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METROPOLITAN VS.

MACTAN ROCK
This is a petition for review on certiorari under Rule 45 assailing the February 20, 2006 Decision[1] and
the March 30, 2006 Resolution[2] of the Court of Appeals (CA) in CAG.R. CEB SP. No. 00623.
THE FACTS
Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled
corporation (GOCC) created pursuant to Presidential Decree (PD) No. 198,[3] as amended, with its principal
office address at the MCWD Building, Magallanes corner Lapu-Lapu Streets, Cebu City.[4] It is mandated to
supply water within its service area in the cities of Cebu, Talisay, Mandaue, and Lapu-Lapu and the
municipalities of Compostela, Liloan, Consolacion, and Cordova in the Province of Cebu.[5]
Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal office address at
the 2 Level of the Waterfront Cebu Hotel and Casino, Lahug,Cebu City.[6]
nd

On May 19, 1997, MCWD entered into a Water Supply Contract [7] (the Contract) with MRII wherein it
was agreed that the latter would supply MCWD with potable water, in accordance with the World Health
Organization (WHO) standard or the Philippine national standard, with a minimum guaranteed annual volume.[8]
On March 15, 2004, MRII filed a Complaint [9] against MCWD with the Construction Industry
Arbitration Commission (CIAC), citing the arbitration clause (Clause 18)[10] of the Contract. The case was
docketed as CIAC Case No. 12-2004. In the said complaint, MRII sought the reformation of Clause 17 of the
Contract, or the Price Escalation/De-Escalation Clause, in order to include Capital Cost Recovery in the price
escalation formula, and to have such revised formula applied from 1996 when the bidding was conducted,
instead of from the first day when MRII started selling water to MCWD. It also sought the payment of the
unpaid price escalation/adjustment, and the payment of unpaid variation/extra work order and interest/cost of
money up to December 31, 2003.[11]
On May 7, 2002, MCWD filed its Answer[12] dated April 27, 2004, which included a motion to dismiss
the complaint on the ground that the CIAC had no jurisdiction over the case, as the Contract was not one for
construction or infrastructure.
The CIAC thereafter issued an order[13] denying MCWDs motion to dismiss, and calling the parties to a
preliminary conference for the review and signing of the Terms of Reference.[14]
MCWD, thus, filed a petition for certiorari[15] under Rule 65 with the CA, questioning the jurisdiction of
the CIAC. The petition was docketed as CA-G.R. SP. No. 85579(First Petition).
Meanwhile, the CIAC proceeded with the preliminary conference scheduled on June 10 and July 22,
2004 which MWCD opted not to attend. MRII and the CIAC both signed the Terms of Reference. Pursuant to
the Terms of Reference and the CIAC Order dated July 22, 2004, MRII submitted its documentary evidence and
affidavits of its witnesses.[16]

On August 27, 2004, MRII submitted its Formal Offer of Evidence and its memorandum of arguments
in the form of a proposed/draft decision. MCWD did not attend the hearings. It did not submit evidence other
than those annexed to its Answer. Neither did it file a formal offer of evidence, or a memorandum of legal
arguments.[17]
Decision of the CIAC
The CIAC promulgated its Decision[18] on April 14, 2005, the dispositive portion of which reads:
WHEREFORE[,] premises considered, judgment is hereby rendered as follows:
1.

Ordering the reformation of Clause 17 of the Water Supply Contract to


read:

17[.] Price Escalation and/or De-Escalation shall be based on the parametric


formula:
17.1

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate x 30% of base selling price of water
Base Power Rate
17.2

Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment:

Current CPI Base CPI x 40% of base selling price of water


Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when the water was first
delivered by Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The
base CPI, base US$ Exchange Rate and the Base Power Rate shall be the
prevailing rate in January 1999, while the Base Selling Price of water shall mean
the 1996 rate per cubic meter of water as provided for in the Water Supply
Contract.
2.

Ordering Respondent Metropolitan Cebu Water District to pay Claimant,


Mactan Rock Industries, Inc[.] under the reformed Clause 17 of the Water Supply
Contract, the net amount of Php12,126,296.70 plus legal interest of six percent
(6%) per annum from the (sic) March 15, 2004, the date of filling (sic) of the case
with the Construction Industry Arbitration Commission, the rate increased to
twelve percent (12%) per annum from the date the herein Decision have (sic)
become final and executory until the foregoing amounts shall have been fully
paid[.]

3.

Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water


District shall share equally the cost of arbitration.

SO ORDERED.[19]
Decision of the CA in CA-G.R. SP No. 85579 - Petition for
certiorari under Rule 65 with the Court of Appeals questioning the
jurisdiction of the CIAC
Meanwhile, on October 28, 2005, the CA in its decision [20] in the First Petition upheld the jurisdiction of
the CIAC over the case. The CA held that when parties agree to settle their disputes arising from or connected
with construction contracts, the CIAC acquires primary jurisdiction. [21] Citing Philrock Inc. v. Construction
Industry Arbitration Commission,[22] the CA stated that the CIAC may resolve not only the merits of such
controversies, but may also award damages, interest, attorneys fees, and expenses of litigation, when
appropriate.[23]

Second, the CA held that the claims in question fall under the jurisdiction of the CIAC. Thus:
Xxx Section 4 of Executive Order No. 1008, otherwise known as the Construction
Industry Arbitration Law delineates CIACs jurisdiction as original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the disputes arise before or after the completion of the
contract, or after abandonment thereof. Moreover, Section 5 (k) of Republic Act No. 9184
otherwise known as [the] Government Procurement Reform Act expressly defines infrastructure
project as including water supply[,] construction, rehabilitation[,] demolition, repair,
restoration and maintenance.
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. It is to be highlighted that the dispute in the case
at bar arose from the parties incongruent positions with regard to clause 17 of the Water Supply
Contract[,] specifically the price escalation/adjustment. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in those areas.
Nevertheless, in any event, the inclusion of an arbitration clause in a contract does not ipso facto
divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards
are still judicially reviewable under certain conditions.[24] (Citations omitted.)
MCWDs motion for reconsideration of the decision in the First Petition was still pending when it filed
the petition for review[25] under Rule 43 (Second Petition)appealing the decision of the CIAC. The motion for
reconsideration was eventually denied in a Resolution [26] dated May 3, 2006. MCWD did not appeal from the
denial of the motion. It, thus, became final and executory.[27]

Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition for


review under Rule 43 appealing the decision of the CIAC

Aggrieved by the CIAC Decision, MCWD filed a petition for review under Rule 43 with the CA which
was docketed as CA-G.R. CEB SP. No. 00623.
The CA, however, dismissed the petition in its Decision dated February 20, 2006. The Court therein
stated that the issue of jurisdiction had already been resolved by the 18 th Division in the First Petition, where the
CA upheld the jurisdiction of the CIAC over Arbitration Case No. 12-2004.
Citing jurisprudence, the CA also ruled that there being an arbitration clause in the Contract, the action
for reformation of contract instituted by MRII in this case fell squarely within the jurisdiction of the CIAC, not
the courts. In relation to this, the CA noted that the present rule is that courts will look with favor upon amicable
agreements to settle disputes through arbitration, and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. MCWD being a signatory and a party to the Water Supply Contract, it cannot
escape its obligation under the arbitration clause. [28]
The CA also held that the CIAC did not err in finding that the Water Supply Contract is clear on the
matter of the reckoning period for the computation of the escalation cost from January 9, 1999, or the first day
of delivery of water. Moreover, the CA found that the CIAC did not err in ruling that the contract be reformed to
include Capital Cost Recovery in the parametric formula for price escalation. Neither did it err in holding that
the Capital Cost Recovery shall be 30% of the Base Selling Price of water as a consequence of the reformation
of Clause 17.
Finally, the CA stressed that factual findings of administrative agencies which are deemed to have
acquired expertise in matters within their respective jurisdictions are generally accorded not only respect but
even finality when supported by substantial evidence.[29]
MCWD filed a motion for reconsideration but it was denied in the CA Resolution dated March 30, 2006.
Thus, this petition.
ISSUES
MCWD raises the following issues in its petition for review:
MAY THE CONSTRUCTION INDUSTRY [ARBITRATION] COMMISSION EXERCISE
JURISDICTION OVER DISPUTES ARISING FROM A WATER SUPPLY CONTRACT?
MAY A PARTY, WHO IS A SIGNATORY TO THE WATER SUPPLY CONTRACT[,] IN
EFFECT SUBMITTING ITSELF TO THE JURISDICTION OF THE CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, QUESTION THE JURISDICTION OF
[THE] CIAC?
DOES THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION HAVE THE
(SIC) JURISDICTION OVER A COMPLAINT PRAYING FOR A REFORMATION OF A
WATER SUPPLY CONTRACT?

MAY THE COURT OF APPEALS REFUSE TO RENDER A [SIC] JUDGMENT ON AN


ISSUE BECAUSE THIS HAS BEEN ALREADY SETTLED IN A DECISION
RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS IN A PETITION
FOR CERTIORARI, EVEN IF THE SAID DECISION HAS NOT YET BEEN (SIC)
FINAL DUE TO A TIMELY FILING OF A MOTION FOR RECONSIDERATION?[30]
RULING OF THE COURT
Creation of the CIAC
The Construction Industry Arbitration Commission (CIAC) was created in 1985 under Executive
Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the Philippine Construction Industry), 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 to, the construction industry was
considered necessary and vital for the fulfillment of national development goals, as the construction industry
provided employment to a large segment of the national labor force, and was a leading contributor to the gross
national product. [31]
Under Section 4 of E.O. No. 1008, the CIACs jurisdiction was specifically delineated as follows:
SECTION 4. Jurisdiction - The CIAC shall have original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the disputes arise before or after the completion of the
contract, or after the abandonment or breach thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to
submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications
for materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual provisions; amount of damages and penalties; commencement time
and delays; maintenance and defects; payment default of employer or contractor and changes in
contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of thePhilippines.
(Underscoring supplied)
The jurisdiction of the CIAC as a quasi-judicial body is confined to construction disputes, [32] that is,
those arising from, or connected to, contracts involving all on-site works on buildings or altering structures
from land clearance through completion including excavation, erection and assembly and installation of
components and equipment.[33] The CIAC has jurisdiction over all such disputes whether the dispute arises
before or after the completion of the contract.[34]
Whether
dispute

the

CIAC

has

jurisdiction over

the

As earlier stated, following the denial of its motion to dismiss by CIAC, MCWD filed the First Petition
with the CA, which decided in favor of MRII and upheld the jurisdiction of the CIAC.

