1008 provides that:

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 the law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines.

Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur:
"first, the dispute must be somehow connected to a construction contract; and second, the parties
must have agreed to submit the dispute to arbitration proceedings."54

In this case, both requisites are present.

The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the
execution and performance of the CCA by reason of difference in interpretation of the Contract
Documents x x x which the parties are unable to resolve amicably between themselves."55 Article
XVII of the CCA reads:

ARTICLE XVII – ARBITRATION

17.1 Any dispute arising in the course of the execution and performance of this Agreement by
reason of difference in interpretation of the Contract Documents set forth in Article I which the
OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall be
submitted by either party to a board of arbitrators composed of Three (3) members chosen as
follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be
chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable
to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from
the first meeting of the board, which decision when reached through the affirmative vote of at least
Two (2) members of the board shall be final and binding upon the OWNER and CONTRACTOR. 1âw phi 1

17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall
be governed by the provisions of the Arbitration Law, Executive Order No. 1008.56

In William Golangco Construction Corporation v. Ray Burton Development Corporation,57 we

declared that monetary claims under a construction contract are disputes arising from "differences in
interpretation of the contract" because "the matter of ascertaining the duties and obligations of the
parties under their contract all involve interpretation of the provisions of the contract."58 Following our
reasoning in that case, we find that the issue of whether respondent-spouses are entitled to collect
on the performance bond issued by petitioner is a "dispute arising in the course of the execution and
performance of the CCA by reason of difference in the interpretation of the contract documents."

The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of
the CIAC because the issue of whether respondent-spouses are entitled to collect on the
performance bond, as we have said, is a dispute arising from or connected to the CCA.

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the argument
that the jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend to surety
contracts. In that case, we declared that "although not the construction contract itself, the
performance bond is deemed as an associate of the main construction contract that it cannot be
separated or severed from its principal. The Performance Bond is significantly and substantially
connected to the construction contract that there can be no doubt it is the CIAC, under Section 4 of
E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60

In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with
the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC
must be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City,
Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.

SO ORDERED.

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC CORPORATION,
Respondent.

DECISION
BRION, J.:

The fundamental importance of this case lies in its delineation of the extent of permissible judicial
review over arbitral awards. We make this determination from the prism of our existing laws on the
subject and the prevailing state policy to uphold the autonomy of arbitration proceedings.

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-G.R. SP. No.
112384 that reversed an arbitral award and dismissed the arbitral complaint for: lack of merit.1 The
CA breached the bounds of its jurisdiction when it reviewed the substance of the arbitral award
outside of the permitted grounds under the Arbitration Law.2

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig
City to Signetics Filipinas Corporation (Signetics) for a period of 25 years (until May 28, 2003).
Signetics constructed a semiconductor assembly factory on the land on its own account.

In 1983, Signetics ceased its operations after the Board of Investments (BOI) withdrew the
investment incentives granted to electronic industries based in Metro Manila.

In 1986, Team Holdings Limited (THL) bought Signetics. THL later changed its name to Technology
Electronics Assembly and Management Pacific Corp. (TEAM).

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably
settle the dispute, both parties executed a Memorandum of Agreement (MOA) on June 9,
1988.3 Under the MOA, TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for the
period of December 1986 to June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was renewable for
another 25 years upon mutual agreement. The contract included an arbitration agreement:5

17. ARBITRATION

In the event of any dispute o~ disagreement between the parties hereto involving the interpretation
or implementation of any provision of this Contract of Lease, the dispute or disagreement shall be
referred to arbitration by a three (3) member arbitration committee, one member to be appointed by
the LESSOR, another member to be appointed by the LESSEE, and the third member to be
appointed by these two members. The arbitration shall be conducted in accordance with the
Arbitration Law (R.A. No. 876).

The contract also authorized TEAM to sublease the property. TEAM subleased the property to
Capitol Publishing House (Capitol) on December 2, 1996 after notifying Fruehauf.

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease. 6

On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol only vacated
the premises on March 5, 2005. In the meantime, the master lease between TEAM and Fruehauf
expired on June 9, 2003.

On March 9, 2004, Fruehauf instituted SPProc. No.11449 before the Regional Trial
Court (RTC) for "Submission of an Existing Controversy for Arbitration." 7 It alleged: (1) that when the
lease expired, the property suffered from damage that required extensive renovation; (2) that when
the lease expired, TEAM failed to turn over the premises and pay rent; and (3) that TEAM did not
restore the property to its original condition as required in the contract. Accordingly, the parties are
obliged to submit the dispute to arbitration pursuant to the stipulation in the lease contract.

The RTC granted the petition and directed the parties to comply with the arbitration clause of the
contract. 8

Pursuant to the arbitration agreement, the dispute was referred to a three-member arbitration
tribunal. TEAM and Fruehauf appointed one member each while the Chairman was appointed by the
first two members. The tribunal was formally constituted ion September 27, 2004 with retired CA
Justice Hector L. Hofileña, as chairman, retired CA Justice Mariano M. Umali and Atty. Maria Clara
B. Tankeh-Asuncion as members.9

The parties initially submitted the following issues to the tribunal for resolution: 10

1. Whether or not TEAM had complied with its obligation to return the leased premises to Fruehauf
after the expiration of the lease on June 9, 2003.

1.1. What properties should be returned and in what condition?

2. Is TEAM liable for payment of rentals after June 9, 2003?

2.1. If so, how much and for what period?

3. Is TEAM liable for payment of real estate taxes, insurance, and other expenses on the leased
premises after June 9, 2003?

4. Who is liable for payment of damages and how much?

5. Who is liable for payment of attorney's fees and how much?

Subsequently, the following issues were also submitted for resolution after TEAM proposed 11 their
inclusion:

1. Who is liable for the expenses of arbitration, including arbitration fees?

2. Whether or not TEAM has the obligation to return the premises to Fruehauf as a
"complete, rentable, and fully facilitized electronic plant."

The Arbitral Award12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as (the balance
of) unpaid rent from June 9, 2003 until March 5, 2005; and (2) 46.8 million pesos as damages. 13

The tribunal found that Fruehauf made several demands for the return of the leased premises before
and after: the expiration of the lease14 and that there was no express or implied renewal of the lease
after June 9, 2003. It recognized that the sub-lessor, Capitol, remained in possession of the lease.
However, relying on the commentaries of Arturo Tolentino on the subject, the tribunal held that it was
not enough for lessor to simply vacate the leased property; it is necessary that he place the thing at
the disposal of the lessor, so that the latter can receive it without any obstacle. 15
For failing to return the property' to Fruehauf, TEAM remained liable for the payment of rents.
However, if it can prove that Fruehauf received rentals from Capitol, TEAM can deduct these from its
liability. 16 Nevertheless, the award of rent and damages was without prejudice to TEAM's right to
seek redress from its sub-lessee, Capitol. 17

With respect to the improvements on the land, the tribunal viewed the situation from two
perspectives:

First, while the Contract admitted that Fruehauf was only leasing the land and not the buildings and
improvements thereon, it nevertheless obliged TEAM to deliver the buildings, installations and other
improvements existing at the inception of the lease uponits expiration. 18

The other view, is that the MOA and the Contract recognized that TEAM owned the existing
improvements on the property and considered them as separate from the land for the initial 15-year
term of the lease. 19 However, Fruehauf had a vested right to become the owner of these
improvements at the end of the 15-year term. Consequently, the contract specifically obligated
TEAM not to remove, transfer, destroy, or in any way alienate or encumber these improvements
without prior written consent from Fruehauf. 20

Either way, TEAM had the obligation to deliver the existing improvements on the land upon the
expiration of the lease. However, there was no obligation under the lease to return the premises as
a "complete, rentable, and fully facilitized electronics plant."21Thus, TEAM's obligation was to vacate
the leased property and deliver to Fruehauf the buildings, improvements, and installations (including
the machineries and equipment existing thereon) in the same condition as when the lease
commenced, save for what had been lost or impaired by 1the lapse of time, ordinary wear and tear,
or any other inevitable cause. 22

The tribunal found TEAM negligent in the maintenance of the premises, machineries, and equipment
it was obliged to deliver to Fruehauf. 23 For this failure to conduct the necessary repairs or to notify
Fruehauf of their necessity, the tribunal held TEAM accountable for damages representing the value
of the repairs necessary to restore the premises to a condition "suitable for the use to which it has
been devoted' less their depreciation expense.24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate taxes,
insurance, and other expenses on the leased premises considering these obligations can only arise
from a renewal of the contract.25 Further, the tribunal refused: to award attorney's fees, finding no
evidence that either party acted in bad faith. 26 For the same reason, it held both parties equally liable
for the expenses of litigation, including the arbitrators' fees. 27

TEAM moved for reconsideration28 which the tribunal denied. 29 Thus, TEAM petitioned the RTC to
partially vacate or modify the arbitral award.30 It argued that the tribunal failed to properly appreciate
the facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC31 found insufficient legal grounds under Sections 24 and 25 of the
Arbitration Law to modify or vacate the award.32 It denied the petition and CONFIRMED, the arbitral
award. 33 TEAM filed a Notice of Appeal.

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because according to
Section 29 35 of the Arbitration Law, an ordinary appeal under Rule 41 is not the proper mode of
appeal against an order confirming an arbitral award. 36
TEAM moved for reconsideration but the R TC denied the motion on November 15, 2009.37 Thus,
TEAM filed a petition for certiorari38before the CA arguing that the RTC gravely abused its discretion
in: (1) denying due course to its notice of appeal; and (2) denying the motion to partially vacate
and/or modify the arbitral award.39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the RTC's order
confirming, modifying, correcting, or vacating an arbitral award. 40 It argued that Rule 42 was not
available because the order denying its motion to vacate was not rendered in the exercise of the
RTC's appellate jurisdiction. Further, Rule 43 only applies to decisions of quasi-judicial bodies.
Finally, an appeal under Rule 45 to the Supreme Court would preclude it from raising questions of
fact or mixed questions of fact and law.41

TEAM maintained that it was appealing the RTC's order denying its petition to partially vacate/modify
the award, not the arbitral award itself. 42 Citing Rule 41, Section 13 of the Rules of Court, the
RTC's authority to dismiss the appeal is limited to instances when it was filed out of time or when the
appellant fails to pay the docket fees within the reglementary period.43

TEAM further maintained that the RTC gravely abused its discretion by confirming the Arbitral
Tribunal's award when it evidently had legal and factual errors, miscalculations, and ambiguities. 44

The petition was docketed as CA-G.R. SP. No.112384.

The CA decision 45

The CA initially dismissed the petition. 46 As the RTC did, it cited Section 29 of the Arbitration Law:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this
Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals
shall be limited to questions of law. The proceedings upon such appeal, including the judgment
thereon shall be governed by the Rules of Court in so far as they are applicable.

