Supreme Court

Manila
THIRD DIVISION

METROPOLITAN CEBU WATER

DISTRICT,
Petitioner,

G.R. No. 172438

Present:

- versus -

VELASCO, JR., J., Chairperson,

PERALTA,
MENDOZA,

MACTAN ROCK INDUSTRIES,

INC.,
Respondent.

REYES,* and
PERLAS-BERNABE, JJ.

Promulgated:

July 4, 2012
x ---------------------------------------------------------------------------------------- x
DECISION
MENDOZA, J.:

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 2nd Level of the Waterfront Cebu Hotel and Casino, Lahug,Cebu City.[6]
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,
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]
[32]

Whether the CIAC has jurisdiction over the

dispute
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. 12-2004 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 18 th Division in its decision in the
First Petition, even if the 18th 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 quasi-judicial 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 quasi-judicial 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 LetterAgreement 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 ShangriLa 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 hodge-podge 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.
Republic of the Philippines
Supreme Court
Manila
SECOND DIVISION

WILLIAM
GOLANGCO
CONSTRUCTION CORPORATION,
Petitioner,

G.R. No. 163582

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA
ABAD, and
MENDOZA, JJ.

- versus

RAY
BURTON
CORPORATION,

DEVELOPMENT
Promulgated:
Respondent.
August 9, 2010

x----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:

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.
price;

P24,703,132.44 for the unpaid balance on the contract

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 non-extendible 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 noncompliance 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.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
KOREA TECHNOLOGIES CO.,
LTD.,
Petitioner,

G.R. No. 143581

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

HON. ALBERTO A. LERMA, in

his capacity as Presiding Judge of
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL
Promulgated:
MANUFACTURING
CORPORATION,
Respondents.
January 7, 2008
x-----------------------------------------------------------------------------------------x
DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes,
particularly in civil and commercial disputes. Arbitration along with mediation, conciliation, and

negotiation, being inexpensive, speedy and less hostile methods have long been favored by this
Court. The petition before us puts at issue an arbitration clause in a contract mutually agreed
upon by the parties stipulating that they would submit themselves to arbitration in a foreign
country. Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a 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 AffidavitComplaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of
KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on
mere imagined violations by KOGIES. It also insisted that their disputes should be settled by
arbitration as agreed upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1,
1998 letter threatening that the machineries, equipment, and facilities installed in the plant would
be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an
Application for Arbitration before the Korean Commercial Arbitration Board (KCAB)
in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil
Case No. 98-117[8] against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The

RTC granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently
extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were not funded but later on claimed that it stopped
payment of the checks for the reason that their value was not received as the former allegedly
breached their contract by altering the quantity and lowering the quality of the machinery and
equipment installed in the plant and failed to make the plant operational although it earlier
certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred
that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the
contract without resorting to arbitration. KOGIES also asked that PGSMC be restrained from
dismantling and transferring the machinery and equipment installed in the plant which the latter
threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not
entitled to the TRO since Art. 15, the arbitration clause, was null and void for being against
public policy as it ousts the local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim[9] asserting
that it had the full right to dismantle and transfer the machineries and equipment because it had
paid for them in full as stipulated in the contract; that KOGIES was not entitled to the PhP
9,000,000 covered by the checks for failing to completely install and make the plant operational;
and that KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity
and lowering the quality of the machineries and equipment. Moreover, PGSMC averred that it
has already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not
willing to further shoulder the cost of renting the premises of the plant considering that the LPG
cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order
denying the application for a writ of preliminary injunction, reasoning that PGSMC had paid
KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the contract
such that KOGIES no longer had proprietary rights over them. And finally, the RTC held that
Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties. KOGIES prayer for an
injunctive writ was denied.[10] The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes

and so holds that no cogent reason exists for this Court to grant the writ of
preliminary injunction to restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth Properties, Incorporated
at Carmona, Cavite and transfer the same to another site: and therefore denies
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 nonforum 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 Corporation-USA v. Court of

Appeals, we likewise ruled that [t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is itself a contract.[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done
in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the
arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned the
validity of arbitration clauses in a catena of cases. In the 1957 case ofEastboard Navigation Ltd.
v. Juan Ysmael and Co., Inc.,[38] this Court had occasion to rule that an arbitration clause to
resolve differences and breaches of mutually agreed contractual terms is valid. In BF
Corporation v. Court of Appeals, we held that [i]n this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,
this Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876
was adopted to supplement the New Civil 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, arbitrationalong 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 nonconvention 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[44] and shall be recognized as final and executory decisions of the RTC, [45] they
may only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA
876.[46]
(5)

RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award,
thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of
the Regional Trial Court confirming, vacating, setting aside, modifying or

correcting an arbitral award may be appealed to the Court of Appeals in

accordance with the rules and procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming
an arbitral award shall be required by the appellate court to post a counterbond
executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court
through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on the
foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration
clause, stipulating that the arbitral award is final and binding, does not oust our courts of
jurisdiction as the international arbitral award, the award of which is not absolute and without
exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL
Model Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that
the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the
parties, and not contrary to public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause
without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles [47] and reiterated
in succeeding cases,[48] that the act of treating a contract as rescinded on account of infractions by
the other contracting party is valid albeit provisional as it can be judicially assailed, is not
applicable to the instant case on account of a valid stipulation on arbitration. Where an

arbitration clause in a contract is availing, neither of the parties can unilaterally treat the contract
as rescinded since whatever infractions or breaches by a party or differences arising from the
contract must be brought first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the
equipment and machineries delivered and installed were properly installed and operational in the
plant in Carmona, Cavite; the ownership of equipment and payment of the contract price; and
whether there was substantial compliance by KOGIES in the production of the samples, given
the alleged fact that PGSMC could not supply the raw materials required to produce the sample
LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of
the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to
arbitrate.
Corollarily, the trial court gravely abused its discretion in granting 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
is REVERSED and SET ASIDE;

Decision

in

CA-G.R.

SP

No.

49249

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98117 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 Co., Ltd., v. Hon. Alberto A. Lerma, et al., G.R. No. 143581
7 January 2008
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. A 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.