Not being in conformity, MCWD filed a motion for reconsideration.


While the said motion was pending with the CA, MCWD filed the Second Petition with the same court.
Eventually, the motion was denied, and MCWD never appealed the case. Thus, the decision of the CA in the
First Petition became final and executory.
The question now is whether such final and executory decision is binding such that courts are generally
precluded from passing judgment on the issue of jurisdiction in the present petition.
The Court finds in the affirmative.
This Court has held time and again that a final and executory judgment, no matter how erroneous,
cannot be changed, even by this Court. Nothing is more settled in law than that once a judgment attains finality,
it thereby becomes immutable and unalterable. It may no longer be modified in any respect, even if such
modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless
of whether the modification is attempted to be made by the court rendering it or by the highest court of the land.
[35]

In its Decision in the First Petition, the CA affirmed the arbitral bodys finding in CIAC Case No. 122004 that the case was within its jurisdiction. Such decision having become final, it is beyond the jurisdiction
of this Court, or any court or body, for that matter, to review or modify, even supposing for the sake of
argument, that it is indeed erroneous.
Also, the parties apparently characterized the Contract as one involving construction, as its arbitration
clause specifically refers disputes, controversies or claims arising out of or relating to the Contract or the
breach, termination or validity thereof, if the same cannot be settled amicably, to an arbitration tribunal, in
accordance with E.O. No. 1008, or the Construction Industry Arbitration Law:

V. DISPUTES AND JURISDICTION:


18. Any dispute, controversy or claim arising out of or relating to this contract or the
breach, termination or invalidity thereof, if the same cannot be settled amicably, may be
submitted for arbitration to an Arbitration Tribunal in accordance with Executive Order No. 1008
dated 4 February 1985, otherwise known as the Construction Industry Arbitration Law and the
place of arbitration shall be the City of Cebu, Philippines, otherwise said dispute or controversy
arising out of the contract or breach thereof shall be submitted to the court of law having
jurisdiction thereof in the city where MCWD is located.[36]
Had the parties been of the mutual understanding that the Contract was not of construction, they could
have instead referred the matter to arbitration citing Republic Act(R.A.) No. 876, or The Arbitration Law.
Having been passed into law in 1953, the said statute was already in existence at the time the contract was

entered into, and could have been applied to arbitration proceedings other than those specifically within the
arbitral jurisdiction of the CIAC.
Whether the CA erred in refusing to render judgment on the
issue of jurisdiction
___________
On a related matter, MWCD also raises the issue of whether the 19 th Division of the CA, Cebu City,
erred in refusing to render judgment on the issue of jurisdiction raised in the Second Petition on the ground that
it had already been settled by the 18th Division in its decision in the First Petition, even if the 18 th Division
decision had not yet become final due to a timely filing of a motion for reconsideration.
The Court rules in the negative.
The 19th Division was correct in refusing to render judgment on the issue of jurisdiction as, at that time,
the issue was still pending before another division of the CA.
Litis pendentia is predicated on the principle that a party should not be allowed to vex another more than
once regarding the same subject matter and for the same cause of action. It is founded on the public policy that
the same subject matter should not be the subject of controversy in courts more than once, in order that possible
conflicting judgments may be avoided for the sake of the stability of the rights and status of persons, and also to
avoid the costs and expenses incident to numerous suits. [37]
With the two petitions then pending before the CA, all the elements of litis pendentia were present, that
is, identity of the parties in the two actions, substantial identity in the causes of action and in the reliefs sought
by the parties, and identity between the two actions such that any judgment that may be rendered in one case,
regardless of which party is successful, would amount to res judicata in the other.[38]
In both cases, MCWD was the petitioner and MRII, the respondent. Although they differ in form, in
essence, the two cases involved a common issue, that is, MCWDs challenge to the jurisdiction of the CIAC
over the arbitration proceedings arising from the Water Supply Contract between the petitioner and respondent.
To determine whether there is identity of the rights asserted and reliefs prayed for, grounded on the same
facts and bases, the following tests may be utilized: (1) whether the same evidence would support and sustain
both the first and the second causes of action, also known as the same evidence test; or (2) whether the
defenses in one case may be used to substantiate the complaint in the other.[39] Also fundamental is the test of
determining whether the cause of action in the second case existed at the time of the filing of the first case.[40]
In the First Petition, MCWD argued that the CIACs issuance of its Order [41] dated May 28, 2004 was
tainted with grave abuse of discretion amounting to excess or lack of jurisdiction. Thus, MCWD stated in its
prayer:
WHEREFORE, in light of the premises laid down, petitioner most respectfully prays:
1. Upon the filing of this Petition, a Writ of Preliminary Injunction or
restraining order be issued forthwith, enjoining the respondent from proceeding

with the hearing of the case until further orders from the Honorable Court of
Appeals;
2. After consideration, petitioner also prays that the Order dated May 28, 2004,
denying petitioners motion to dismiss be declared without force and effect;
3. Petitioner also prays that the Construction Industry Arbitration Commission
be barred from hearing the case filed by Mactan Rock Industries, Inc., private
respondent herein.
Other measures of relief, which are just and equitable under the foregoing premise are
also prayed for.[42]
The Second Petition, on the other hand, raised the following issues:
a.
Whether or not the Arbitral Tribunal of CIAC gravely erred in taking and
exercising jurisdiction over the complaint filed by the respondent;
b.
Whether or not the Arbitral Tribunal of CIAC gravely erred in reforming
Clause 17 of the Contract;
c.
Whether or not the same tribunal gravely committed an error in considering
Capital Cost Recovery Adjustment in awarding in favor of the complainant, when the same is
extraneous to the provisions of the contract;[43]
Thus, it prayed:
WHEREFORE, PREMISES CONSIDERED, it is most respectfully prayed of the
Honorable Court that a Judgment be issued reversing the findings of the Arbitral Tribunal of the
Construction Industry Arbitration Commission in its Decision dated April 14, 2005, as far as the
order of reformation of the water supply contract and in granting the monetary award.
It is further prayed that the decision rendered by the Arbitral Tribunal be declared invalid
for want of jurisdiction to arbitrate and to order the reformation of the water supply contract;
It is also prayed that the decision awarding money to the respondent be strike (sic) down
as erroneous and without legal basis for lack of jurisdiction by the Arbitral Tribunal, which
rendered the Decision.
It is also prayed that a Temporary Restraining Order and a Writ of Preliminary Injunction
be issued at the outset, ordering the stay of execution pending the resolution of the issues raised
in the Petition.
Other measures of relief, which are just and equitable, are also prayed for.[44]

In both cases, the parties also necessarily relied on the same laws and arguments in support of their
respective positions on the matter of jurisdiction.

In the First Petition, in support of its argument, that the CIAC had no jurisdiction to arbitrate the causes
of action raised by MRII, MCWD cited the portions of the Contract on the obligations of the water supplier,
E.O. No. 1008 (specifically Section 4 on jurisdiction), the Rules of Procedure Governing Construction
Arbitration (Section 1, Article III). It also alleged that in issuing the order denying its motion to dismiss, the
CIAC misread the provisions of LOI No. 1186 and R.A. No. 9184 on the definition of an infrastructure project.
[45]

MRII, however, opined that the CIAC had jurisdiction over the complaint and, therefore, correctly
denied petitioners motion to dismiss. MRII argued that certiorari was not a proper remedy in case of denial of a
motion to dismiss and that the claims fell squarely under CIACs original and exclusive jurisdiction. MRII, in
support of its position, cited Section 1 of LOI No. 1186 and Section 5(k) of R.A. No. 9184. MRII further
proposed that, as shown by MCWDs pro-forma Water Supply Contract, Specifications, Invitation to Submit
Proposal, Pre-Bid Conference minutes, Addendum No. 1, and MRIIs Technical and Financial Proposals, the
undertaking contemplated by the parties is one of infrastructure and of works, rather than one of supply or mere
services.[46]
In the Second Petition, in support of the issue of jurisdiction, MCWD again relied on Section 4 of E.O.
No. 1008 and Section 1, Article III of the Rules of Procedure Governing Construction Arbitration. It also
brought to fore the alleged faulty conclusion of MRII that a water supply contract is subsumed under the
definition of an infrastructure project under LOI 1186.[47]
In its Comment, MRII reiterated and adopted its arguments before the CIAC, and insisted that the
undertaking contemplated by the parties was one of infrastructure and of works, as distinguished from mere
supply from off-the-shelf or from mere services.[48] Section 1 of LOI No. 1186, to define infrastructure and
Section 5(k) of R.A. No. 9184 to include water supply, were again cited. In support of its arguments, MRII
cited anew MCWDs pro-forma Water Supply Contract, Specifications (in its Invitation to Submit Proposal),
pronouncements at the Pre-Bid Conference, Addendum No. 1, and MRIIs Technical and Financial Proposals.
MRII further extensively reproduced the content of the joint affidavit of Messrs. Antonio P. Tompar and Lito R.
Maderazo, MRIIs President/CEO and Financial Manager, respectively.[49]
Given that the same arguments were raised on the matter of CIAC jurisdiction, the parties thus relied on
substantially the same evidence in both petitions. MCWD annexed to both petitions copies of the Water Supply
Contract, the complaint filed by MRII with the CIAC, and its Answer to the said complaint. On the other hand,
MRII presented Addendum No. 1 to the Water Supply Contract and its Technical and Financial Proposals.
Moreover, the first cause of action in the Second Petition, that is, the CIACs having assumed
jurisdiction, allegedly unlawfully, over the dispute arising from the Water Supply Contract, obviously existed at
the time the First Petition was filed, as the latter case dealt with the jurisdiction of the CIAC over the complaint
filed.
Finally, any judgment that may be rendered in the First Petition on the matter of whether the CIAC has
jurisdiction over the arbitration proceedings, regardless of which party was successful, would amount to res
judicata in the Second Petition, insofar as the issue of jurisdiction is concerned. In fact, what MCWD should