It concluded that the appeal contemplated under the law is an appeal by certiorari limited only to
questions of law.47

The CA continued that TEAM failed to substantiate its claim as to the "evident miscalculation of
figures." It further held that disagreement with the arbitrators' factual determinations and legal
conclusions does not empower courts to amend or overrule arbitral judgments.48

However, the CA amended its decision on October 25, 2012 upon a motion for reconsideration.49

The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved party from
resorting to other judicial remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51the CA
held that the aggrieved party may resort to a petition for certiorari when the R TC to which the award
was submitted for confirmation Has acted without jurisdiction, or with grave abuse of discretion and
there is no appeal, nor any plain, speedy remedy in the course of law.52

The CA further held that the mere filing of a notice of appeal is sufficient as the issues raised in the
appeal were not purely questions of law. 53 It further cited Section 46 of the Alternative Dispute
Resolution

(ADR) Law:54
SEC. 46. Appeal from Court Decisions on 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 of 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 appellant court to post 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. 55

However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules) which govern the appeal procedure.

The CA further revisited the merits of the arbitral award and found several errors in law and in fact. It
held: (1) that TEAM was not obliged to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease;56 and (2) that Fruehauf was not entitled
to compensation for the repair$ on the buildings because it did not become the owner of the building
until after the expiration of the lease. 57

Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has abandoned the
premises should, as a general rule, constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with another person, such as the
sub-lessor, operates as a resumption of his possession.58

On the issue of damages, the CA held that TEAM can never be liable for the damages for the repairs
of the improvements on the premises because they were owned by TEAM itself (through its
predecessor, Signetics) when the lease commenced. 59

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral complaint for
lack of merit.60

This CA action prompted Fruehauf to file the present petition for review.

The Arguments

Fruehauf argues that courts do riot have the power to substitute their judgment for that of the
arbitrators.61 It also insists that an ordinary appeal is not the proper remedy against an RTC's order
confirming, vacating, correcting or modifying an arbitral &ward but a petition for review
on certiorari under Rule 45. 62

Furthermore, TEAM's petition before the CA went beyond the permissible scope of certiorari - the
existence of grave abuse of discretion or errors jurisdiction - by including questions of fact and law
that challenged the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a
petition to vacate the award, (2) a petition for review under Rule 43 raising questions of fact, of law,
or mixed questions of fact and law, or (3) a petition for certiorari under Rule 65.64 Fruehauf cites an
article from the Philippine Dispute Resolution Center65 and Insular Savings Bank v. Far East Bank
and Trust, Co.66
TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral
tribunal's errors were sufficient grounds to vacate or modify the award.67 It insists that the RTC's
misappreciation of the facts from a patently erroneous award warranted an appeal under Rule 41.68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of fact and not
only on questions of law," specifically, "on factual matters relating to specificprovisions in the
contract on ownership of structures and improvements thereon, and the improper award of
rentals and penalties."69Even assuming that it availed of the wrong mode of appeal, TEAM posits
that its appeal should still have been given due course in the interest of substantial justice. 70

TEAM assails the inconsistencies of Fruehauf’s position as to the available legal remedies against
an arbitral award.71 However, it maintains that Section 29 of the Arbitration Law does not foreclose
other legal remedies (aside from an appeal by certiorari) against the RTC's order confirming or
vacating an arbitral award pursuant to Insular Savings Bank WINS) Japan Co., Ltd. 72

The Issues

This case raises the following questions:

1. What are the remedies or the modes of appeal against an unfavorable arbitral award?

2. What are the available remedies from an RTC decision confirming, vacating, modifying, or
correcting an arbitral award?

3. Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the building
and rental fees from the expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court

system. Although adversarial in character, arbitration is technically not litigation. It is a voluntary
process in which one or more arbitrators - appointed according to the parties' agreement or
according to the applicable rules of the Alternative Dispute Resolution (ADR) Law - resolve a dispute
by rendering an award. 73 While arbitration carries many advantages over court litigation, in :many
ways these advantages also translate into its disadvantages.

Resort to arbitration is voluntary. It requires consent from both parties in the form of an arbitration
clause that pre-existed the dispute or a subsequent submission agreement. This written
arbitration agreement is an independent and legally enforceable contract that must be complied with
in good faith. By entering into an arbitration agreement, the parties agree to submit their dispute to
an arbitrator (ortribunal) of their own choosing and be bound by the latter's resolution.

However, this contractual and consensual character means that the parties cannot implead a third-
party in the proceedings even if the latter's participation is necessary for a complete settlement of the
dispute. The
tribunal does not have the power to compel a person to participate in the arbitration proceedings
without that person's consent. It also has no authority to decide on issues that the parties did not
submit (or agree to submit) for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the records, the
evidence, and the arbitral award, are confidential 74 unlike court proceedings which are generally
public. This allows the parties to avoid negative publicity and protect their privacy. Our law highly
regards the confidentiality of arbitration proceedings that it devised a judicial remedy to prevent or
prohibit the unauthorized disclosure of confidential information obtained therefrom. 75

The contractual nature of arbitral proceedings affords the parties I substantial autonomy over the
proceedings. The parties are free to agree on the procedure to be observed during the
proceedings. 76 This lends considerable flexibility to arbitration ; proceedings as compared to court I
litigation governed by the Rules of Court.

The parties likewise appoint the arbitrators based on agreement. There are no other legal
requirements as to the competence or technical qualifications of an arbitrator. Their only legal
qualifications are: (1) being of legal age; (2) full-enjoyment of their civil rights; and (3) the ability to
read and write.77 The parties can tailor-fit the tribunal's composition to the nature of their dispute.
Thus, a specialized dispute can be resolved by experts on the subject.

However, because arbitrators do not necessarily have a background in law, they cannot be expected
to have the legal mastery of a magistrate. There is a greater risk that an arbitrator might misapply
the law or misappreciate the facts en route to an erroneous decision.

This risk of error is compounded by the absence of an effective appeal mechanism. The errors of
an; arbitral tribunal are not subject to correction by the judiciary. As a private alternative to court
proceedings, arbitration is meant to be an end, not the beginning, of litigation. 78Thus, the
arbitral award is final and binding on the parties by reason of their contract - the arbitration
agreement. 79

An Arbitral Tribunal does not exercise

quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and determine questions
of fact to which legislative policy is to apply, and (2) to decide in accordance with the standards laid
down by the law itself in enforcing and administering the same law.80Quasi-judicial power is only
exercised by administrative agencies - legal organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or by
necessary implication conferred upon them by their enabling statutes.81 Like courts, a quasi-judicial
body's jurisdiction over a subject matter is conferred by law and exists independently from the will of
the parties. As government organs necessary for an effective legal system, a quasi-judicial tribunal's
legal existence, continues beyond the resolution of a specific dispute. In other words, quasi-judicial
bodies are creatures of law.

As a contractual and consensual: body, the arbitral tribunal does not have any inherent powers over
the parties. It has no power to issue coercive writs or compulsory processes. Thus, there is a need
to resort to the regular courts for interim measures of protection 82 and for the recognition or
enforcement of the arbitral award. 83
The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation.
Upoh the rendition of the final award, the tribunal becomes functus officio and - save for a few
exceptions84 - ceases to have any further jurisdiction over the dispute.85 The tribunal's powers (or in
the case of ad hoc tribunals, their very existence) stem from the obligatory force of the arbitration
agreement and its ancillary stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

We are aware of the contrary view expressed by the late Chief Justice Renato Corona in ABS-CBN
Broadcasting Corporation v. World Interactive Network Systems (WINS)Japan Co., Ltd. 87

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial instrumentality" of the
government 88 pursuant to Luzon Development Bank v. Association of Luzon Development Bank
Employees, 89 Sevilla Trading Company v. Sernana, 90 Manila Midtown Hotel v.
Borromeo, 91 and Nippon Paint Employees Union-Olalia v. Court of Appeals. 92 Hence, voluntary
arbitrators are included in the Rule 43 jurisdiction of the Court of Appeals:

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 No. 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.93 (emphasis supplied)

Citing Insular Savings Bank v. Far East Bank and Trust Co., 94 the ABS-CBN Case pronounced that
the losing party in an arbitration proceeding may avail of three alternative remedies: (1) a petition to
vacate the arbitral award before the RTC; (2) a petition for review with the CA under Rule 43 of the
Rules of Court raising questions of fact, of law, or of both; and (3) a I petition for certiorari under Rule
65 should the arbitrator act beyond its jurisdiction or with grave abuse of discretion. 95

At first glance, the logic of this position appears to be sound. However, a critical examination of the
supporting authorities would show that the conclusion is wrong.

First, the pronouncements made in the ABS-CBN Case and in the Insular Savings Bank
Case (which served as the authority for the ABS-CBN Case) were both obiter dicta.

In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was filed as
an "alternative petition for review under Rule 43 or petition for certiorari under Rule 65." 96 We held
that it was an inappropriate mode of appeal because, a petition for review and a petition
for certiorari are mutually exclusive and not alternative or successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction over an
appeal from an arbitral award. The parties to the arbitration agreement agreed that the rules of the
arbitration provider97 - which stipulated that the R TC shall have jurisdiction to review arbitral awards -
will govern the proceedings.98 The Court ultimately held that the RTC does not have jurisdiction to
review the merits of the award because legal jurisdiction is conferred by law, not by mere agreement
of the parties.

In both cases, the pronouncements as to the remedies against an arbitral award were unnecessary
for their resolution. Therefore, these are obiter dicta - judicial comments made, in passing which are
not essential to the resolution of the case and cannot therefore serve as precedents.99

Second, even if we disregard the obiter dicta character of both pronouncements, a more careful
scrutiny deconstructs their legal authority.

The ABS-CBN Case committed the classic fallacy of equivocation. It equated the term "voluntary
arbitrator" used in Rule 43, Section 1 and in the cases of Luzon Development Bank v. Association of
Luzon Development Bank Employees, Sevilla Trading Company v. Semana, Manila Midtown Hotel
v. Borromeo, and Nippon Paint Employees Union-Olalia v. Court of Appeals with the term
"arbitrator/arbitration tribunal."

The first rule of legal construction, verba legis, requires that, wherever possible, the words used in
the Constitution or in the statute must be given their ordinary meaning except where technical terms
are employed. 100Notably, all of the cases cited in the ABS-CBN Case involved labor disputes.

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily agreed to:
resolve a dispute. It is a technical term with a specific definition under the Labor Code:

Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any' person accredited by the Board as such or any person named
or designated in the Collective Bargaining Agreement by the parties to act as their Voluntary
Arbitrator, or one chosen with or without the assistance of the National Conciliation and Mediation
Board, pursuant to a selection procedure agreed upon in the Collective Bargaining Agreement, or
any official that may be authorized by the Secretary of Labor and Employment to act as Voluntary
Arbitrator upon the written request and agreement of the parties to a labor dispute. 101

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of
Collective Bargaining Agreements. 102 These disputes were specifically excluded: from the coverage
of both the Arbitration Law103 and the ADR Law. 104

Unlike purely commercial relationships, the relationship between capital and labor are heavily
impressed with public interest. 105Because of this, Voluntary Arbitrators authorized to resolve labor
disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws are purely
private and contractual in nature. Unlike labor relationships, they do not possess the same
compelling state interest that would justify state interference into the autonomy of contracts. Hence,
commercial arbitration is a purely private system of adjudication facilitated by private citizens instead
of government instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties
alone. The Labor Code itself confers subject-matter jurisdiction to Voluntary Arbitrators. 106

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration
Commission (CIAC) - is also a government agency107 attached to the Department of Trade and
Industry. 108 Its jurisdiction is likewise conferred by statute. 109 By contrast, the subject-matter
jurisdiction of commercial arbitrators is stipulated by the parties.

These account for the legal differences between "ordinary" or "commercial" arbitrators under the
Arbitration Law and the ADR Law, and "voluntary arbitrators" under the Labor Code. The two terms
are not synonymous with each other. Interchanging them with one another results in the logical
fallacy of equivocation - using the same word with different meanings.

Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose decisions are appealable to
the CA instead of the RTC. But where legislation provides for an appeal from decisions of
certain administrative bodies to the CA, it means that such bodies are co-equal with the RTC in
terms of rank and stature, logically placing them beyond the control of the latter. 110

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is authorized to
confirm or to vacate (but not reverse) arbitral awards. 111 If we were to deem arbitrators as included in
the scope of Rule 43, we would effectively place it' on equal footing with the RTC and remove
arbitral awards from the scope of RTC review.

All things considered, there is no legal authority supporting the position that commercial arbitrators
are quasi-judicial bodies.

What are remedies from a final domestic

arbitral award?

The right to an appeal is neither' a natural right nor an indispensable component of due process; it is
a mere statutory privilege that cannot be invoked in the absence of an enabling statute. Neither the
Arbitration Law nor the ADR Law allows a losing party to appeal from the arbitral award. The
statutory absence of an appeal mechanism reflects the State's policy of upholding the autonomy of
arbitration proceedings and their corresponding arbitral awards.

This Court recognized this when we enacted the Special Rules of Court on Alternative Dispute
Resolution in 2009: 112

Rule 2.1. General policies. -- It is the policy of the State to actively promote the use of various
modes of ADR and to respect party autonomy or the freedom of the parties to make their own
arrangements in the resolution of disputes with the greatest cooperation of and the least intervention
from the courts. xxx

The Court shall exercise the power of judicial review as provided by these Special ADR
Rules. Courts shall intervene only in the cases allowed by law or these Special ADR Rules. 113

xxxx

Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An agreement to refer a
dispute to arbitration shall mean that the arbitral award shall be final and binding. Consequently, a
party to an arbitration is precluded from filing an appeal or a petition for certiorari questioning
the merits of an arbitral award. 114 (emphasis supplied)

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we likewise defended
the autonomy of arbitral awards through our policy of non-intervention on their substantive merits:
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators. They will not review
the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and
honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a trial. 115

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR Rules - by referring to
Section 24 of the Arbitration Law and Article 34 of the 1985 United Nations Commission on
International Trade Law (UNCITRAL) Model Law - recognizes the very limited exceptions to the
autonomy of arbitral awards:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the
court can only vacate or set aside the decision of an arbitral tribunal upon a clear showing' that the
award suffers from any of the infirmities or grounds for vacating an arbitral award under Section 24
of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under Article 34 of the Model Law, or for such
other grounds provided under these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international
arbitration on any ground other than those provided in the Special ADR Rules, the court shall
entertain such ground for the setting aside or non-recognition of the arbitral award only if the same
amounts to a violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground
that the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court
cannot substitute its judgment for that of the arbitral tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration Law
contemplate the following scenarios:

(a) when the award is procured by corruption, fraud, or other undue means; or

(b) there was evident partiality or corruption in the arbitrators or any of them; or

(c) the arbitrators were guilty of misconduct that materially prejudiced the rights of any party;
or

(d) 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. 117

The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from
disclosing his disqualification to the parties. 118 Notably, none of these grounds pertain to the
correctness of the award but relate to the misconduct of arbitrators.

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL Model Law.
These grounds are reproduced in Chapter 4 of the Implementing Rules and Regulations (IRR) of the
2004 ADR Act:
(i) the party making the application furnishes proof that:

(aa) a party to the arbitration agreement was under some incapacity; or the said
agreement is not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the Philippines; or

(bb) the party making the application was not given proper notice of the appointment
of an arbitrator or of the arbitral proceedings or was otherwise unable to present his
case; or

(cc) the award deals with a dispute not contemplated by or not falling within the terms
of the submission to arbitration, or contains decisions on matters beyond the scope
of the submission to arbitration, provided that, if the decisions on matters submitted
to arbitration can be separated from those not so submitted, only the part of the
award which contains decisions on matters not submitted to arbitration may be set
aside; or

(dd) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in conflict
with a provision of ADR Act from which the parties cannot derogate, or, failing such
agreement, was not in accordance with ADR Act; or

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration

under the law of the Philippines; or

(bb) the award is in conflict with the public policy of the Philippines. 119

Chapter 4 of the IRR of the, ADR Act applies particularly to International Commercial Arbitration.
However, the abovementioned grounds taken from the UNCITRAL, Model Law are specifically made
applicable to domestic arbitration by the Special ADR Rules. 120

Notably, these grounds are not concerned with the correctness of the award; they go into the validity
of the arbitration agreement or the regularity of the arbitration proceedings.

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts are obliged
to disregard any other grounds invoked to set aside an award:

SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral award with
the appropriate regional trial court in accordance with the rules of procedure to be promulgated by
the Supreme Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any
other ground raised against a domestic arbitral award shall be disregarded by the regional
trial court. 121

Consequently, the winning party can generally expect the enforcement of the award. This is a stricter
rule that makes Article 2044122 of the Civil Code regarding the finality of an arbitral award redundant.

As established earlier, an arbitral: award is not appealable via Rule 43 because: (1) there is no
statutory basis for an appeal from the final award of arbitrators; (2) arbitrators are not quasi-judicial
bodies; and (3) the Special ADR Rules specifically prohibit the filing of an appeal to question the
merits of an arbitral award.

The Special ADR Rules allow, the RTC to correct or modify an arbitral award pursuant to Section 25
of the Arbitration Law. However, this authority cannot be interpreted as jurisdiction to review the
merits of the award. The RTC can modify or correct the award only in the following cases:

a. Where there was an evident miscalculation of figures or an evident mistake in the

description of any person, thing or property referred to in the award;

b. Where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted;

c. Where the arbitrators have omitted to resolve an issue submitted to them for resolution; or

d. Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioner's report, the defect could have been
amended or disregarded by the Court. 123

A losing party is likewise precluded from resorting to certiorari under Rule 65 of the Rules of
Court. 124 Certiorari is a prerogative writ designed to correct errors of jurisdiction committed by a
judicial or quasi-judicial body. 125 Because an arbitral tribunal is not a government organ exercising
judicial or quasi-judicial powers, it is removed from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the Constitution 126 can justify judicial
intrusion into the merits of arbitral awards. While the Constitution expanded the scope
of certiorari proceedings, this power remains limited to a review' of the acts of "any branch or
instrumentality of the Government." As a purely private creature of contract, an arbitral tribunal
remains outside the scope of certiorari.

Lastly, the Special ADR Rules are a self-contained body of rules. The parties cannot invoke
remedies and other provisions from the Rules of Court unless they were incorporated in the Special
ADR Rules:

Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of Court that are
applicable to the proceedings enumerated in Rule 1.1 of these Special ADR Rules have either
been included and incorporated in these Special ADR Rules or specifically referred to herein.

In Connection with the above proceedings, the Rules of Evidence shall be liberally construed to
achieve the objectives of the Special ADR Rules. 127

Contrary to TEAM's position, the Special ADR Rules actually forecloses against other remedies
outside of itself. Thus, a losing party cannot assail an arbitral award through; a petition for review
under Rule 43 or a petition for certiorari under Rule 65 because these remedies are not specifically
permitted in the Special ADR Rules.

In sum, the only remedy against; a final domestic arbitral award is to file petition to vacate or to
modify/correct the award not later than thirty (30) days from the receipt of the award. 128 Unless a
ground to vacate has been established, the RTC must confirm the arbitral award as a matter of
course.
The remedies against an order
Confirming, vacating, correcting, or
modifying an arbitral award

Once the RTC orders the confirmation, vacation, or correction/modification of a domestic arbitral
award, the aggrieved party may move for reconsideration within a non-extendible period of fifteen
(15) days from receipt of the order. 129 The losing party may also opt to appeal from the RTC's ruling
instead.

Under the Arbitration Law, the mode of appeal was via petition for review on certiorari:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act,
or from a judgment entered upon an award through certiorari proceedings, but such appeals shall
be limited to questions of law. The proceedings upon such appeal, including the judgment thereon
shall be governed by, the Rules of Court in so far as they are applicable.130

The Arbitration Law did not specify which Court had jurisdiction to entertain the appeal but left the
matter to be governed by the Rules of Court. As the appeal was limited to questions of law and was
described as "certiorari proceedings," the mode of appeal can be interpreted as an Appeal
By Certiorari to this Court under Rule 45.

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to the CA in
accordance with the rules of procedure to be promulgated by this Court. 131 The Special ADR Rules
provided that the mode of appeal from the RTC's order confirming, vacating, or correcting/modifying
a domestic arbitral award was through a petition for review with the CA. 132 However, the Special
ADR Rules only took effect on October 30, 2009.

In the present case, the R TC disallowed TEAM' s notice of appeal from the former's decision
confirming the arbitral award on July 3, 2009. TEAM moved for reconsideration which was likewise
denied on November 15, 2009. In the interim, the Special ADR Rules became effective. Notably, the
Special ADR Rules apply retroactively in light of its procedural character. 133 TEAM filed its petition
for certiorari soon after.

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or
Rule 19.12 of the Special ADR Rules, there is no legal basis that an ordinary appeal (via notice of
appeal) is the correct remedy from an order confirming, vacating, or correcting an arbitral award.
Thus, there is no merit in the CA's ruling that the RTC gravely abused its discretion when it refused
to give due course to the notice of appeal.

The correctness or incorrectness

of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not because the
award was erroneous - but because it would be improper. None of the grounds to vacate an arbitral
award are present in this case and as already established, the merits of the award cannot be
reviewed by the courts.

Our refusal to review the award is not a simple matter of putting procedural technicalities over the
substantive merits of a case; it goes into the very legal substance of the issues. There is no law
granting the judiciary authority to review the merits of an arbitral award. If we were to insist on
reviewing the correctness of the award: (or consent to the CA's doing so), it would be tantamount to
expanding our jurisdiction without the benefit of legislation. This translates to judicial legislation - a
breach of the fundamental principle of separation of powers.

The CA reversed the arbitral award - an action that it has no power to do - because it disagreed with
the tribunal's factual findings and application of the law. However, the alleged incorrectness of the
award is insufficient cause to vacate the award, given the State's policy of upholding the autonomy
of arbitral awards.

The CA passed upon questions such as: (1) whether or not TEAM effectively returned the property
upon the expiration of the lease; (2) whether or not TEAM was liable to pay rentals after the
expiration of the lease; and (3) whether or not TEAM was liable to pay Fruehauf damages
corresponding to the cost of repairs. These were the same questions that were specifically submitted
to the arbitral tribunal for its resolution. 134

The CA disagreed with the tribunal's factual determinations and legal interpretation of TEAM's
obligations under the contract - particularly, that TEAM's obligation to turn over the improvements on
the land at the end of the lease in the same condition as when the lease commenced translated to
an obligation to make ordinary repairs necessary for its preservation. 135

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would
have been simple errors of law. It was the tribunal - not the RTC or the CA - that had jurisdiction
1âwphi1

and authority over the issue by virtue of the parties' submissions; the CA's substitution of its own
judgment for the arbitral award cannot be more compelling than the overriding public policy to uphold
the autonomy of arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual
findings and interpretations of law. 136 The CA's ruling is an unjustified judicial intrusion in excess of
its jurisdiction - a judicial overreach. 137

Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms by allowing
the courts to "throw their weight around" whenever they disagree with the results. It erodes the
obligatory force of arbitration agreements by allowing the losing parties to "forum shop" for a more
favorable ruling from the judiciary.