have done was to appeal to the Court after the denial of its motion for reconsideration in the First Petition. For
not having done so, the decision therein became final and, therefore, immutable.
Thus, following the above discussion, the 19th Division was correct in refusing to render judgment on the
issue of jurisdiction in the Second Petition.
Whether the CIAC had jurisdiction to order the reformation of
the Water Supply Contract
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.[50] It
cannot be fixed by the will of the parties to the dispute, nor can it be expanded or diminished by stipulation or
agreement. [51] The text of Section 4 of E.O. No. 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. This jurisdiction cannot be altered by stipulations restricting the nature of construction disputes,
appointing another arbitral body, or making that bodys decision final and binding.[52]
Thus, unless specifically excluded, all incidents and matters relating to construction contracts are
deemed to be within the jurisdiction of the CIAC. Based on the previously cited provision outlining the CIACs
jurisdiction, it is clear that with regard to contracts over which it has jurisdiction, the only matters that have
been excluded by law are disputes arising from employer-employee relationships, which continue to be
governed by the Labor Code of the Philippines. Moreover, this is consistent with the policy against split
jurisdiction.
In fact, in National Irrigation Administration v. Court of Appeals,[53] it was held that the CIAC had
jurisdiction over the dispute, and not the contract. Therefore, even if the contract preceded the existence of the
CIAC, since the dispute arose when the CIAC had already been constituted, the arbitral board was exercising
current, and not retroactive, jurisdiction. In the same case, it was held that as long as the parties agree to submit
to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be
precluded from electing to submit their dispute to the CIAC because this right has been vested upon each party
by law.
This is consistent with the principle that when an administrative agency or body is conferred quasijudicial functions, all controversies relating to the subject matter pertaining to its specialization are deemed to
be included within its jurisdiction since the law does not sanction a split of jurisdiction, as stated in Pea v.
Government Service Insurance System.[54]
In Pea, the Court held that although the complaint for specific performance, annulment of mortgage,
and damages filed by the petitioner against the respondent included title to, possession of, or interest in, real
estate, it was well within the jurisdiction of the Housing and Land Use Regulatory Board (HLURB), a quasijudicial body, as it involved a claim against the subdivision developer, Queens Row Subdivision, Inc., as well
as the Government Service Insurance System (GSIS).
This case was later cited in Badillo v. Court of Appeals,[55] where the Court concluded that the
HLURB had jurisdiction over complaints for annulment of title. The Court also held that courts will not

determine a controversy where the issues for resolution demand the exercise of sound administrative discretion,
such as that of the HLURB, the sole regulatory body for housing and land development. It was further pointed
out that the extent to which an administrative agency may exercise its powers depends on the provisions of the
statute creating such agency.
The ponencia further quoted from C.T. Torres Enterprises, Inc. v. Hibionada:[56]
The argument that only courts of justice can adjudicate claims resoluble under the
provisions of the Civil Code is out of step with the fast-changing times. There are hundreds of
administrative bodies now performing this function by virtue of a valid authorization from the
legislature. This quasi-judicial function, as it is called, is exercised by them as an incident of the
principal power entrusted to them of regulating certain activities falling under their particular
expertise.
In the Solid Homes case for example the Court affirmed the competence of the Housing
and Land Use Regulatory Board to award damages although this is an essentially judicial power
exercisable ordinarily only by the courts of justice. This departure from the traditional allocation
of governmental powers is justified by expediency, or the need of the government to respond
swiftly and competently to the pressing problems of the modern world.
In Bagunu v. Spouses Aggabao,[57] the Court ruled that the RTC must defer the exercise of its jurisdiction
on related issues involving the same subject matter properly within its jurisdiction, such as the distinct cause of
action for reformation of contracts involving the same property, since the DENR assumed jurisdiction over the
lot in question, pursuant to its mandate.
In National Housing Authority v. First United Constructors Corporation,[58] the Court held that there was
no basis for the exclusion of claims for business losses from the jurisdiction of the CIAC because E.O. No. 1008
excludes from the coverage of the law only those disputes arising from employer-employee relationships
which are covered by the Labor Code, conveying an intention to encompass a broad range of arbitrable issues
within the jurisdiction of CIAC.[59] Section 4 provides that (t)he jurisdiction of the CIAC may include but is
not limited to x x x, underscoring the expansive character of the CIACs jurisdiction. Very clearly, the CIAC
has jurisdiction over a broad range of issues and claims arising from construction disputes, including but not
limited to claims for unrealized profits and opportunity or business losses. What E.O. No. 1008 emphatically
excludes is only disputes arising from employer-employee relationships.[60]
Where the law does not delineate, neither should we. Neither the provisions of the Civil Code on
reformation of contracts nor the law creating the CIAC exclude the reformation of contracts from its
jurisdiction. Jurisprudence further dictates that the grant of jurisdiction over related and incidental matters is
implied by law. Therefore, because the CIAC has been held to have jurisdiction over the Contract, it follows
that it has jurisdiction to order the reformation of the Contract as well.
Whether MCWD can validly refuse to participate in the
arbitration proceedings
In light of the finality of the CA decision on the matter of jurisdiction, the only remaining issue to be
disposed of is whether the CIAC could proceed with the case even if the MCWD refused to participate in the
arbitration proceedings.

The Court rules in the affirmative. Though one party can refuse to participate in the arbitration
proceedings, this cannot prevent the CIAC from proceeding with the case and issuing an award in favor of one
of the parties.
Section 4.2 of the Revised Rules of Procedure Governing Construction Arbitration (CIAC Rules)
specifically provides that where the jurisdiction of the CIAC is properly invoked by the filing of a Request for
Arbitration in accordance with CIAC Rules, the failure of a respondent to appear, which amounts to refusal to
arbitrate, will not stay the proceedings, notwithstanding the absence of the respondent or the lack of
participation of such party. In such cases, the CIAC is mandated to appoint the arbitrator/s in accordance with
the Rules, and the arbitration proceedings shall continue. The award shall then be made after receiving the
evidence of the claimant.
In such a case, all is not lost for the party who did not participate. Even after failing to appear, a
respondent is still given the opportunity, under the CIAC Rules, to have the proceedings reopened and be
allowed to present evidence, although with the qualification that this is done before an award is issued:
4.2.1 In the event that, before award, the Respondent who had not earlier questioned the
jurisdiction of the Tribunal, appears and offers to present his evidence, the Arbitral Tribunal may,
for reasons that justifies (sic) the failure to appear, reopen the proceedings, require him to file his
answer with or without counterclaims, pay the fees, where required under these Rules, and allow
him to present his evidence, with limited right to cross examine witnesses already in the
discretion of the Tribunal. Evidence already admitted shall remain. The Tribunal shall decide the
effect of such controverting evidence presented by the Respondent on evidence already admitted
prior to such belated appearance.

Thus, under the CIAC Rules, even without the participation of one of the parties in the proceedings, the
CIAC is still required to proceed with the hearing of the construction dispute.[61]
This Court has held that the CIAC has jurisdiction over a dispute arising from a construction contract
even though only one of the parties requested for arbitration. [62] In fact, in Philrock, Inc. v. Construction
Industry Arbitration Commission,[63] the Court held that the CIAC retained jurisdiction even if both parties had
withdrawn their consent to arbitrate.
In
this
case,
there
being
a
valid
arbitration
clause
mutually
stipulated
by the parties, they are both contractually bound to settle their dispute
through arbitration before the CIAC. MCWD refused to participate, but this should not affect the authority of
the CIAC to conduct the proceedings, and, thereafter, issue an arbitral award.
Now, with the CIAC decision being questioned by MCWD, the Court takes a cursory reading of the said
decision. It reveals that the conclusions arrived at by CIAC are supported by facts and the law. Article 1359 of
the Civil Code states that when there has been a meeting of the minds of the parties to a contract, but their true
intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that
such true intention may be expressed. The CIAC, in this case, found that the parametric formula for price

escalation reflected in the Water Supply Contract involved two items: Power Rate Price Adjustment (30% of the
base selling price of water) and Consumer Price Index Adjustment (40% of the base selling price of water). The
remaining 30% of the selling price of water, which should have been for Capital Cost Recovery, was
inadvertently left out in this parametric formula. Thus, the Contract should be reformed accordingly to reflect
the intention of the parties to include in the price escalation formula the Capital Cost Recovery Adjustment.
These conclusions were affirmed by the CA in the assailed decision of February 20, 2006.
As noted by MCWD in its reply, however, the dispositive portion of the CIAC decision reforming the
price escalation formula is inconsistent with what was stated in the body of the decision. The formula contained
in the body of the decision is as follows:
PRICE ADJUSTMENT COMPUTATION
Based on Reformed Clause 17 of the Water Supply Contract
1.

Power Cost Adjustment:


xxx

Current Power Rate Base Power Rate x 30% of Base Selling Price of water
Base Power Rate
xxx
2.

Operating Cost Adjustment - Local

xxx
Current CPI Base CPI x 30% of 40% of Base Selling Price of Water
Base CPI
xxx
3.

Operating Cost Adjustment Foreign

xxx
Current Forex Base Forex x 70% of 40% of Base Selling Price of Water
Base Forex
xxx
4.

Capital Cost Adjustment Local

xxx
Current CPI Base CPI x 30% of 30% of Base Selling Price of Water
Base CPI

xxx
5.

Capital Cost Adjustment Foreign

xxx
Current Forex Base Forex x 70% of 30% of Base Selling Price of Water
Base Forex
xxx[64]
The dispositive portion of the decision, however, reads:
WHEREFORE[,] premises considered, judgment is hereby rendered as follows:
1.