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant. Regardless of the
amount, of the sum involved in a case, a simple error of law remains a simple error of law. Courts
are precluded from revising the award in a particular way, revisiting the tribunal's findings of fact or
conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal. 138At the
risk of redundancy, we emphasize Rule 19.10 of the Special ADR Rules promulgated by this
Court en banc:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the
court can only vacate or set aside the decision of an arbitral tribunal upon a clear showing
that the award suffers from any of the infirmities or grounds for vacating an arbitral award
under Section 24 of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic
arbitration, or for setting aside an award in an international arbitration under Article 34 of the Model
Law, or for such other grounds provided under these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international
arbitration on any ground other than those provided in the Special ADR Rules, the court shall
entertain such ground for the setting aside or non-recognition of the arbitral award only if thesame
amounts to a violation of public policy.
The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground
that the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court
cannot substitute its judgment for that of the arbitral tribunal.

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are
not justiciable errors in this jurisdiction. 139

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks - including the
absence of an appeal mechanism - and found that its benefits (both legal and economic) outweighed
the disadvantages. Without a showing that any of the grounds to vacate the award exists or that the
same amounts to a violation of an overriding public policy, the award is subject to confirmation as a
matter of course. 140

WHEREFORE, we GRANT the petition. The CA's decision in CA-G. R. SP. No. 112384 is SET
ASIDE and the RTC's order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED.

G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION

PEREZ, J.:

Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties
from entities in the Philippines, sue here to enforce a foreign arbitral award?

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a
foreign corporation not licensed to do business in the Philippines, prays that the Resolution2 dated 21
November 2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be
remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed
petitioner’s Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award3 against respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and
existing under the laws of the Philippines,4 on the ground that petitioner lacked legal capacity to sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of

U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No.
ID0003911 (collectively referred to as the "Yamaoka Patent"),6 and five (5) Philippine tuna
processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (collectively referred to as the
"sponsors"/"licensees")7 entered into a Memorandum of Agreement (MOA),8 pertinent provisions of
which read:
 1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,
Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form an
alliance with Sponsors for purposes of enforcing his three aforementioned patents, granting
licenses under those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to practice the
processes claimed in those patents in the United States, the Philippines, and Indonesia,
enforce those patents and collect royalties in conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment
of Tuna Processors, Inc. ("TPI"), a corporation established in the State of California, in order
to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United States, which will
be used exclusively to deposit funds that it will collect and to disburse cash it will be
obligated to spend in connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be
assigned one share of TPI for the purpose of being elected as member of the board of
directors. The remaining shares of TPI shall be held by the Sponsors according to their
respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15 January 2003
and an Agreement to Amend Memorandum of Agreement11 dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford,
withdrew from petitioner TPI and correspondingly reneged on their obligations.12 Petitioner submitted
the dispute for arbitration before the International Centre for Dispute Resolution in the State of
California, United States and won the case against respondent.13 Pertinent portions of the award
read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the
terms of this award, the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is
the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX
DOLLARS AND TEN CENTS ($1,750,846.10).

(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS
AND TWENTY CENTS ($271,490.20)[;]14 and
 (C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx

xxx15

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The petition
was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the motion for
lack of merit,17 respondent sought for the inhibition of Judge Alameda and moved for the
reconsideration of the order denying the motion.18 Judge Alameda inhibited himself notwithstanding
"[t]he unfounded allegations and unsubstantiated assertions in the motion."19 Judge Cedrick O. Ruiz
of Branch 61, to which the case was re-raffled, in turn, granted respondent’s Motion for
Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to
sue in the Philippines.20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the
order of the trial court dismissing its Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award.

Issue

The core issue in this case is whether or not the court a quo was correct in so dismissing the petition
on the ground of petitioner’s lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation established in the
State of California" and "was given the exclusive right to license or sublicense the Yamaoka Patent"
and "was assigned the exclusive right to enforce the said patent and collect corresponding royalties"
in the Philippines. TPI likewise admits that it does not have a license to do business in the
Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the Republic
of the Philippines, when it collected royalties from "five (5) Philippine tuna processors[,] namely[,]
Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz
Seafoods, Inc. and respondent Philippine Kingford, Inc." This being the real situation, TPI cannot be
permitted to maintain or intervene in any action, suit or proceedings in any court or administrative
agency of the Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should be dismissed
for it does not have the legal personality to sue in the Philippines.21

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the
subject foreign arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004),22 the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards drafted during the United Nations Conference on International Commercial Arbitration in
1958 (New York Convention), and the UNCITRAL Model Law on International Commercial
Arbitration (Model Law),23 as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for this
reason that TPI has brought this matter before this most Honorable Court, as it [i]s imperative to
clarify whether the Philippines’ international obligations and State policy to strengthen arbitration as
a means of dispute resolution may be defeated by misplaced technical considerations not found in
the relevant laws.24

Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one
hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention and the Model
Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability of
the Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in Koruga
v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and applied the New
Central Bank Act. It ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with
similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the
dissolution and liquidation thereof. As between a general and special law, the latter shall prevail –
generalia specialibus non derogant." (Emphasis supplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council,27 this Court held:

Without doubt, the Corporation Code is the general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian reform.
As between a general and special law, the latter shall prevail—generalia specialibus non derogant.28

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case
as the Act, as its title - 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 - would suggest, is a law especially enacted "to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own arrangements to resolve their
disputes."29 It specifically provides exclusive grounds available to the party opposing an application
for recognition and enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant
petition, we do not see the need to discuss compliance with international obligations under the New
York Convention and the Model Law. After all, both already form part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall govern the
recognition and enforcement of arbitral awards covered by the said Convention.

xxx

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
procedural 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.

It also expressly adopted the Model Law, to wit:

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 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to
sue under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the
affirmative.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an
application for recognition and enforcement of the arbitral award may raise only those grounds that
were enumerated under Article V of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law
applicable to them, under some incapacity, or the said agreement is not valid under
the law to which the parties have subjected it or, failing any indication thereon, under
the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise
unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if the decisions on matters
 submitted to arbitration can be separated from those not so submitted, that part of
the award which contains decisions on matters submitted to arbitration may be
recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration
under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public
policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the
recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was
promulgated by the Supreme Court, likewise support this position.

Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the
court to recognize and enforce a foreign arbitral award." The contents of such petition are
enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local arbitral
awards or arbitrations in instances where "the place of arbitration is in the Philippines,"33 it is
specifically required that a petition "to determine any question concerning the existence, validity and
enforceability of such arbitration agreement"34 available to the parties before the commencement of
arbitration and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction"35 after arbitration has already commenced should
state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to
sue or be sued."36

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we
deny availment by the losing party of the rule that bars foreign corporations not licensed to do
business in the Philippines from maintaining a suit in our courts. When a party enters into a contract
containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it
becomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby
the capacity of the other party to enter into the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the instant case, also worthy to consider
is the

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles
here and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it
must be stressed, voluntarily and actively participated in the arbitration proceedings from the very
beginning, it will destroy the very essence of mutuality inherent in consensual contracts.38

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it
is favored over domestic laws and procedures, but because Republic Act No. 9285 has certainly
erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that
the Model Law, not the New York Convention, governs the subject arbitral award,39 petitioner may still
seek recognition and enforcement of the award in Philippine court, since the Model Law prescribes
substantially identical exclusive grounds for refusing recognition or enforcement.40

Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may
seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of
the Alternative Dispute Resolution Act of 2004.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondent’s contention that petitioner TPI improperly raised a
question of fact when it posited that its act of entering into a MOA should not be considered "doing
business" in the Philippines for the purpose of determining capacity to sue. We reiterate that the
foreign corporation’s capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed
Resolution dated 21 November 2008 dismissing the case. We have, time and again, ruled that the
prior filing of a motion for reconsideration is not required in certiorari under Rule 45.41

Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which,
under ordinary circumstances, warrants the outright dismissal of the case,42 we opt to relax the rules
following the pronouncement in Chua v. Ang,43 to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases
involving conflicting factual allegations. Cases which depend on disputed facts for decision cannot
be brought immediately before us as we are not triers of facts.44 A strict application of this rule may be
excused when the reason behind the rule is not present in a case, as in the present case, where the
issues are not factual but purely legal. In these types of questions, this Court has the ultimate say
1âwphi 1

so that we merely abbreviate the review process if we, because of the unique circumstances of a
case, choose to hear and decide the legal issues outright.45

Moreover, the novelty and the paramount importance of the issue herein raised should be seriously
considered.46 Surely, there is a need to take cognizance of the case not only to guide the bench and
the bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the policy
of the State embodied in the Alternative Dispute Resolution Act of 2004, to wit:

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use
of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave
its determination to the court a quo where its recognition and enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for
time to file petition for review on certiorari before the petition was filed with this Court.47 We, however,
find petitioner’s reply in order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time to File a Petition for
Review on Certiorari under Rule 45" is a typographical error. As correctly pointed out by respondent
Kingford, the order sought to be assailed originated from Regional Trial Court, Makati City, Branch
61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner
TPI’s motion was received by the Metropolitan Trial Court, Makati City, Branch 67. On 8 January
2009, the motion was forwarded to the Regional Trial Court, Makati City, Branch 61.48

All considered, petitioner TPI, although a foreign corporation not licensed to do business in the
Philippines, is not, for that reason alone, precluded from filing the Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before a Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61,
Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings.

G.R. No. 225051

DEPARTMENT OF FOREIGN AFFAIRS (DFA), Petitioner

vs.
BCA CORPORATION INTERNATIONAL & AD HOC ARBITRAL TRIBUNAL, composed of
Chairman Danilo L. Concepcion and members, Custodio 0. Parlade and Antonio P. Jamon,
Jr., Respondents

DECISION

PERALTA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court, seeking to annul and set aside
Procedural Order No. 11 dated February 15, 2016 and Procedural Order No. 12 dated June 8, 2016,
both issued by the UNCITRAL Ad Hoc Arbitral Tribunal in the arbitration proceedings between
petitioner Department of Foreign Affairs (DFA) and respondent BCA International Corporation.

The facts are as follows:

In an Amended Build-Operate-Transfer (BOT) Agreement1 dated April 5,
2002 (Agreement), petitioner DF A awarded the Machine Readable Passport and Visa
Project (MRP/V Project) to respondent BCA International Corporation. In the course of implementing
the MRPN Project, conflict arose and petitioner sought to terminate the Agreement.

Respondent opposed the termination and filed a Request for Arbitration on April 20, 2006. The
Arbitral Tribunal was constituted on June 29, 2009.2

In its Statement of Claims3 dated August 24, 2009, respondent sought the following reliefs against
petitioner: (a) a judgment nullifying and setting aside the Notice of Termination dated December 9,
2005 of the DFA, including its demand to BCA to pay liquidated damages equivalent to the
corresponding performance security bond posted by BCA; (b) a judgment confirming the Notice of
Default dated December 22, 2005 issued by BCA to the DF A and ordering the DF A to perform its
obligation under the Amended BOT Agreement dated April 5, 2002 by approving the site of the
Central Facility at the Star Mall Complex in Shaw Boulevard, Mandaluyong City, within five days
from receipt of the Arbitral A ward; (c) a judgment ordering the DF A to pay damages to BCA,
reasonably estimated at ₱l00,000,000.00 as of this date, representing lost business opportunities;
financing fees, costs and commissions; travel expenses; legal fees and expenses; and cost of
arbitration, including the fees of the members of the Arbitral Tribunal; and (d) other just or equitable
relief.

On October 5, 2013, respondent manifested that it shall file an Amended Statement of Claims so
that its claim may conform to the evidence they have presented.4

Petitioner opposed respondent's manifestation, arguing that such amendment at the very late stage
of the proceedings will cause undue prejudice to its interests. However, the Arbitral Tribunal gave
respondent a period of time within which to file its Amended Statement of Claims and gave petitioner
time to formally interpose its objections.5

In the Amended Statement of Claims6 dated October 25, 2013, respondent interposed the alternative
relief that, in the event specific performance by petitioner was no longer possible, petitioner prayed
that the Arbitral Tribunal shall render judgment ordering petitioner to pay respondent ₱l
,648,611,531.00, representing the net income respondent is expected to earn under the Agreement,
and ₱l00,000,000.00 as exemplary, temperate or nominal damages.7

In an Opposition dated December 19, 2013, petitioner objected to respondent's Amended Statement
of Claims, averring that its belated filing violates its right to due process and will prejudice its interest
and that the Tribunal has no jurisdiction over the alternative reliefs sought by respondent.8

On August 6, 2014, respondent filed a Motion to Withdraw Amended Statement of Claims9 in the
light of petitioner's opposition to the admission of the Amended Statement of Claims and to avoid
further delay in the arbitration of its claims, without prejudice to the filing of such claims for liquidated
and other damages at the appropriate time and proceeding. Thereafter, respondent filed a motion to
resume proceedings.

However, on May 4, 2015, respondent filed anew a Motion to Admit Attached Amended Statement of
Claims dated April 30, 2015, increasing the actual damages sought to ₱390,000,000.00, plus an
additional ₱l0,000,000.00 for exemplary, temperate or nominal damages.10

On November 6, 2015, petitioner filed an Opposition to the Motion to Admit Attached Amended
Statement of Claims.
In Procedural Order No. 1111 dated February 15, 2016, the Arbitral Tribunal granted resp9ndept' s
Motion to Admit Attached Amended Statement of Claims dated April 30, 2015 on the premise that
respondent would no longer present any additional evidence-in-chief. Petitioner was given a period
of 20 days from receipt of the Order to file its Answer to the Amended Statement of Claims and to
manifest before the Tribunal if it will present additional evidence in support of its Amended Answer in
order for the Tribunal to act accordingly.

Procedural Order No. 11 reads:

For resolution by the Tribunal is BCA's Motion to Admit the Amended Statement of Claim dated 30
April 2015 objected to by DF A in its Opposition dated 6 November 2015.

BCA's Counsel made representations during the hearings that the Amendment is for the simple
purp.ose of making the Statement of Claim conform with what BCA believes it was able to prove in
the course of the proceedings and that the Amendment will no longer require the presentation of any
additional evidence-in-chief.

Without ruling on what BCA was able to prove, the Tribunal hereby grants the Motion to Admit on the
premise that BCA will no longer present any additional evidence-in-chief to prove the bigger claim in
the Amended Statement.

For the additional claim of 300 million pesos, BCA should pay the additional fee of 5% or 15 million
pesos. Having paid 12 million pesos, the balance of 3 million pesos shall be payable upon
submission of this case for resolution. No award shall be issued and promulgated by the Tribunal
unless the balance of 40% in the Arbitrators' fees for the original Claim and Counterclaim,
respectively, and the balance of 3 million for the Amended Claim, are all fully paid by the parties.

DFA is hereby given the period of 20 days from receipt of this Order to file its Answer to the
Amended Statement of Complaint, and to manifest before this Tribunal if it will present additional
evidence in support of its Amended Answer in order for the Tribunal to act accordingly.12

On February 18, 2016, respondent filed a Motion for Partial Reconsideration13 of Procedural Order
No. 11 and prayed for the admission of its Amended Statement of Claims by the Arbitral Tribunal
without denying respondent's right to present evidence on the actual damages, such as attorney's
fees and legal cost that it continued to incur.

On February 19, 2016, petitioner filed a Motion for Reconsideration of Procedural Order No. 11 and,
likewise, filed a Motion to Suspend Proceedings dated February 19, 2016. Further, on February 29,
2016, petitioner filed its Comment/Opposition to respondent's Motion for Partial Reconsideration of
Procedural Order No. 11.

The Arbitral Tribunal, thereafter, issued Procedural Order No. 12 dated June 8, 2016, which resolved
respondent's Motion for Partial Reconsideration of Procedural Order No. 11, disallowing the
presentation of additional evidence-in-chief by respondent to prove the increase in the amount of its
claim as a limitation to the Tribunals' decision granting respondent's Motion to Amend its Statement
of Claims. In Procedural Order No. 12, the Tribunal directed the parties to submit additional
documentary evidence in support of their respective positions in relation to the Amended Statement
of Claims and to which the other party may submit its comment or objections.

Procedural Order No. 12 reads:

For resolution is the partial Motion for Reconsideration of the Tribunal's Procedural Order No. 11
disallowing the presentation of additional evidence-in-chief by Claimant to prove the increase in the
amount of its Claim as a limitation to this Tribunal's decision granting Claimant's Motion to Amend its
Statement of Claims.

After a careful consideration of all the arguments presented by the Parties in their pleadings, the
Tribunal hereby decides to allow the submission of additional documentary evidence by any Party in
support of its position in relation to the Amended Statement of Claims and to which the other may
submit its comments or objections. The Tribunal, however, will still not allow the taking of testimonial
evidence from any witness by any Party. The Tribunal allowed the amendment of the Statement of
Claims but only for the purpose of making the Statement of Claims conform with the evidence that
had already been presented, assuming that, indeed, it was the case. In resting its case, Respondent
must have already dealt with and addressed the evidence that had already been presented by
Claimant and that allegedly supports the amended Claim. However, in order to give the Parties more
opportunity to prove their respective positions, additional evidence shall be accepted by the Tribunal,
but only documentary evidence.

Wherefore, Procedural Order No. 11 is modified accordingly. The Claimant is given until 25 June
2016 to submit its additional documentary evidence in support of the Amended Statement of Claims.
Respondent is given until 15 July 2016 to file its Answer to the Amended Statement of Claims,
together with all the documentary evidence in support of its position. Claimant is given until 30 July
2016 to comment or oppose the Answer and the supporting documentary evidence, while
Respondent is given until 14 August 2016 to file its comment or opposition to the Claimant's
submission, together with any supporting documentary evidence. Thereafter, hearing of the case
shall be deemed terminated. The periods allowed herein are non-extendible and the Tribunal will not
act on any motion for extension of time to comply.

The Parties shall submit their Formal Offer of Evidence, in the manner previously agreed upon, on
20 September 2016 while their respective Memorandum shall be filed on 20 October 2016. The
Reply Memoranda of the Parties shall be filed on 20 November 2016. Thereafter, with or without the
foregoing submissions, the case shall be deemed submitted for Resolution.14

As Procedural Order No. 12 denied petitioner's motion for reconsideration of Procedural Order No.
11, petitioner filed this petition for certiorari under Rule 65 of the Rules of Court with application for
issuance of a temporary restraining order and/or writ of preliminary injunction, seeking to annul and
set aside Procedural Order No. 11 dated February 15, 2016 and Procedural Order No. 12 dated
June 8, 2016.

Petitioner stated that it opted to file the petition directly with this court in view of the immensity of the
claim concerned, significance of the public interest involved in this case, and the circumvention of
the temporary restraining order issued by this Court in Department of Foreign Affairs v. BCA
International Corporation, docketed as G.R. No. 210858. It cited Department of Foreign Affairs, et al.
v. Hon. Judge Falcon,15 wherein the Court overlooked the rule on hierarchy of courts and took
cognizance of the petition for certiorari.

Petitioner raised these issues:

THE AD HOC ARBITRAL TRIBUNAL COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ADMITTED THE AMENDED
STATEMENT OF CLAIMS DATED 30 APRIL 2015 NOTWITHSTANDING THAT:

I. THE AMENDMENT CAUSES UNDUE DELAY AND PREJUDICE TO PETITIONER DF A;

II. THE ALTERNATIVE RELIEF IN THE AMENDED STATEMENT OF CLAIMS FALLS OUTSIDE
THE SCOPE OF THE ARBITRATION CLAUSE; HENCE, OUTSIDE THE JURISDICTION OF THE
AD HOC ARBITRAL TRIBUNAL;

III. THE AMENDMENT CIRCUMVENTS THE TEMPORARY RESTRAINING ORDER DATED 02

APRIL 2014 ISSUED BY THIS HONORABLE COURT IN G.R. NO. 210858; AND

IV. PROCEDURAL ORDER NO. 12 DATED 8 JUNE 2016 VIOLATES PETITIONER DFA'S RIGHT
TO DUE PROCESS.16

Petitioner states that Article 20 of the 1976 UNCITRAL Arbitration Rules grants a tribunal the
discretion to deny a motion to amend where the tribunal "considers it inappropriate to allow such
amendment having regard to the delay in making it or prejudice to the other party or any other
circumstances." It further proscribes an amendment where "the amended claim falls outside the
scope of the arbitral clause or separate arbitration agreement."

Petitioner contends that respondent's Motion to Admit Attached Amended Statement of Claims dated
April 30, 2015 should have been denied by the Arbitral Tribunal as there has been delay and
prejudice to it. Moreover, other circumstances such as fair and efficient administration of the
proceedings should have warranted the denial of the motion to amend. Finally, the Arbitral Tribunal
did not have jurisdiction over the amended claims.

Petitioner prays that a temporary restraining order and/or writ of preliminary injunction be issued
enjoining the Arbitral Tribunal from implementing Procedural Order No. 11 dated February 15, 2016
and Procedural Order No. 12 dated June 8, 2016; that the said Procedural Orders be nullified for
having been rendered in violation of the 1976 UNCITRAL Arbitration Rules and this Court's
Resolution dated April 2, 2014 rendered in G.R. No. 210858; that respondent's Amended Statement
of Claims dated April 30, 2015 be denied admission; and, if this Court affirms the admission of
respondent's Amended Statement of Claims, petitioner be allowed to present testimonial evidence to
refute the allegations and reliefs in the Amended Statement of Claims and to prove its additional
defenses or claims in its Answer to the Amended Statement of Claims or Amended Statement of
Defense with Counterclaims.

Petitioner contends that the parties in this case have agreed to refer any dispute to arbitration under
the 1976 UNCITRAL Arbitration Rules and to compel a party to be bound by the application of a
different rule on arbitration such as the Alternative Dispute Resolution (ADR) Act of 2004 or Republic
Act (RA) No. 9285 transgresses such vested right and amounts to vitiation of consent to participate
in the arbitration proceedings.