Ordering the reformation of Clause 17 of the Water Supply Contract to read:


17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula:
17.1

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate Base Power Rate x 30% of Base Selling Price of water
Base Power Rate
17.2

Consumer Price Index (CPI) Adjustment/Operatiing (sic) Cost Adjustment:

Current CPI Base CPI x 40% of Base Selling Price of Water


Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling price of water
Base Peso to US $ Exchange Rate

The general rule is that where there is a conflict between the fallo, or the dispositive part, and the body
of the decision or order, the fallo prevails on the theory that the fallois the final order and becomes the subject
of execution, while the body of the decision merely contains the reasons or conclusions of the court ordering
nothing. However, where one can clearly and unquestionably conclude from the body of the decision that there
was a mistake in the dispositive portion, the body of the decision will prevail.[65]
Following the reasoning of the CIAC in this case, there are three components to price adjustment: (1)
Power Cost Adjustment (30% of the base selling price of water); (2) Operating Cost Adjustment (40% of the
base selling price of water); and (3) Capital Cost Adjustment (30% of the base selling price of water).
In turn, the second componentOperating Cost Adjustmentis computed based on Local Operating
Cost Adjustment (30%), and Foreign Operating Cost Adjustment (70%).

Capital Cost Adjustment, on the other hand, is composed of Local Capital Cost Adjustment (30%), and
Foreign Capital Cost Adjustment (70%).
This is consistent with the formula set forth in the body of the CIAC decision. If the formula in the
dispositive portion were to be followed, Operating Cost Adjustment would be computed with the Local
Operating Cost Adjustment representing the entire 40% of the base selling price of water instead of just 30% of
the Operating Cost Adjustment. Moreover, if the Capital Cost Recovery Adjustment were to be computed based
solely on Foreign Capital Cost Recovery Adjustment, it would represent the entire 30% of the base selling price
of water, and not just 70% of the Capital Cost Recovery Adjustment. The omission of the marked portions of
the formula as stated in the body of the CIAC decision represents substantial changes to the formula for price
escalation. It is thus clear that the formula as stated in the body of the decision should govern.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in C.A.G.R. CEB SP. No. 00623 are AFFIRMED with the modification that the formula for the computation of the
Capital Cost Recovery Adjustment in the fallo of the CIAC decision should be amended to read as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1.

Ordering the reformation of Clause 17 of the Water Supply Contract to read:


17. Price Escalation and/or De-Escalation shall be based on the parametric formula:
17.1.

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate x 30% of base selling price of water
Base Power Rate
17.2

Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment:

Current CPI Base CPI x 30% of 40% of base selling price of water
Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 70% of 30% of base selling price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when the water was first
delivered by Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The
base CPI, base US$ Exchange Rate and the Base Power Rate shall be the prevailing
rate in January 1999, while the Base Selling Price of water shall mean the 1996 rate
per cubic meter of water as provided for in the Water Supply Contract.
2.

Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan


Rock Industries, Inc. under the reformed Clause 17 of the Water Supply Contract, the
net amount of Php12,126,296.70 plus legal interest of six percent (6%) per annum

from March 15, 2004, the date of filing of the case with the Construction Industry
Arbitration Commission, and twelve percent (12%) per annum from the date this
Decision becomes final and executory, until the foregoing amounts shall have been
fully paid.
3.

Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall
share the cost of arbitration equally.

SO ORDERED.

In Metropolitan Cebu Water District v. Mactan Rock Industries, G.R. No. 172438 (July 2012), the
Supreme Court ruled that the Construction Industry Arbitration Commission (CIAC) has jurisdiction over
reformation of contracts and a partys refusal to arbitrate will not stay its proceedings or the issuance of an
arbitral award.
Background
Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled corporation
mandated to supply water within its service area in the Province of Cebu. On 19 May 1997, it entered into a
Water Supply Contract with Respondent Metro Rock Industries, Inc. (MRII), a domestic corporation. Under
the Contract, it was agreed that MRII would supply MCWD with potable water, in accordance with WHO or
Philippine standards. On 15 March 2004, MRII filed a Complaint against MCWD with the CIAC seeking the
reformation of Clause 17 of the Contract (the Price Escalation/De-Escalation Clause) to include Capital Cost
Recovery in the price escalation formula, and the payment of the unpaid price escalation/adjustment, and unpaid
variation/extra work order and interest/cost of money. On 7 May 2002, MCWD filed its Answer with a motion
to dismiss the complaint on the ground that the CIAC had no jurisdiction over the case, as the Contract was not
one for construction or infrastructure (i.e., reformation of and payment under a Water Supply Contract). The
CIAC issued an order denying MCWDs motion to dismiss and called the parties to a preliminary conference
for the review and signing of the Terms of Reference. MCWD then filed a petition for certiorari with Court of
Appeals questioning the jurisdiction of the CIAC.
The CIAC proceeded with the scheduled preliminary conference which MWCD did not attend. MRII and the
CIAC both signed the Terms of Reference, and pursuant thereto, MRII submitted its documentary evidence and
affidavits of its witnesses, and subsequently filed its Formal Offer of Evidence and memorandum of arguments
in the form of a draft decision. MCWD did not attend the hearings, did not submit evidence other than those
annexed to its Answer, and did not file a formal offer of evidence or a memorandum. The CIAC promulgated its
Decision which, among others, ordered the reformation of Clause 17 of the Water Supply Contract and payment
by MCWD to MRII under the reformed Clause 17 of the net amount of PHP12,126,296.70 plus legal interest;
with the parties sharing equally the cost of arbitration.
MWCD appealed the CIAC decision. The Supreme Court ruled against MWCD.
Supreme Courts Ruling
CIAC has jurisdiction over broad range of construction disputes, including reformation of contracts.
The Supreme Court noted that the parties themselves characterized the Contract as one involving construction,
as its arbitration clause specifically refers disputes arising out of or relating to the Contract to an arbitration
tribunal in accordance with the Construction Industry Arbitration Law. Since CIAC has jurisdiction over the

Contract, it follows that it has jurisdiction to order the reformation of the Contract as well. It held that neither
the provisions of the Civil Code on reformation of contracts or the law creating the CIAC exclude the
reformation of contracts from CIACs jurisdiction. The Supreme Court cited previous rulings that the CIAC has
jurisdiction over a broad range of issues and claims arising from construction disputes, and the law creating it
excludes only disputes arising from employer-employee relationships.
Refusal to arbitrate will not stay CIAC proceedings
Considering the affirmation of the CIACs jurisdiction, the Supreme Court ruled that the CIAC could proceed
with the case even if the MCWD refused to participate in the arbitration proceedings. It said that the refusal of a
party to participate in the arbitration proceedings, cannot prevent the CIAC from proceeding with the case and
issuing an award in favor of one of the parties. Under the Revised CIAC Rules, the failure of a respondent to
appear, which amounts to refusal to arbitrate, will not stay the proceedings, notwithstanding the absence of the
respondent or the lack of participation of such party. In such cases, the CIAC is mandated to appoint the
arbitrator/s in accordance with the Revised CIAC Rules, and the arbitration proceedings shall continue and an
award made after receiving the evidence of the claimant. In support of the ruling, the Supreme Court cited
previous case where it held that the CIAC has jurisdiction over a construction dispute even though only one of
the parties requested for arbitration, or even if both parties had withdrawn their consent to arbitrate.
In any event the Supreme Court noted the party who did not participate is not without a remedy. Under the
Revised CIAC Rules, a respondent who failed to appear is still given the opportunity to move for the reopening
of the proceedings to present evidence, provided that this is done before an award is issued.
Relevance
This case affirms the rule that parties to a valid arbitration clause are contractually bound to settle their
dispute through arbitration and that the refusal of a party to arbitrate will not affect the authority of the CIAC to
conduct the proceedings and issue an arbitral award.
[G.R. No. 120105. March 27, 1998]
BF

CORPORATION, petitioner, vs.


COURT OF APPEALS,
SHANGRI-LA
PROPERTIES,
COLAYCO, ALFREDO C. RAMOS, INC., RUFO B. MAXIMO G. LICAUCO III and
BENJAMIN C. RAMOS, respondents.
DECISION

ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the construction of
the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies an
arbitration clause in case of disagreement between the parties in the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter
engaged the former to construct the main structure of the EDSA Plaza Project, a shopping mall complex in
the City of Mandaluyong.

The construction work was in progress when SPI decided to expand the project by engaging the services of
petitioner again. Thus, the parties entered into an agreement for the main contract works after which
construction work began.
However, petitioner incurred delay in the construction work that SPI considered as serious and
substantial.[1] On the other hand, according to petitioner, the construction works progressed in faithful
compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I of the
Project.[2] Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as
Agreement for the Execution of Builders Work for the EDSA Plaza Project. Said agreement would cover the
construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner failed to complete the construction works and abandoned the project. [3] This
resulted in disagreements between the parties as regards their respective liabilities under the contract. On July
12, 1993, upon SPIs initiative, the parties respective representatives met in conference but they failed to come
to an agreement.[4]
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a
complaint for collection of the balance due under the construction agreement. Named defendants therein were
SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio B. Olbes,
Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an
answer. The motion was anchored on defendants allegation that the formal trade contract for the construction
of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be
invoked in any dispute arising from the contract. The following day, SPI submitted a copy of the conditions of
the contract containing the arbitration clause that it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the parties although
they entered into an agreement defining their rights and obligations in undertaking the project. It emphasized
that the agreement did not provide for arbitration and therefore the court could not be deprived of jurisdiction
conferred by law by the mere allegation of the existence of an arbitration clause in the agreement between the
parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract
between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the court of
its jurisdiction over the case and that arbitration would expedite rather than delay the settlement of the parties
respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there was no arbitration clause in the contract between
the parties. It averred that granting that such a clause indeed formed part of the contract, suspension of the
proceedings was no longer proper. It added that defendants should be declared in default for failure to file their
answer within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioners admission of the due execution of the
Articles of Agreement. Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and
Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public document
duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No. 345, page 70,
book No. LXX, Series of 1991 of his notarial register.[5]
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court [6] denied the motion to
suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C,
Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and
conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the
execution by the parties of a formal trade contract. Defendants have submitted a copy of the alleged
trade contract, which is entitled `Contract Documents For Builders Work Trade Contractor dated 01
May 1991, page 2 of which is entitled `Contents of Contract Documents with a list of the documents
therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May
30, 1991. Section C of the said Contract Documents is entitled `Articles of Agreement and Conditions
of Contract which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of
Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses,
and was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on
November 15, 1991. The said Articles of Agreement also provides that the `Contract Documents'
therein listed `shall be deemed an integral part of this Agreement, and one of the said documents is the
`Conditions of Contract which contains the Arbitration Clause relied upon by the defendants in their
Motion to Suspend Proceedings.
This Court notes, however, that the `Conditions of Contract referred to, contains the following
provisions:
`3. Contract Document.
Three copies of the Contract Documents referred to in the Articles of Agreement shall
be signed by the parties to the contract and distributed to the Owner and the Contractor
for their safe keeping. (underscoring supplied)
And it is significant to note further that the said `Conditions of Contract is not duly signed by the
parties on any page thereof --- although it bears the initials of BFs representatives (Bayani F. Fernando
and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La
Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or
signed by the parties, and the failure of the defendants to submit any signed copy of the said document,
this Court entertains serious doubt whether or not the arbitration clause found in the said Conditions of
Contract is binding upon the parties to the Articles of Agreement. (Underscoring supplied.)

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was too
late in the day for defendants to invoke arbitration. It quoted the following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the
contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case,
however, shall the demand he made be later than the time of final payment except as otherwise
expressly stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was to
be completed by October 31, 1991. Thereafter, the contractor would payP80,000 for each day of delay counted
from November 1, 1991 with liquified (sic) damages up to a maximum of 5% of the total contract price.
The lower court also found that after the project was completed in accordance with the agreement that
contained a provision on progress payment billing, SPI took possession and started operations thereof by
opening the same to the public in November, 1991. SPI, having failed to pay for the works, petitioner billed
SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on February 17,
1993. Instead of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a
conference on that claim for July 12, 1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required
that `Notice of the demand for arbitration of a dispute shall be filed in writing with the other party x x x
x in no case x x x x later than the time of final payment x x x x which apparently, had elapsed, not
only because defendants had taken possession of the finished works and the plaintiffs billings for the
payment thereof had remained pending since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file any written notice of any demand for
arbitration during the said long period of one year and eight months, this Court finds that it cannot stay
the proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPIs motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the Rules of
Court before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the orders
and stayed the proceedings in the lower court. In so ruling, the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners motion to suspend proceedings are
untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners reply dated August 26,
1993, has been submitted by them to the respondent Court (Annex G, petition). It bears the signature of
petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1, petition). At page D/4 of said articles of agreement it is

expressly provided that the conditions of contract are `deemed an integral part thereof (page 188, rollo). And it
is at pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found (Annexes G-3
to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on
his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works as
to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in
connection therewith (including any matter or being left by this Contract to the discretion of the Project
Manager or the withholding by the Project Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30 (5) (a) of these Conditions or the rights and
liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner and the Contractor
hereby agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such
dispute or difference shall be referred to Arbitration in accordance with the rules and procedures of the
Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only the initials of respondent
Corporations representatives, Bayani Fernando and Reynaldo de la Cruz, without that of the representative of
petitioner Shangri-La Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26, 1993 (Annex G, petition), is the
agreement between the parties, the initial or signature of said petitioners representative to signify conformity to
arbitration is no longer necessary. The parties, therefore, should be allowed to submit their dispute to arbitration
in accordance with their agreement.
2. The respondent Court held that petitioners `are in default in proceeding with such arbitration. It took note of
`the fact that under the supposed Arbitration Clause invoked by defendants, it is required that Notice of the
demand for arbitration of a dispute shall be filed in writing with the other party x x x in no case x x x later than
the time of final payment, which apparently, had elapsed, not only because defendants had taken possession of
the finished works and the plaintiffs billings for the payment thereof had remained pending since November,
1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any
written notice of any demand for arbitration during the said long period of one year and eight months, x x x.
Respondent Court has overlooked the fact that under the arbitration clause
Notice of the demand for arbitration dispute shall be filed in writing with the other party to the contract and a
copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after
the dispute has arisen and attempts to settle amicably had failed; in no case, however, shall the demand be made
later than the time of final payment except as otherwise expressly stipulated in the contract (underscoring
supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to pay the
amount of P110,883,101.52, instead of paying, petitioners set up its own claim against respondent Corporation
in the amount of P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference proved futile.
The next day, July 14, 1993, respondent Corporation filed its complaint against petitioners. On August 13, 1993,
petitioners wrote to respondent Corporation requesting arbitration. Under the circumstances, it cannot be said
that petitioners resort to arbitration was made beyond reasonable time. Neither can they be considered in
default of their obligation to respondent Corporation.

Hence, this petition before this Court. Petitioner assigns the following errors:
A.
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT
OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE
FACTUAL FINDINGS OF THE TRIAL COURT THAT:
(i)

THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.

(ii)

ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO


ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN
INVOKING THE AGREEMENT TO ARBITRATE.

On the first assigned error, petitioner contends that the Order of the lower court denying the motion to
suspend proceedings is a resolution of an incident on the merits. As such, upon the continuation of the
proceedings, the lower court would appreciate the evidence adduced in their totality and thereafter render a
decision on the merits that may or may not sustain the existence of an arbitration clause. A decision containing
a finding that the contract has no arbitration clause can then be elevated to a higher court in an ordinary
appeal where an adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have
dismissed the petition for certiorari because the remedy of appeal would still be available to private respondents
at the proper time.[7]
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of
appeal is succinctly reiterated in Ongsitco v. Court of Appeals[8] as follows:
x x x. Countless times in the past, this Court has held that `where appeal is the proper remedy, certiorari will
not lie. The writs of certiorari and prohibition are remedies to correct lack or excess of jurisdiction or grave
abuse of discretion equivalent to lack of jurisdiction committed by a lower court. `Where the proper remedy is
appeal, the action for certiorari will not be entertained. x x x. Certiorari is not a remedy for errors of judgment.
Errors of judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are available only
when `there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law x x x. That is
why they are referred to as `extraordinary. x x x.
The Court has likewise ruled that certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed

in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by
timely appeal and not by a special civil action ofcertiorari.[9]v. Court of Appeals, 327 Phil. 1, 41-42 (1996).9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of the
lower court over the controversy, the issue posed basically is whether the lower court prematurely assumed
jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case, then it becomes
an error of jurisdiction which is a proper subject of a petition for certiorari before the Court of Appeals. And if
the lower court does not have jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found that
there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration clause does not
exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the Arbitration
Clause does not in fact exist. On its face, the question is one of fact which is not proper in a petition
for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of fact,
the Court of Appeals interpreted the construction of the subject contract documents containing the Arbitration
Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be
extensively discussed hereunder. In effect, the issue posed before the Court of Appeals was likewise a
question of law. Being a question of law, the private respondents rightfully invoked the special civil action
of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being questioned
by the petitioners before this Court. But at the heart of said issue is the question of whether there exists an
Arbitration Clause because if an Arbitration Clause does not exist, then private respondents took the wrong
mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private respondents took the proper mode of
appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether there exists an
Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in
a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may
be relaxed.[10] As we shall show hereunder, had the Court of Appeals dismissed the petition for certiorari, the
issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance
with evidence extant in the record of the case. Consequently, this would have resulted in a judicial rejection of a
contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract
between petitioner and private respondents is a legal issue that must be determined in this petition for review on
certiorari.

Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts that in
contemplation of law there could not have been one considering the following points. First, the trial court found
that the conditions of contract embodying the arbitration clause is not duly signed by the parties. Second,
private respondents misrepresented before the Court of Appeals that they produced in the trial court a notarized
duplicate original copy of the construction agreement because what were submitted were mere photocopies
thereof. The contract(s) introduced in court by private respondents were therefore of dubious authenticity
because: (a) the Agreement for the Execution of Builders Work for the EDSA Plaza Project does not contain an
arbitration clause, (b) private respondents surreptitiously attached as Annexes `G-3 to `G-5 to their petition
before the Court of Appeals but these documents are not parts of the Agreement of the parties as there was no
formal trade contract executed, (c) if the entire compilation of documents is indeed a formal trade contract,
then it should have been duly notarized, (d) the certification from the Records Management and Archives Office
dated August 26, 1993 merely states that the notarial record of Nilberto Briones x x x is available in the files of
(said) office as Notarial Registry Entry only, (e) the same certification attests that the document entered in the
notarial registry pertains to the Articles of Agreement only without any other accompanying documents, and
therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a mere hodgepodge of documents and do not constitute a single intelligible agreement.
In other words, petitioner denies the existence of the arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the Conditions of Contract that contained the said
clause. Its other contentions, specifically that insinuating fraud as regards the alleged insertion of the arbitration
clause, are questions of fact that should have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in the parties
contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows:
Section 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter arising between the
parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the
party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two hereof, providing for arbitration
of any controversy, shall be deemed a consent of the parties of the province or city where any of the parties
resides, to enforce such contract of submission. (Underscoring supplied.)
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing
and (b) it must be subscribed by the parties or their representatives. There is no denying that the parties entered
into a written contract that was submitted in evidence before the lower court. To subscribe means to write
underneath, as ones name; to sign at the end of a document. [11] That word may sometimes be construed to mean
to give consent to or to attest.[12]
The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the
contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements
between the parties, was signed by representatives of both parties and duly notarized. The failure of the private
respondents representative to initial the `Conditions of Contract would therefor not affect compliance with the
formal requirements for arbitration agreements because that particular portion of the covenants between the
parties was included by reference in the Articles of Agreement.