In its Comment, respondent contends that this Court has no jurisdiction to intervene in a private
arbitration, which is a special proceeding governed by the ADR Act of 2004, its Implementing Rules
and Regulations (JRR) and the Special Rules of Court on Alternative Dispute Resolution (Special
ADR Rules).

Respondent avers that petitioner's objections to the admission of its Amended Statement of Claims
by the Arbitral Tribunal, through the assailed Procedural Order Nos. 11 and 12, are properly within
the competence and jurisdiction of the Arbitral Tribunal to resolve. The Arbitral Tribunal derives their
authority to hear and resolve the parties' dispute from the contractual consent of the parties
expressed in Section 19. 02 of the Agreement.
In a Resolution dated July 25, 2016, the Court resolved to note the Office of the Solicitor General's
Very Urgent Motion for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction dated July 5, 2016.

In regard to the allegation that the Amended Statement of Claims circumvents the temporary
restraining order dated April 2, 2014 issued by the Court in DFA v. BCA International
Corporation, docketed as G.R. No. 210858, it should be pointed out that the said temporary
restraining order has been superseded by the Court's Decision promulgated on June 29, 2016,
wherein the Court resolved to partially grant the petition and remand the case to the RTC of Makati
City, Branch 146, to determine whether the documents and records sought to be subpoenaed are
protected by the deliberative process privilege as explained in the Decision.

The issues to be resolved at the outset are which laws apply to the arbitration proceedings and
whether the petition filed before the Court is proper.

The Agreement provides for the resolution of dispute between the parties in Section 19.02 thereof,
thus:

If the Dispute cannot be settled amicably within ninety (90) days by mutual discussion as
contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage
tribunal operating under International Law, hereinafter referred to as the "Tribunal," under the
UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled "Arbitration Rules on the United Nations Commission
on the International Trade Law." The DFA and BCA undertake to abide by and implement the
arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other place as
may mutually be agreed upon by both parties. The Arbitration proceeding shall be conducted in the
English language.

Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "the arbitral tribunal shall
apply the law designated by the parties as applicable to the substance of the dispute." "Failing such
designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws
rules which it considers applicable." Established in this jurisdiction is the rule that the law of the place
where the contract is made governs, or lex loci contractus.17 As the parties did not designate the
applicable law and the Agreement was perfected in the Philippines, our Arbitration laws, particularly,
RA No. 876,18 RA No. 928519 and its IRR, and the Special ADR Rules apply.20 The IRR of RA No.
9285 provides that "[t]he arbitral tribunal shall decide the dispute in accordance with such law as is
chosen by the parties. In the absence of such agreement, Philippine law shall apply."21

In another earlier case filed by petitioner entitled Department of Foreign Affairs v. BCA International
Corporation,22 docketed as G.R. No. 210858, petitioner also raised as one of its issues that the 1976
UNCITRAL Arbitration Rules and the Rules of Court apply to the present arbitration proceedings, not
RA No. 9285 and the Special ADR Rules. We ruled therein thus:

Arbitration is deemed a special proceeding and governed by the special provisions of RA 9285, its
IRR, and the Special ADR Rules. RA 9285 is the general law applicable to all matters and
controversies to be resolved through alternative dispute resolution methods. While enacted only in
2004, we held that RA 9285 applies to pending arbitration proceedings since it is a procedural law,
which has retroactive effect.

xxxx
The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to all pending
arbitration proceedings. Consistent with Article 2046 of the Civil Code, the Special ADR Rules were
formulated and were also applied to all pending arbitration proceedings covered by RA 9285,
provided no vested rights are impaired. Thus, contrary to DFA's contention, RA 9285, its IRR, and
the Special ADR Rules are applicable to the present arbitration proceedings. The arbitration
between the DF A and BCA is still pending, since no arbitral award has yet been rendered.
Moreover, DF A did not allege any vested rights impaired by the application of those procedural
rules.

RA No. 9285 declares the policy of the State to actively promote pa1iy autonomy in the resolution of
disputes or the freedom of the parties to make their own arrangements to resolve their
disputes.23 Towards this end, the State shall encourage and actively promote the use of Alternative
Dispute Resolution as an important means to achieve speedy and impartial justice and declog court
dockets.24

Court intervention is allowed under RA No. 9285 in the following instances: (1) when a party in the
arbitration proceedings requests for an interim measure of protection;25 (2) judicial review of arbitral
awards26 by the Regional Trial Court (RTC); and (3) appeal from the RTC decisions on arbitral
awards to the Court of Appeals.27

The extent of court intervention in domestic arbitration is specified in the IRR of RA No. 9285, thus:

Art. 5.4. Extent of Court Intervention. In matters governed by this Chapter, no court shall intervene
except in accordance with the Special ADR Rules.

Court intervention in the Special ADR Rules is allowed through these remedies: (1) Specific Court
Relief, which includes Judicial Relief Involving the Issue of Existence, Validity and Enforceability of
the Arbitral Agreement,28 Interim Measures of Protection,29 Challenge to the Appointment of
Arbitrator,30 Termination of Mandate of Arbitrator,31 Assistance in Taking
Evidence,32 Confidentiality/Protective Orders,33 Confirmation, Correction or Vacation of A ward in
Domestic Arbitration,34 all to be filed with the RTC; (2) a motion for reconsideration may be filed by a
party with the RTC on the grounds specified in Rule 19.1; (3) an appeal to the Court of Appeals
through a petition for review under Rule 19.2 or through a special civil action for certiorari under Rule
19.26; and (4) a petition for certiorari with the Supreme Court from a judgment or final order or
resolution of the Court of Appeals, raising only questions of law.

Under the Special ADR Rules, review by the Supreme Court of an appeal by certiorari is not a
matter of right, thus:

RULE 19.36. Review Discretionary. - A review by the Supreme Court is not a matter of right, but of
sound judicial discretion, which will be granted only for serious and compelling reasons resulting in
grave prejudice to the aggrieved party. The following, while neither controlling nor fully measuring
the court's discretion, indicate the serious and compelling, and necessarily, restrictive nature of the
grounds that will warrant the exercise of the Supreme Court's discretionary powers, when the Court
of Appeals:

a. Failed to apply the applicable standard or test for judicial review prescribed in these Special ADR
Rules in arriving at its decision resulting in substantial prejudice to the aggrieved party;

b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that
rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special ADR Rules
resulting in substantial prejudice to the aggrieved party; and

d. Committed an error so egregious and harmful to a party as to amount to an undeniable excess of

jurisdiction.

The mere fact that the petitioner disagrees with the Court of Appeals' determination of questions of
fact, of law or both questions of fact and law, shall not warrant the exercise of the Supreme Court's
discretionary power. The error imputed to the Court of Appeals must be grounded upon any of the
above prescribed grounds for review or be closely analogous thereto.

A mere general allegation that the Court of Appeals has committed serious and substantial error or
that it has acted with grave abuse of discretion resulting in substantial prejudice to the petitioner
without indicating with specificity the nature of such error or abuse of discretion and the serious
prejudice suffered by the petitioner on account thereof, shall constitute sufficient ground for the
Supreme Court to dismiss outright the petition.

RULE 19.37. Filing of Petition with Supreme Court. - A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals issued pursuant to these Special ADR
Rules may file with the Supreme Court a verified petition for review on certiorari. The petition shall
raise only questions of law, which must be distinctly set forth.
1âwphi 1

It is clear that an appeal by certiorari to the Supreme Court is from a judgment or final order or
resolution of the Court of Appeals and only questions of law may be raised. There have been
instances when we overlooked the rule on hierarchy of courts and took cognizance of a petition
for certiorari alleging grave abuse of discretion by the Regional Trial Court when it granted interim
relief to a party and issued an Order assailed by the petitioner, considering the transcendental
importance of the issue involved therein35 or to better serve the ends of justice when the case is
determined on the merits rather on technicality.36 However, in this case, the appeal by certiorari is not
from a final Order of the Court of Appeals or the Regional Trial Court, but from an interlocutory order
of the Arbitral Tribunal; hence, the petition must be dismissed.

WHEREFORE, the Court resolves to DISMISS the petition for failure to observe the rules on court
intervention allowed by RA No. 9285 and the Special ADR Rules, specifically Rule 19.36 and Rule
19.37 of the latter, in the pending arbitration proceedings of the parties to this case.

SO ORDERED.

G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,

vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.

DECISION

PEREZ, J.:

This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-
G.R. SP No. 116865.
The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered
owner of a parcel of land located at Km. 16, South Superhighway, Parañaque City (subject
land).3 Within the subject land are buildings and other improvements dedicated to the business of
FKI.4

In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein
respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation.6 The
respondent accepted the donation with all of its conditions.7 On 26 May1975, FKI and the
respondent executed a Deed of Donation8 evidencing their consensus.

The Lease and the Amended Deed of Donation

One of the conditions of the donation required the respondent to lease the subject land back to FKI
under terms specified in their Deed of Donation.9 With the respondent’s acceptance of the donation,
a lease agreement between FKI and the respondent was, therefore, effectively incorporated in the
Deed of Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:

1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is ₱40,126.00 per
annum .11

The Deed of Donation also stipulated that the lease over the subject property is renewable for
another period of twenty-five (25) years " upon mutual agreement" of FKI and the respondent.12 In
which case, the amount of rent shall be determined in accordance with item 2(g) of the Deed of
Donation, viz:

g. The rental for the second 25 years shall be the subject of mutual agreement and in case of
disagreement the matter shall be referred to a Board of three Arbitrators appointed and with powers
in accordance with the Arbitration Law of the Philippines, Republic Act 878, whose function shall be
to decide the current fair market value of the land excluding the improvements, provided, that, any
increase in the fair market value of the land shall not exceed twenty five percent (25%) of the original
value of the land donated as stated in paragraph 2(c) of this Deed. The rental for the second 25
years shall not exceed three percent (3%) of the fair market value of the land excluding the
improvements as determined by the Board of Arbitrators.13

In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that reiterated
the provisions of the Deed of Donation , including those relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of
Donation , FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation
was set to expire, or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000
Lease Contract )15 covering the subject land. In this 2000 Lease Contract, FKI and respondent
agreed on a new five-year lease to take effect on the 26th of May 2000, with annual rents ranging
from ₱4,000,000 for the first year up to ₱4,900,000 for the fifth year.16 The 2000 Lease Contract also
contained an arbitration clause enforceable in the event the parties come to disagreement about the"
interpretation, application and execution" of the lease, viz :

19. Governing Law – The provisions of this 2000 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.17 (Emphasis supplied)

2005 Lease Contract

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another
five (5) years. This new lease (2005 Lease Contract )18 required FKI to pay a fixed annual rent of
₱4,200,000.19 In addition to paying the fixed rent, however, the 2005 Lease Contract also obligated
FKI to make a yearly " donation " of money to the respondent.20 Such donations ranged from
₱3,000,000 for the first year up to ₱3,900,000for the fifth year.21 Notably, the 2005 Lease Contract
contained an arbitration clause similar to that in the 2000 Lease Contract, to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.22 (Emphasis supplied)

The Assignment and Petitioner’s Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease
Contract.23 But in June of 2008, FKI sold all its rights and properties relative to its business in favor of
herein petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner executed an
Assignment and Assumption of Lease and Donation25 —wherein FKI, with the conformity of the
respondent, formally assigned all of its interests and obligations under the Amended Deed of
Donation and the 2005 Lease Contract in favor of petitioner.