Petitioners contention that there was no arbitration clause because the contract incorporating said provision
is part of a hodge-podge document, is therefore untenable. A contract need not be contained in a single
writing. It may be collected from several different writings which do not conflict with each other and which,
when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by
correspondence.[13] A contract may be encompassed in several instruments even though every instrument is not
signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and
made part of the signed instrument or instruments. Similarly, a written agreement of which there are two
copies, one signed by each of the parties, is binding on both to the same extent as though there had been only
one copy of the agreement and both had signed it.[14]
The flaw in petitioners contentions therefore lies in its having segmented the various components of the
whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits the
execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of Agreement
also provides that the `Contract Documents therein listed `shall be deemed an integral part of this Agreement,
and one of the said documents is the `Conditions of Contract which contains the Arbitration Clause. It is this
Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI, and
Bayani F. Fernando, president of petitioner corporation. The same agreement was duly subscribed before notary
public Nilberto R. Briones. In other words, the subscription of the principal agreement effectively covered the
other documents incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were not
in default in invoking the provisions of the arbitration clause which states that (t)he demand for arbitration
shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had
failed. Under the factual milieu, private respondent SPI should have paid its liabilities under the contract in
accordance with its terms. However, misunderstandings appeared to have cropped up between the parties
ostensibly brought about by either delay in the completion of the construction work or by force majeure or the
fire that partially gutted the project. The almost two-year delay in paying its liabilities may not therefore be
wholly ascribed to private respondent SPI.
Besides, private respondent SPIs initiative in calling for a conference between the parties was a step
towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the lower
court. Thus, while private respondent SPIs request for arbitration on August 13, 1993 might appear an
afterthought as it was made after it had filed the motion to suspend proceedings, it was because petitioner also
appeared to act hastily in order to resolve the controversy through the courts.
The arbitration clause provides for a reasonable time within which the parties may avail of the relief
under that clause. Reasonableness is a relative term and the question of whether the time within which an act
has to be done is reasonable depends on attendant circumstances.[15] This Court finds that under the
circumstances obtaining in this case, a one-month period from the time the parties held a conference on July 12,
1993 until private respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it under the
contract. However, we find its denial of the existence of the arbitration clause as an attempt to cover up its
misstep in hurriedly filing the complaint before the lower court.
In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case. Section 7
of Republic Act No. 876 provides that proceedings therein have only been stayed. After the special proceeding

of arbitration[16] has been pursued and completed, then the lower court may confirm the award [17] made by the
arbitrator.
It should be noted that in 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.[18] Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration.[19] Its potentials as one of the alternative dispute resolution methods that are now rightfully vaunted
as the wave of the future in international relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore be a step
backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition
for certiorari DENIED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.

WILLIAM GOLANCO VS RAY BURTON


This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the
Decision[1] of the Court of Appeals (CA) dated December 19, 2003, holding that the Construction Industry
Arbitration Commission (CIAC) had no jurisdiction over the dispute between herein parties, and the CA
Resolution[2] dated May 24, 2004, denying herein petitioner's motion for reconsideration, be reversed and set
aside.
The undisputed facts, as accurately narrated in the CA Decision, are as follows.
On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent]
(RBDC for brevity) and private respondent William Golangco Construction Corporation [herein
petitioner] (WGCC) entered into a Contract for the construction of the Elizabeth Place
(Office/Residential Condominium).
On March 18, 2002, private respondent WGCC filed a complaint with a request for
arbitration with the Construction Industry Arbitration Commission (hereinafter referred to as
CIAC). In its complaint, private respondent prayed that CIAC render judgment ordering petitioner
to pay private respondent the amount of, to wit:
1.
P24,703,132.44 for the unpaid balance on the contract price;
2.
P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3.
P9,264,503.70 for the unpaid balance of additive works;
4.
P2,865,615.10 for extended overhead expenses;
5.
P1,395,364.01 for materials cost adjustment and trade contractors'
utilities expenses;
6.
P4,835,933.95 for interest charges on unpaid overdue billings on
labor cost adjustment and change orders.
or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred Nineteen
and 45/xx (P53,667,219.45) and interest charges based on the prevailing bank rates on the
foregoing amount from March 1, 2002 and until such time as the same shall be fully paid.

On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on
the ground of lack of jurisdiction. It is petitioner's contention that the CIAC acquires jurisdiction
over disputes arising from or connected with construction contracts only when the parties to the
contract agree to submit the same to voluntary arbitration. In the contract between petitioner and
private respondent, petitioner claimed that only disputes by reason of differences in interpretation
of the contract documents shall be deemed subject to arbitration.
Private respondent filed a Comment and Opposition to the aforesaid Motion dated April
15, 2002. Private respondent averred that the claims set forth in the complaint require contract
interpretation and are thus cognizable by the CIAC pursuant to the arbitration clause in the
construction contract between the parties. Moreover, even assuming that the claims do not
involve differing contract interpretation, they are still cognizable by the CIAC as the arbitration
clause mandates their direct filing therewith.
On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as
follows:
The Commission has taken note of the foregoing arguments of the
parties. After due deliberations, the Commission resolved to DENY Respondent's
motion on the following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly
provides that any dispute arising under the construction contract shall be
submitted to the Construction Arbitration Authority created by the
Government. Even without this provision, the bare agreement to submit a
construction dispute to arbitration vests in the Commission original and exclusive
jurisdiction by virtue of Sec. 4 of Executive Order No. 1008, whether or not a
dispute involves a collection of sum of money or contract interpretation as long as
the same arises from, or in connection with, contracts entered into by the parties
involved. The Supreme Court jurisprudence on Tesco vs. Vera case referred to by
respondent is no longer controlling as the same was based on the old provision of
Article III, Sec. 1 of the CIAC Rules which has long been amended.
[2] The issue raised by Respondent in its Motion to Dismiss is similar to
the issue set forth in CA-G.R. Sp. No. 67367, Continental Cement Corporation vs.
CIAC and EEI Corporation, where the appellate court upheld the ruling of the
CIAC thereon that since the parties agreed to submit to arbitration any dispute, the
same does not exclude disputes relating to claims for payment in as much as the
said dispute originates from execution of the works. As such, the subject dispute
falls within the original and exclusive jurisdiction of the CIAC.
WHEREFORE, in view of the foregoing, Respondent's Motion to
Dismiss is DENIED for lack of merit. Respondent is given anew an inextendible
period of ten (10) days from receipt hereof within which to file its Answer and
nominees for the Arbitral Tribunal. If Respondent shall fail to comply within the
prescribed period, the Commission shall proceed with arbitration in accordance
with its Rules. x x x
Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order
a suspension of the proceedings in Case No. 13-2002 until the resolution of the negotiations
between the parties, and consequently, that the period to file an Answer be held in abeyance.

Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to


Declare respondent to Have Refused to Arbitrate and to Proceed with Arbitration Ex Parte.
On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:
In view of the foregoing, Respondent's (petitioner's) Motion to Suspend
Proceedings is DENIED. Accordingly, respondent is hereby given a nonextendible period of five (5) days from receipt thereof within which to submit its
Answer and nominees for the Arbitral Tribunal. In default thereof, claimant's
(private respondent's) Counter-Motion is deemed granted and arbitration shall
proceed in accordance with the CIAC Rules Governing Construction Arbitration.
SO ORDERED. x x x
On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for
Certiorari and Prohibition with prayer for the issuance of a temporary restraining order and a writ
of preliminary injunction. Petitioner contended that CIAC acted without or in excess of its
jurisdiction when it issued the questioned order despite the clear showing that there is lack of
jurisdiction on the issue submitted by private respondent for arbitration.[3]
On December 19, 2003, the CA rendered the assailed Decision granting the petition for certiorari, ruling
that the CIAC had no jurisdiction over the subject matter of the case because the parties agreed that only
disputes regarding differences in interpretation of the contract documents shall be submitted for arbitration,
while the allegations in the complaint make out a case for collection of sum of money. Petitioner moved for
reconsideration of said ruling, but the same was denied in a Resolution dated May 24, 2004.
Hence, this petition where it is alleged that:
I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN FAILING
TO DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R. SP NO. 70959
OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A MOTION FOR
RECONSIDERATION OF THE CIAC'S ORDER, AS WELL AS FOR RBDC'S FAILURE TO
ATTACH TO THE PETITION THE RELEVANT PLEADINGS IN CIAC CASE NO. 13-2002,
IN VIOLATION OF THE REQUIREMENT UNDER RULE 65, SECTIONS 1 AND 2,
PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3, PARAGRAPH 2 THEREOF.
II.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS
JURISDICTION OVER WGCC'S CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII INVOLVING
CONTRACT INTERPRETATION.
xxxx
III.

THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT CLAUSE


17.2 OF ARTICLE XVII CANNOT BE TREATED AS BEING LIMITED TO DISPUTES
ARISING FROM INTERPRETATION OF THE CONTRACT.
xxxx
IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS
ESTOPPED FROM DISPUTING THE JURISDICTION OF THE CIAC.
xxxx
V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
REFUSING TO PAY HEED TO THE DECLARATION IN EXECUTIVE ORDER NO. 1008
THAT THE POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF
CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN REINFORCED FURTHER BY
THE RECENT PASSAGE OF THE ALTERNATIVE DISPUTE RESOLUTION ACT OF
2004(R.A. NO. 9285).[4]
The petition is meritorious.
The aforementioned issues boil down to (1) whether the CA acted with grave abuse of discretion in failing
to dismiss the petition for certiorari filed by herein respondent, in view of the latter's failure to file a motion for
reconsideration of the assailed CIAC Order and for failure to attach to the petition the relevant pleadings in
CIAC Case No. 13-2002; and (2) whether the CA gravely erred in not upholding the jurisdiction of the CIAC
over the subject complaint.
Petitioner is correct that it was grave error for the CA to have given due course to respondent's petition
for certiorari despite its failure to attach copies of relevant pleadings in CIAC Case No. 13-2002. In Tagle v.
Equitable PCI Bank,[5] the party filing the petition for certiorari before the CA failed to attach the Motion to
Stop Writ of Possession and the Order denying the same. On the ground of non-compliance with the rules, the
CA dismissed said petition for certiorari. When the case was elevated to this Court via a petition for certiorari,
the same was likewise dismissed. In said case, the Court emphasized the importance of complying with the
formal requirements for filing a petition for certiorari and held as follows:
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec.
1 of Rule 65 reads:
SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of [its or his] jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment,


order or resolution subject thereof, copies of all pleadings and documents relevant
and pertinent thereto, and a sworn certification of non-forum shopping as provided in
the third paragraph of Section 3, Rule 46. (Emphasis supplied.)
And Sec. 3 of Rule 46 provides:
SEC. 3. Contents and filing of petition; effect of non-compliance with
requirements. The petition shall contain the full names and actual addresses of all
the petitioners and respondents, a concise statement of the matters involved, the
factual background of the case, and the grounds relied upon for the relief prayed for.
In actions filed under Rule 65, the petition shall further indicate the material
dates showing when notice of the judgment or final order or resolution subject thereof
was received, when a motion for new trial or reconsideration, if any, was filed and
when notice of the denial thereof was received.
It shall be filed in seven (7) clearly legible copies together with proof of
service thereof on the respondent with the original copy intended for the court
indicated as such by the petitionerand shall be accompanied by a clearly legible
duplicate original or certified true copy of the judgment, order, resolution, or ruling
subject thereof, such material portions of the record as are referred to therein, and
other documents relevant or pertinent thereto. The certification shall be accomplished
by the proper clerk of court or by his duly-authorized representative, or by the proper
officer of the court, tribunal, agency or office involved or by his duly authorized
representative. The other requisite number of copies of the petition shall be
accompanied by clearly legible plain copies of all documents attached to the original.
xxxx
The failure of the petitioner to comply with any of the foregoing requirements
shall be sufficient ground for the dismissal of the petition. (Emphasis supplied.)
The afore-quoted provisions are plain and unmistakable. Failure to comply with the
requirement that the petition be accompanied by a duplicate original or certified true copy of the
judgment, order, resolution or ruling being challenged is sufficient ground for the dismissal of
said petition. Consequently, it cannot be said that the Court of Appeals acted with grave
abuse of discretion amounting to lack or excess of jurisdiction in dismissing the petition
x x x for non-compliance with Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised
Rules of Court.[6]
In the present case, herein petitioner (private respondent below) strongly argued against the CA's
granting due course to the petition, pointing out that pertinent pleadings such as the Complaint before the CIAC,
herein respondent's Motion to Dismiss, herein petitioner's Comment and Opposition (Re: Motion to Dismiss),
and the Motion to Suspend Proceedings, have not been attached to the petition. Herein respondent (petitioner
before the CA) argued in its Reply[7] before the CA that it did not deem such pleadings or documents germane to
the petition. However, in the CA Resolution[8] dated July 4, 2002, the appellate court itself revealed the
necessity of such documents by ordering the submission of copies of pleadings relevant to the petition. Indeed,
such pleadings are necessary for a judicious resolution of the issues raised in the petition and should have been

attached thereto. As mandated by the rules, the failure to do so is sufficient ground for the dismissal of the
petition. The CA did not give any convincing reason why the rule regarding requirements for filing a petition
should be relaxed in favor of herein respondent. Therefore, it was error for the CA to have given due course to
the petition forcertiorari despite herein respondent's failure to comply with the requirements set forth in Section
1, Rule 65, in relation to Section 3, Rule 46, of the Revised Rules of Court.
Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said arbitration
body had no jurisdiction over the complaint filed by herein petitioner. There is no question that, as provided
under Section 4 of Executive Order No. 1008, also known as the Construction Industry Arbitration Law, the
CIAC has original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines and all that is needed for the CIAC to acquire
jurisdiction is for the parties to agree to submit the same to voluntary arbitration. Nevertheless, respondent
insists that the only disputes it agreed to submit to voluntary arbitration are those arising from interpretation of
contract documents. It argued that the claims alleged in petitioner's complaint are not disputes arising from
interpretation of contract documents; hence, the CIAC cannot assume jurisdiction over the case.
Respondent's contention is tenuous.
The contract between herein parties contained an arbitration clause which reads as follows:
17.1.1. Any dispute arising in the course of the execution of this Contract by reason of
differences in interpretation of the Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves, shall be submitted by either party for
resolution or decision, x x x to a Board of Arbitrators composed of three (3) members, to be
chosen as follows:
One (1) member each shall be chosen by the OWNER and the CONTRACTOR.
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 fifteen
(15) days from the first meeting of the Board. The decision of the Board of
Arbitrators when reached through the affirmative vote of at least two (2) of its
members shall be final and binding upon the OWNER and the CONTRACTOR.
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 Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved by the Board of Arbitrators shall
be submitted to the Construction Arbitration Authority created by the government.[9]

In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by reason of
differences in interpretation of the contract to a Board of Arbitrators the composition of which is mutually
agreed upon by the parties, and, as a last resort, any other dispute which had not been resolved by the Board of
Arbitrators shall be submitted to the Construction Arbitration Authority created by the government, which is no
other than the CIAC. Moreover, other matters not dealt with by provisions of the contract or by special

agreements shall be governed by provisions of the Construction Industry Arbitration Law, or Executive Order
No. 1008.
The Court finds that petitioner's claims that it is entitled to payment for several items under their
contract, which claims are, in turn, refuted by respondent, involves a dispute arising from differences in
interpretation of the contract. Verily, the matter of ascertaining the duties and obligations of the parties under
their contract all involve interpretation of the provisions of the contract. Therefore, if the parties cannot see eye
to eye regarding each others obligations, i.e., the extent of work to be expected from each of the parties and the
valuation thereof, this is properly a dispute arising from differences in the interpretation of the contract.
Note, further, that in respondent's letter[10] dated February 14, 2000, it stated that disputed items of work
such as Labor Cost Adjustment and interest charges, retention, processing of payment on Cost Retained by
WGCC, Determination of Cost of Deletion for miscellaneous Finishing Works, are considered unresolved
dispute[s] as to the proper interpretation of our respective obligations under the Contract, which should be
referred to the Board of Arbitrators. Even if the dispute subject matter of said letter had been satisfactorily
settled by herein parties, the contents of the letter evinces respondent's frame of mind that the claims being
made by petitioner in the complaint subject of this petition, are indeed matters involving disputes arising from
differences in interpretation.
Clearly, the subject matter of petitioner's claims arose from differences in interpretation of the contract,
and under the terms thereof, such disputes are subject to voluntary arbitration. Since, under Section 4 of
Executive Order No. 1008 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 and all that is
needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary
arbitration, there can be no other conclusion but that the CIAC had jurisdiction over petitioner's
complaint. Furthermore, Section 1, Article III of the CIAC Rules of Procedure Governing Construction
Arbitration (CIAC Rules) further provide that [a]n 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. Thus, even if there is no showing that petitioner previously brought its claims before a
Board of Arbitrators constituted under the terms of the contract, this circumstance would not divest the CIAC of
jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,[11]the
Court held that:
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction
contract shall be deemed as an agreement to submit an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body
in such contract x x x. Elementary is the rule that when laws or rules are clear, it is incumbent
on the court to apply them. When the law (or rule) is unambiguous and unequivocal, application,
not interpretation thereof, is imperative.

Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC
is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim
between the parties. The arbitration clause in the construction contract ipso facto vested the
CIAC with jurisdiction. This rule applies, regardless of whether the parties specifically choose
another forum or make reference to another arbitral body. Since the jurisdiction of CIAC is
conferred by law, it cannot be subjected to any condition; nor can it be waived or diminished by
the stipulation, act or omission of the parties, as long as the parties agreed to submit their
construction contract dispute to arbitration, or if there is an arbitration clause in the construction
contract. The parties will not be precluded from electing to submit their dispute to CIAC,
because this right has been vested in each party by law.
xxxx
It bears to emphasize that the mere existence of an arbitration clause in the
construction contract is considered by law as an agreement by the parties to submit
existing or future controversies between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a condition precedent in the construction
contract, which wouldeffectively 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 withjurisdiction over a dispute should the construction contract
contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction
industry to national development goals. Realizing that delays in the resolution of construction
industry disputes would also hold up the development of the country, Executive Order No. 1008
expressly mandates the CIAC to expeditiously settle construction industry disputes and, for this
purpose, vests in the CIAC original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by the parties involved in construction in the Philippines.
[12]

Thus, there is no question that in this case, the CIAC properly took cognizance of petitioner's complaint
as it had jurisdiction over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of Appeals,
dated December 19, 2003, and its Resolution dated May 24, 2004 in CA-G.R. SP No. 70959 are REVERSED
and SET ASIDE. The Order of the Construction Industry Arbitration Commission is REINSTATED.

SO ORDERED.
KOREA TECH VS LERMA
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil
and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive,
speedy and less hostile methods have long been favored by this Court. The petition before us puts at issue an
arbitration clause in a contract mutually agreed upon by the parties stipulating that they would submit

themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of their dispute,
the parties wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the
supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract[1] whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7,
1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5,
1997[2] amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to pay
USD 306,000 upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total contract price
amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease[3] with Worth Properties, Inc. (Worth) for
use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG
manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual
increment clause. Subsequently, the machineries, equipment, and facilities for the manufacture of LPG
cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate[4] executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered financial
difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to
have completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC
issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and
(2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.[5]
When KOGIES deposited the checks, these were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter[6] to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs President
faxed a letter dated May 7, 1998to KOGIES President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed upon but it
had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES.[7]

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5,
1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and
equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment,
and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of the Public
Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang,
President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally
rescind their contract nor dismantle and transfer the machineries and equipment on mere imagined violations by
KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled and
transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration before the
Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98117[8] against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary
restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998. In its
complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped were not
funded but later on claimed that it stopped payment of the checks for the reason that their value was not
received as the former allegedly breached their contract by altering the quantity and lowering the quality of
the machinery and equipment installed in the plant and failed to make the plant operational although it earlier
certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC
violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling and transferring the machinery
and equipment installed in the plant which the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the local
courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim [9] asserting that it had the
full right to dismantle and transfer the machineries and equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks for failing
to completely install and make the plant operational; and that KOGIES was liable for damages amounting to
PhP 4,500,000 for altering the quantity and lowering the quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it