The following year, petitioner discontinued the payment of the rent and " donation " under the 2005
Lease Contract.

Petitioner’s refusal to pay such rent and "donation " emanated from its belief that the rental
stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given
effect because they violated one of the" material conditions " of the donation of the subject land, as
stated in the Deed of Donation and Amended Deed of Donation.26
According to petitioner, the Deed of Donation and Amended Deed of Donation actually established
not only one but two (2) lease agreements between FKI and respondent, i.e. , one lease for the first
twenty-five (25)years or from 1975 to 2000, and another lease for the next twenty-five (25)years
thereafter or from 2000 to 2025. 27 Both leases are material conditions of the donation of the subject
land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease
was not fixed in the Deed of Donation and Amended Deed of Donation , both deeds nevertheless
prescribed rules and limitations by which the same may be determined. Such rules and limitations
ought to be observed in any succeeding lease agreements between petitioner and respondent for
they are, in themselves, material conditions of the donation of the subject land.28

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation
that supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only
" three percent (3%) of the fair market value of the subject land excluding the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract
cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation .
Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be
governed by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.30

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)31 to petitioner notifying the latter of
its default " per Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent
and " donation " due for the year 2009. Respondent, in the same letter, further intimated of canceling
the 2005 Lease Contract should petitioner fail to settle the said obligations.32 Petitioner received the
First Demand Letter on2 June 2009.33

On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement over the
rental stipulations of the 2005 Lease Contract — calling them " severely disproportionate,"
"unconscionable" and "in clear violation to the nominal rentals mandated by the Amended Deed of
Donation." In lieu of the amount demanded by the respondent, which purportedly totaled to
₱8,394,000.00, exclusive of interests, petitioner offered to pay only ₱80,502.79,35 in accordance with
the rental provisions of the Deed of Donation and Amended Deed of Donation.36 Respondent refused
this offer.37

On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to petitioner,
reiterating its demand for the payment of the obligations already due under the 2005 Lease Contract.
The Second Demand Letter also contained a demand for petitioner to " immediately vacate the
leased premises " should it fail to pay such obligations within seven (7) days from its receipt of the
letter.39 The respondent warned of taking " legal steps " in the event that petitioner failed to comply
with any of the said demands.40 Petitioner received the Second Demand Letter on 26September
2009.41

Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009,
petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint42 for the rescission
or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent.
This case is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-
0346.
The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case43 against the petitioner before the
Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was raffled to Branch 77
and was docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.44 In it, petitioner
reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of
the material conditions of the Deed of Donation and Amended Deed of Donation.45 In addition to the
foregoing, however, petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer
case in view of the insufficiency of respondent’s demand.46 The First Demand Letter did not
contain an actual demand to vacate the premises and, therefore, the refusal to comply there
with does not give rise to an action for unlawful detainer.47

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same
until the disagreement between the parties is first referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would
not lie as the 2005 Lease Contract is void abinitio.49 The stipulation in the 2005 Lease
Contract requiring petitioner to give yearly " donations " to respondent is a simulation, for
they are, in fact, parts of the rent. 50 Such grants were only denominated as " donations " in
the contract so that the respondent—anon-stock and non-profit corporation—could evade
payment of the taxes otherwise due thereon.51

In due course, petitioner and respondent both submitted their position papers, together with their
other documentary evidence.52 Remarkably, however, respondent failed to submit the Second
Demand Letter as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused
to dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with
the petitioner with respect to the issues regarding the insufficiency of the respondent’s demand and
the nullity of the 2005 Lease Contract.54 The MeTC thus disposed:

WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to

costs.

SO ORDERED.55

The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch
274 of the RTC of Parañaque City and was docketed as Civil Case No. 10-0255.

On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the petitioner from
the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial
Court, Branch 77, Parañaque City, is hereby reversed, judgment is thus rendered in favor of the
plaintiff-appellant and against the defendant-appellee, and ordering the latter –

(1) to vacate the lease[d] premises made subject of the case and to restore the possession
thereof to the plaintiff-appellant;

(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two
Thousand Four Hundred Thirty Six Pesos (₱9,362,436.00), penalties and net of 5%
withholding tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly
rental as will accrue during the pendency of this case;

(3) to pay attorney’s fees in the sum of ₱100,000.00 plus appearance fee of ₱3,000.00;

(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were built in good
faith, the provisions of Art. 1678of the Civil Code shall apply.

SO ORDERED.57

The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a

jurisdictional precursor to an unlawful detainer action.58 The First Demand Letter, in
substance, contains a demand for petitioner to vacate when it mentioned that it was a notice
" per Section12 of the 2005 Lease Contract."59 Moreover, the issue of sufficiency of the
respondent’s demand ought to have been laid to rest by the Second Demand Letter which,
though not submitted in evidence, was nonetheless admitted by petitioner as containing a"
demand to eject " in its Answer with Compulsory Counterclaim.60

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contract’s validity.61 Even assuming that it can,
petitioner still did not file a formal application before the MeTC so as to render such
arbitration clause operational.62 At any rate, the MeTC would not be precluded from
exercising its jurisdiction over an action for unlawful detainer, over which, it has exclusive
original jurisdiction.63

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not
able to adduce any evidence to support its allegation that the same is void.64 There was, in
this case, no evidence that respondent is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:

WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of
Parañaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

xxxx
SO ORDERED.67

Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a Temporary
Restraining Order68 staying the immediate implementation of the decisions adverse to it.

OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in
overlooking the significance of the arbitration clause incorporated in the 2005 Lease Contract . As
the Court sees it, that is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the

Arbitration Clause of the 2005 Lease
Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and
respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent
insists upon the enforce ability and validity of such stipulations, whereas, petitioner, in substance,
repudiates them. It is from petitioner’s apparent breach of the 2005 Lease Contract that respondent
filed the instant unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between the
petitioner and respondent arose from the application or execution of the 2005 Lease Contract .
Undoubtedly, such kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract
to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.69 (Emphasis supplied)

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as
to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract
including the one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain
legal effects. However, before discussing what these legal effects are, We shall first deal with the
challenges posed against the application of such arbitration clause.

Challenges Against the Application of the

Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as
well as the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the
instant case. A plethora of arguments was hurled in favor of bypassing arbitration. We now address
them.

At different points in the proceedings of this case, the following arguments were offered against the
application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it will

inevitably touch upon the issue of the validity of the 2005 Lease Contract.71 It was submitted
that one of the reasons offered by the petitioner in justifying its failure to pay under the 2005
Lease Contract was the nullity of such contract for being contrary to law and public
policy.72 The Supreme Court, in Gonzales v. Climax Mining, Ltd.,73 held that " the validity of
contract cannot be subject of arbitration proceedings " as such questions are " legal in nature
and require the application and interpretation of laws and jurisprudence which is necessarily
a judicial function ." 74

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contract’s validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the
2005 Lease Contract , petitioner still did not file a formal application before the MeTC so as
to render such arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires
the party seeking arbitration to first file a " request " or an application therefor with the court
not later than the preliminary conference.77

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)

proceedings before the RTC.78 Hence, a further referral of the dispute to arbitration would
only be circuitous.79 Moreover, an ejectment case, in view of its summary nature, already
fulfills the prime purpose of arbitration, i.e. , to provide parties in conflict with an expedient
method for the resolution of their dispute.80 Arbitration then would no longer be necessary in
this case.81

None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and
respondent falls within the all-encompassing terms of the arbitration clause of the 2005 Lease
Contract. While it may be conceded that in the arbitration of such disagreement, the validity of the
2005 Lease Contract, or at least, of such contract’s rental stipulations would have to be determined,
the same would not render such disagreement non-arbitrable. The quotation from Gonzales that was
used to justify the contrary position was taken out of context. A rereading of Gonzales would fix its
relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and
Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance
Agreement and other mining related agreements entered into by private parties.82

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality.83 The
pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that
particular arbitration complaint. Stated otherwise, the question was whether the complaint for
arbitration raises arbitrable issues that the PA-MGB can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out to the provisions
of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-MGB with exclusive original
jurisdiction only over mining disputes, i.e., disputes involving " rights to mining areas," "mineral
agreements or permits," and " surface owners, occupants, claim holders or concessionaires"
requiring the technical knowledge and experience of mining authorities in order to be
resolved.84 Accordingly, since the complaint for arbitration in Gonzales did not raise mining disputes
as contemplated under R.A. No. 7942 but only issues relating to the validity of certain mining related
agreements, this Court held that such complaint could not be arbitrated before the PA-MGB.85 It is in
this context that we made the pronouncement now in discussion:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require
the application and interpretation of laws and jurisprudence which is necessarily a judicial
function.86 (Emphasis supplied)

The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground
that the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real
consideration behind the ruling was the limitation that was placed by R.A. No. 7942 upon the
jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected the complaint for arbitration
because the issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this reason,
and only for this reason, that such issue is rendered non-arbitrable before the PA-MGB. As stated
beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes.87

Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines,
Inc. v. San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the question of whether
issues involving the rescission of a contract are arbitrable. The respondent in Cargill argued against
arbitrability, also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of
arbitrability.89 Thus, We held:

Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It
claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is
entitled to rescind the contract with damages; and that issue constitutes a judicial question or one
that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding.
Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the addendum contract and the other
contracts emanating from it, and that the complaint should have been filed with the regular courts as
it involved issues which are judicial in nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.90 (Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding
the fact that it assails the validity of such contract. This is due to the doctrine of separability.91
Under the doctrine of separability, an arbitration agreement is considered as independent of the
main contract.92 Being a separate contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract.93

Once again instructive is Cargill, wherein this Court held that, as a further consequence of the
doctrine of separability, even the very party who repudiates the main contract may invoke its
arbitration clause.94

Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the
petitioner to file a formal "request" or application therefor with the MeTC. We find that the filing of a
"request" pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration
clause may be validly invoked in a pending suit.

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

SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later that the
pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed. [Emphasis ours; italics original]

The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M.
No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or in a submission agreement, may request
the court to refer the parties to arbitration in accordance with such agreement.

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is
filed . - The request for referral shall be made not later than the pre-trial conference. After the pre-
trial conference, the court will only act upon the request for referral if it is made with the agreement
of all parties to the case.

(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed
but the parties subsequently enter into an arbitration agreement, they may request the court to refer
their dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall
state that the dispute is covered by an arbitration agreement.

A part from other submissions, the movant shall attach to his motion an authentic copy of the
arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and time
when it would be heard. The party making the request shall serve it upon the respondent to give him
the opportunity to file a comment or opposition as provided in the immediately succeeding Rule
before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending
action filed in violation of the arbitration agreement x x x may request the court to refer the parties to
arbitration in accordance with such agreement."