was not willing to further shoulder the cost of renting the premises of the plant considering that the LPG
cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the
value of the machineries and equipment as shown in the contract such that KOGIES no longer had proprietary
rights over them. And finally, the RTC held that Art. 15 of the Contract as amended was invalid as it tended to
oust the trial court or any other court jurisdiction over any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.[10] The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and facilities at the lot and building of
Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site: and
therefore denies plaintiffs 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 PGSMCs fault since it failed
to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court
of Appeals,[12] insisted that the arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to Dismiss [13] answering PGSMCs
memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims, KOGIES, on August 4,
1998, filed its Motion for Reconsideration[14] of the July 23, 1998 Order denying its application for
an injunctive writ claiming that the contract was not merely for machinery and facilities worth USD 1,224,000
but was for the sale of an LPG manufacturing plant consisting of supply of all the machinery and facilities
and transfer of technology for a total contract price of USD 1,530,000 such that the dismantling and transfer
of the machinery and facilities would result in the dismantling and transfer of the very plant itself to the great
prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out that the
arbitration clause under Art. 15 of the Contract as amended was a valid arbitration stipulation under Art. 2044 of
the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.[15]
In the meantime, PGSMC filed a Motion for Inspection of Things [16] to determine whether there was
indeed alteration of the quantity and lowering of quality of the machineries and equipment, and whether these
were properly installed. KOGIES opposed the motion positing that the queries and issues raised in the motion
for inspection fell under the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for inspection; (2)
denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES
motion to dismiss PGSMCs compulsory counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration [17] of the September 21, 1998
RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari [18] docketed
as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and
praying for the issuance of writs of prohibition, mandamus, and preliminary injunction to enjoin the RTC and
PGSMC from inspecting, dismantling, and transferring the machineries and equipment in the Carmona
plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for reconsideration and
directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant
on October 28, 1998.[19]
Thereafter, KOGIES filed a Supplement to the Petition [20] in CA-G.R. SP No. 49249 informing the CA
about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition,
mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the Branch
Sheriff did not have the technical expertise to ascertain whether or not the machineries and equipment
conformed to the specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report [21] finding that the enumerated
machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision [22] affirming the RTC Orders and dismissing
the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES
contention that the total contract price for USD 1,530,000 was for the whole plant and had not been fully paid
was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all
the machineries and equipment. According to the CA, this determination by the RTC was a factual finding
beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the contract by
arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping
by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docket fees
was not required since the Answer with counterclaim was not an initiatory pleading. For the same reason, the
CA said a certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did
not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which
was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be given the
opportunity to correct any alleged error it has committed, and that since the assailed orders were interlocutory,
these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a.
PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND
FACILITIES AS A QUESTION OF FACT BEYOND THE AMBIT OF A PETITION FOR
CERTIORARI INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION
OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS 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 RESPONDENTS 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 Courts 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-claimstates, A compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained therein.

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES,
it was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however, that
effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now
required to be paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 5 [24] of Rule 7, 1997 Revised Rules of
Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible error in denying
KOGIES motion to dismiss PGSMCs 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 RTCs interlocutory
order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC
Order relating to the inspection of things, and the allowance of the compulsory counterclaims has not yet been
resolved, the circumstances in this case would allow an exception to the rule that before certiorari may be
availed of, the petitioner must have filed a motion for reconsideration and said motion should have been first
resolved by the court a quo. The reason behind the rule is to enable the lower court, in the first instance, to
pass upon and correct its mistakes without the intervention of the higher court.[30]
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of any

legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the facilities and
any further delay would prejudice the interests of KOGIES. Indeed, there is real and imminent threat of
irreparable destruction or substantial damage to KOGIES equipment and machineries. We find the resort to
certiorari based on the gravely abusive orders of the trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the Korean Commercial Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon both parties concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore, our
laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually agreed
arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, Any stipulation that
the arbitrators award or decision shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040.
(Emphasis supplied.)
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043, [34] may be voided, rescinded, or annulled, but these would
not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to
be contrary to any law, or against morals, good customs, public order, or public policy. There has been no
showing that the parties have not dealt with each other on equal footing. We find no reason why the arbitration
clause should not be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,[35] we
held that submission to arbitration is a contract and that a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitration is a contract. [36] Again in Del Monte CorporationUSA v. Court of Appeals, we likewise ruled that [t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is itself a contract.[37]

Arbitration clause not contrary to public policy


The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not
contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In
the 1957 case ofEastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this Court had occasion to rule that
an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is valid. In BF
Corporation v. Court of Appeals, we held that [i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to supplement
the New Civil Codes 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 negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the wave of the future in international civil and
commercial disputes. Brushing aside a contractual agreement calling for arbitration between the
parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any
doubt should be resolved in favor of arbitration.[40]

Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an arbitral
panel will be constituted in a foreign country and the arbitration rules of the foreign country would govern and
its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration [41] of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippinescommitted itself to be
bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute

Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model
Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.
International commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration (the Model Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations Document A/40/17) and
recommended for enactment by the General Assembly in Resolution No. 40/72 approved on
December 11, 1985, copy of which is hereto attached as Appendix A.
SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall be
had to its international origin and to the need for uniformity in its interpretation and resort may
be made to the travaux preparatories and the report of the Secretary General of the United
Nations Commission on International Trade Law dated March 25, 1985 entitled, International
Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference number
A/CN. 9/264.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural
law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB
on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicable to
actions pending and undetermined at the time of their passage, and are deemed retroactive in that sense and to
that extent. As a general rule, the retroactive application of procedural laws does not violate any personal rights
because no vested right has yet attached nor arisen from them.[42]
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are
the following:
(1)

The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both parties thereafter, refer the parties
to arbitration unless it finds that the arbitration agreement is null and void, inoperative or
incapable of being performed.

(2)

Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and
binding are not immediately enforceable or cannot be implemented immediately. Sec. 35[43] of the UNCITRAL
Model Law stipulates the requirement for the arbitral award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement
on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47
and 48, thus:
SEC. 42. Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court.
Said procedural rules shall provide that the party relying on the award or applying for its
enforcement shall file with the court the original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not made in any of the official languages, the
party shall supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration award was
made in party to the New York Convention.
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 partys
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
876 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]
[44]

(5)

RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases
where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be
appealed to the Court of Appeals in accordance with the rules and procedure to be promulgated
by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance with the rules to be promulgated
by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court
through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it
bound itself through the subject contract. While it may have misgivings on the foreign arbitration done
in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law
which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC
before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating
that the arbitral award is final and binding, does not oust our courts of jurisdiction as the international arbitral
award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain
conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may
dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and
not contrary to public policy; consequently, being bound to the contract of arbitration, a party may not
unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles[47] and reiterated in succeeding
cases,[48] that the act of treating a contract as rescinded on account of infractions by the other contracting party is
valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on account of a valid
stipulation on arbitration. Where an arbitration clause in a contract is availing, neither of the parties can
unilaterally treat the contract as rescinded since whatever infractions or breaches by a party or differences
arising from the contract must be brought first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona, Cavite; the
ownership of equipment and payment of the contract price; and whether there was substantial compliance by
KOGIES in the production of the samples, given the alleged fact that PGSMC could not supply the raw
materials required to produce the sample LPG cylinders, are matters proper for arbitration. Indeed, we note that
on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to
Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to
arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs 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.
Petitioners 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 RTCs 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)
(ii)
(iii)
(iv)

to prevent irreparable loss or injury;


to provide security for the performance of any obligation;
to produce or preserve any evidence; or
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
orders 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 Worths
property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without
considering the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or
transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of

the RTC allowing the transfer of the equipment and machineries given the non-recognition by the lower courts
of the arbitral clause, has accorded an interim measure of protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the
contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the
award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is
compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment
and machineries, it does not have the right to convey or dispose of the same considering the pending arbitral
proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain the subject
equipment and machineries with the diligence of a good father of a family [51] until final resolution of the arbitral
proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1)

The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and
differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had
not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award is
given in the arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.

Korea Technologies
7 January 2008

Co.,

Ltd.,

v.

Hon.

Alberto

A.

Lerma,

et

al.,

G.R.

No.

143581

Korea Technologies Co., Ltd. (KOGIES), a Korean corporation, entered into a contract with Pacific General
Steel Manufacturing Corp. (PGSMC), a domestic corporation, for the supply and installation by KOGIES of
Liquefied Petroleum Gas Cylinder manufacturing plants in favor of PGSMC. The Contracts arbitration clause
provided that all disputes arising from the contract or breach thereof shall be settled by arbitration in Seoul,
Korea, in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration Board
(KCAB)
and
the
award
shall
be
final
and
binding
on
the
parties.
PGSMC subsequently informed KOGIES that it was canceling the contract due to altered quantity and lowered
quality of the machinery. It also threatened to dismantle and transfer the installed machinery.
KOGIES contended that PGSMC cannot unilaterally rescind the contract nor dismantle and transfer the
machinery. It then commenced arbitration proceedings before the KCAB in Seoul, Korea and filed a complaint
for specific performance with application for injunction before a Philippine trial court to compel PGSMC to
comply
with
the
arbitration
clause
of
the
contract.
PGSMC, on the other hand, took the position that the arbitration clause, which provided that the arbitral award
shall be final and binding upon the parties, was null and void for being against public policy as it ousted
Philippine
courts
of
jurisdiction.
The trial court agreed with PGSMC and denied KOGIES application for preliminary injunction. The Court of
Appeals
affirmed
the
trial
courts
Order.
On further appeal, the Philippine Supreme Court reversed the trial court and the Court of Appeals and ruled as
follows:
1. An arbitration clause that states that the arbitral award shall be final and binding is valid.
The Supreme Court held that the law of the place where the contract is made (i.e., the Philippines) governs the
contract and that, under the Philippine Civil Code, a stipulation that an arbitral award shall be final and binding
is a valid stipulation. The Supreme Court found that the arbitration clause was mutually and voluntarily agreed
upon by the parties and was not contrary to any law, morals, good customs, public order, or public policy.
2. Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 (the ADR
Law),
may
be
given
retroactive
effect.
The Supreme Court ruled that while the ADR Law was passed only in 2004, it nonetheless applies to the case
because it is a procedural law and, therefore, may be given retroactive effect.
3.

final

arbitral

award

is

still

subject

to

review

by

Philippine

courts.

The Supreme Court held a final award may still be judicially reviewed. Philippine courts may set aside
foreign or international arbitral awards under the grounds in Section 34 of the UNCITRAL Model Law on
International
Commercial
Arbitration.

The Supreme Court also noted that the ADR Law provides for an appeal to the Court of Appeals, and a further
appeal to the Supreme Court, as the remedy of an aggrieved party where the trial court sets aside, rejects,
vacates,
modifies,
or
corrects
an
arbitral
award.
4.

The unilateral rescission of contracts with an arbitration clause is improper and illegal.

The Supreme Court had previously held that the rescission by the non-defaulting party of a contract on account
of breach by the other party is valid (although such unilateral rescission may be questioned in court).
Significantly, the Supreme Court here held that 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.

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