In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285,
the Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a
pending suit solely via such "request." After all, non-compliance with an arbitration agreement is a
valid defense to any offending suit and, as such, may even be raised in an answer as provided in our
ordinary rules of procedure.95

In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration
before the MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with
Counterclaim ,had already apprised the MeTC of the existence of the arbitration clause in the 2005
Lease Contract96 and, more significantly, of its desire to have the same enforced in this case.97 This
act of petitioner is enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner
and respondent already under went through JDR proceedings before the RTC, will not make the
subsequent conduct of arbitration between the parties unnecessary or circuitous. The JDR system is
substantially different from arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation
which entails the submission of a dispute before a " JDR judge " who shall merely " facilitate
settlement " between the parties in conflict or make a " non-binding evaluation or assessment of the
chances of each party’s case."98 Thus in JDR, the JDR judge lacks the authority to render a
resolution of the dispute that is binding upon the parties in conflict. In arbitration, on the other hand,
the dispute is submitted to an arbitrator/s —a neutral third person or a group of thereof— who shall
have the authority to render a resolution binding upon the parties.99

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the
subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an
amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration
where a binding resolution to the dispute could finally be achieved. This situation precisely finds
application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary
nature of ejectment cases, arbitration still remains relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to " make their own
arrangements to resolve their own disputes."100 Arbitration agreements manifest not only the desire
of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more
so, the parties’ mutual aspiration to achieve such resolution outside of judicial auspices, in a more
informal and less antagonistic environment under the terms of their choosing. Needless to state, this
critical feature can never be satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease
Agreement in this case, We shall now proceed with the discussion of its legal effects.

Legal Effect of the Application of the

Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005
Contract of Lease in this case, We find that the instant unlawful detainer action was instituted in
violation of such clause. The Law, therefore, should have governed the fate of the parties and this
suit:

R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding until an arbitration has been had in
accordance with the terms of the agreement: Provided, That the applicant for the stay is not in
default in proceeding with such arbitration.[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is
the subject matter of an arbitration agreement shall, if at least one party so requests not later that the
pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null and void, in operative or incapable of being
performed. [Emphasis supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed;101 the
petitioner and the respondent should have been referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract . The MeTC, however, did not do so in violation of the law—which
violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim —the point when the petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point.
Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set
aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to make.
Nonetheless, this Court must make the same if only to stress the point that, in our jurisdiction, bona
fide arbitration agreements are recognized as valid;102 and that laws,103 rules and regulations104 do
exist protecting and ensuring their enforcement as a matter of state policy. Gone should be the days
when courts treat otherwise valid arbitration agreements with disdain and hostility, if not outright "
jealousy,"105 and then get away with it. Courts should instead learn to treat alternative means of
dispute resolution as effective partners in the administration of justice and, in the case of arbitration
agreements, to afford them judicial restraint.106 Today, this Court only performs its part in upholding a
once disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Parañaque City, a
complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of
Donation against the respondent. The case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may
involve matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract.
However, since the records of Civil Case No. CV 09-0346 are not before this Court, We can never
know with true certainty and only speculate. In this light, let a copy of this Decision be also served to
Branch 257of the RTC of Parañaque for its consideration and, possible, application to Civil Case No.
CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby

render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch
77, of Parañaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of its
Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by
petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No.

116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of
Parañaque City in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of
Parañaque City in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in
the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its consideration
and, possible, application to Civil Case No. CV 09-0346.

No costs.

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.

DECISION

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 Contract1 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, 19972 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 Lease3 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 Certificate4 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 letter6 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, 1998 to 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.
98-1178 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 Counterclaim9 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 Dismiss13 answering PGSMC’s
memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration14 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 Things16 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 Reconsideration17 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
certiorari18 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 Petition20 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 Report21 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 Decision22 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 counterclaims

and 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-claim states, "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. 524 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 204033 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 of Eastboard 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 Arbitration41 of the United Nations Commission
on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the
Philippines committed 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. 3543 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.

xxxx

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

xxxx
 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.

xxxx
 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 87644 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 Angeles47 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 family51 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.

G.R. No. 212081 February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner,

vs.
UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an
Agreement for Consultancy Services3 (Consultancy Agreement) with respondent United Planners
Consultants, Inc. (respondent) in connection with the LMB' s Land Resource Management Master
Plan Project (LRMMP).4 Under the Consultancy Agreement, petitioner committed to pay a total
contract price of ₱4,337,141.00, based on a predetermined percentage corresponding to the
particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the
amount of ₱2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office
Report8 (TSO) finding the contract price of the Agreement to be 84.14% excessive.9 This
notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands,
respondent instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City,
Branch 222 (RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the
arbitration clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty.
Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission
(CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral
Tribunal. The court-referred arbitration was then docketed as Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed
to submit their respective draft decisions in lieu of memoranda of arguments on or before April 21,
2010, among others.18

On the due date for submission of the draft decisions, however, only respondent complied with the
given deadline,19 while petitioner moved for the deferment of the deadline which it followed with
another motion for extension of time, asking that it be given until May 11, 2010 to submit its draft
decision.20

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its
non-submission as a waiver, but declared that it would still consider petitioner’s draft decision if
submitted before May 7, 2010, or the expected date of the final award’s promulgation.22 Petitioner
filed its draft decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid
progress billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral
Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued interest thereon;
(c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s fees.25 It also ordered
petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in
the amount of ₱182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted
without any action, claiming that it had already lost jurisdiction over the case after it had submitted to
the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010
(May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion30 dated June 1, 2010
(June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard
when the Arbitral Tribunal failed to consider its draft decision and merely noted its motion for
reconsideration.31 It also denied receiving a copy of the Arbitral Award by either electronic or
registered mail.32 For its part, respondent filed an opposition thereto and moved for the
confirmation33 of the Arbitral Award in accordance with the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding
that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal,
including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral
Award pursuant to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay
respondent the costs of confirming the award, as prayed for, in the total amount of ₱50,000.00. From
this order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37 dated
September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC should
have first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and
Motion, and not merely noted them, thereby violating its right to due process.40

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the
CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a motion for
correction of final award pursuant to Section 17.143 of the CIAC Rules, and not a motion for
reconsideration of the said award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010
Manifestation and Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to
be defective for petitioner’s failure to observe the three day notice rule.45 Having then failed to avail of
the remedies attendant to an order of confirmation, the Arbitral Award had become final and
executory.46

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to
quash.47

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as CA-
G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds,
namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under
Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed
way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.2852 in
relation to Rule 19.853 of said Rules which provide that a special civil action for certiorari must be filed
before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled
or set aside (or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of
the Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,"
institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the
Philippines. The Act, however, was without prejudice to the adoption by the Supreme Court of any
ADR system as a means of achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines.56
Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on
Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall govern the
procedure to be followed by the courts whenever judicial intervention is sought in ADR proceedings
in the specific cases where it is allowed.57

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely:
"(a) Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b)
Referral to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d)
Appointment of Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of
Arbitrator; (g) Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in
Domestic Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International
Commercial Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k)
Confidentiality/Protective Orders; and (l) Deposit and Enforcement of Mediated Settlement
Agreements."58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A
pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own arrangements to resolve their own
disputes.59 Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are free to agree
on the procedure to be followed in the conduct of arbitral proceedings. Failing such agreement, the
arbitral tribunal may conduct arbitration in the manner it considers appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent,
after it filed its complaint, moved for its referral to arbitration62 which was not objected to by
petitioner.63 By its referral to arbitration, the case fell within the coverage of the Special ADR Rules.
However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC
Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought,
but any of the parties may file a motion for correction64 of the final award, which shall interrupt the
running of the period for appeal,65 based on any of the following grounds, to wit: a. an evident
miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property
referred to in the award;

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted;

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the
parties in the Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the
controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66

Moreover, the parties may appeal the final award to the CA through a petition for review under
Rule43 of the Rules of Court.67
Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it
filed the May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited
pleading under the Section 17.2,68 Rule 17 of the CIAC Rules, thus rendering the same final and
executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of
the Special ADR Rules which requires confirmation by the court of the final arbitral award. This is
consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation
of a domestic award to make the same enforceable:

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed
by Section 2369 of R.A. 876.70

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with
the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it
seek reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead,
petitioner filed only on September 10, 2012 a special civil action for certiorari before the CA
questioning the propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s
motion for issuance of a writ of execution, and (b) Order dated July 9,2012 denying its motion to
quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court, in making a
ruling under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law, a party may file a special civil action for
certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of the
foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or
set aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

 g. Suspending the proceedings to set aside an international commercial arbitral award and
referring the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an

international commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition
for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that
said certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the
judgment, order or resolution sought to be annulled or set aside. No extension of time to file the
petition shall be allowed."

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly,
Rule 19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the
Rules of Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for
certiorari), which it claimed to have suppletory application in arbitration proceedings since the
Special ADR Rules do not explicitly provide for a procedure on execution. The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left
unexecuted, would be nothing but an empty victory for the prevailing party.73

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a
confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms
cover not only aspects of confirmation but necessarily extend to a confirmed award’s execution in
light of the doctrine of necessary implication which states that every statutory grant of power, right or
privilege is deemed to include all incidental power, right or privilege. In Atienza v. Villarosa,74 the
doctrine was explained, thus:

No statute can be enacted that can provide all the details involved in its application. There is always
1âwphi1

an omission that may not meet a particular situation. What is thought, at the time of enactment, to be
an all embracing legislation may be inadequate to provide for the unfolding of events of the future.
So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction
used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied
in a statute is as much a part thereof as that which is expressed. Every statute is understood, by
implication, to contain all such provisions as may be necessary to effectuate its object and purpose,
or to make effective rights, powers, privileges or jurisdiction which it grants, including all such
collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex
necessitate legis. And every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege. This is so because the greater includes the lesser, expressed in
the maxim, in eo plus sit, simper inest et minus.75 (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral
award. To construe it otherwise would result in an absurd situation whereby the confirming court
previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to
the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment
award under the Special ADR Rules should be deemed to include the power to order its execution
for such is but a collateral and subsidiary consequence that may be fairly and logically inferred from
the statutory grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which
provides that a statute must be read according to its spirit or intent,76 for what is within the spirit is
within the statute although it is not within its letter, and that which is within the letter but not within the
spirit is not within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve
speedy and efficient resolution of disputes and curb a litigious culture,78 every interpretation thereof
should be made consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the
confirmed award’s execution.

Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of
these Special ADR Rules have either been included and incorporated in these Special ADR Rules or
specifically referred to herein."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no
specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be
annulled or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No.
126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on
September 10, 2012,81 said petition was clearly dismissible.82

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari
petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show
that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line
when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having
failed to show a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s
draft decision which was filed only on the day of the scheduled promulgation of final award on May
7, 2010.83 The touchstone of due process is basically the opportunity to be heard. Having been given
such opportunity, petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral
Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD)
144584 otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD
1445 expressly provides that execution of money judgment against the Government or any of its
subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of
ten years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-governmental
entities subsidized by the government, those funded by donation through the government, those
required to pay levies or government share, and those for which the government has put up a
counterpart fund or those partly funded by the government. (Emphases supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary
jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the
Special ADR Rules.85 Hence, the respondent has to first seek the approval of the COA of their
monetary claim. This appears to have been complied with by the latter when it filed a "Petition for
Enforcement and Payment of Final and Executory Arbitral Award"86 before the COA. Accordingly, it is
now the COA which has the authority to rule on this latter petition. WHEREFORE, the petition is
DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458
which dismissed the petition for certiorari filed by petitioner the Department of Environment and
Natural Resources is hereby AFFIRMED.

SO ORDERED.