SECOND DIVISION
|
PHILIPPINE
ECONOMIC ZONE AUTHORITY,
Petitioner, - versus - Respondent. |
G.R. No.
179537 Present:
QUISUMBING, J., Chairperson, CARPIO,* CARPIO MORALES,
BERSAMIN,** and ABAD, JJ. Promulgated: October
23, 2009 |
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D E C I S I O N
CARPIO MORALES, J.:
Petitioner Philippine Economic Zone
Authority (PEZA) and Edison (Bataan) Cogeneration Corporation (respondent) entered
into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year
period effective October 25, 1997 whereby respondent undertook to construct,
operate, and maintain a power plant which would sell, supply and deliver
electricity to PEZA for resale to business locators in the Bataan Economic
Processing Zone.
In the course of the discharge of its
obligation, respondent requested from PEZA a tariff increase with a mechanism
for adjustment of the cost of fuel and lubricating oil, which request it reiterated
on
PEZA did not respond to both
requests, however, drawing respondent to write PEZA on
After the lapse of 90 days, respondent
terminated the PSPA, invoking its right thereunder, and demanded P708,691,543.00
as pre-termination fee. PEZA disputed respondent’s right to terminate the
agreement and refused to pay the pre-termination fee, prompting respondent to
request PEZA to submit the dispute to arbitration pursuant to the arbitration
clause of the PSPA.
Petitioner refused to submit to
arbitration, however, prompting respondent to file a Complaint[1]
against PEZA for specific performance before the Regional Trial Court (RTC) of
x x x x
4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through arbitration before an Arbitration Committee composed of one representative of each party and a third member who shall be mutually acceptable to the parties: x x x
x x x
5.
Conformably
with the Agreement, plaintiff notified defendant in a letter dated
6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a) if either party to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand for arbitration; or (b) if the arbitrators appointed by each party to the contract, or appointed by one party to the contract and by the proper court, shall fail to agree upon or to select the third arbitrator, then this Honorable Court shall appoint the arbitrator or arbitrators.[2] (Emphasis and underscoring supplied)
Respondent accordingly prayed for
judgment
x x x (a) designating
(i) an arbitrator to represent defendant; and (ii) the third arbitrator who
shall act as Chairman of the Arbitration Committee; and (b) referring the
attached Request for Arbitration to the Arbitration Committee to commence the
arbitration.[3]
and for other just and equitable reliefs.
In its Answer,[4]
PEZA (hereafter petitioner):
1.
ADMIT[TED]
the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with the
qualification that the alleged dispute subject of the plaintiff’s Request for
Arbitration dated October 20, 2004 is not an arbitrable issue,
considering that the provision on pre-termination fee in the Power Sales
and Purchase Agreement (PSPA), is gravely onerous, unconscionable, greatly
disadvantageous to the government, against public policy and therefore invalid
and unenforceable.
2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that the refusal of the defendant to arbitrate is justified considering that the provision on the pre-termination fee subject of the plaintiff’s Request for Arbitration is invalid and unenforceable. Moreover, the pre-termination of the PSPA is whimsical, has no valid basis and in violation of the provisions thereof, constituting breach of contract on the part of the plaintiff.[5] (Emphasis and underscoring supplied)
X x x x
Respondent thereafter filed a Reply
and Motion to Render Judgment on the Pleadings,[6]
contending that since petitioner
x x x does not
challenge the fact that (a) there is a dispute between the parties; (b) the dispute
must be resolved through arbitration before a three-member arbitration
committee; and (c) defendant refused to submit the dispute to arbitration by
naming its representative in the arbitration committee,
judgment may be rendered directing the appointment
of the two other members to complete the composition of the arbitration
committee that will resolve the dispute of the parties.[7]
By Order of
WHEREFORE, all the
foregoing considered, this Court hereby renders judgment in favor of the
plaintiff and against the defendant.
Pursuant to Section 8 of RA 876, also known as the Arbitration Law, and
Power Sales and Purchase Agreement, this Court hereby appoints, subject to
their agreement as arbitrators, retired Supreme Court Chief Justice Andres
Narvasa, as chairman of the committee, and retired Supreme Court Justices Hugo
Gutierrez, and Justice Jose Y. Feria, as defendant’s and plaintiff’s
representative, respectively, to the arbitration committee. Accordingly, let the Request for
Arbitration be immediately referred to the Arbitration Committee so that it can
commence with the arbitration.
SO ORDERED.[8] (Underscoring supplied)
On appeal,[9]
the Court of Appeals, by Decision of
I
. . . WHEN IT DISMISSED PETITIONER’S APPEAL AND
AFFIRMED THE
II
. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED RESPONDENT’S REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE.[14] (Underscoring supplied)
The petition fails.
The dispute raised by respondent
calls for a proceeding under Section 6 of Republic Act No. 876, “An Act to Authorize the Making of Arbitration
and Submission Agreements, to Provide for the Appointment of Arbitrators and
the Procedure for Arbitration in Civil Controversies, and for Other Purposes”
which reads:
SECTION 6. Hearing by court. — A
party aggrieved by the failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may petition the court for
an order directing that such arbitration proceed in the manner provided for in
such agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the
party in default. The court shall hear the parties, and upon being satisfied
that the making of the agreement or such failure to comply therewith is not in
issue, shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the making of the agreement or
default be in issue the court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for arbitration was
made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance
with the terms thereof.
x x x x (Underscoring supplied)
R.A. No. 876 “explicitly confines the court’s authority only to the
determination of whether or not there is an agreement in writing providing for
arbitration.”[15] Given petitioner’s admission of the material
allegations of respondent’s complaint including the existence of a written agreement
to resolve disputes through arbitration, the assailed appellate court’s
affirmance of the trial court’s grant of respondent’s Motion for Judgment on
the Pleadings is in order.
Petitioner argues that it tendered an issue in its Answer as it disputed
the legality of the pre-termination fee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect the
agreement between petitioner and respondent to resolve their dispute by
arbitration.
The doctrine of separability, or
severability as other writers call it, enunciates that an arbitration agreement
is independent of the main contract. The
arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of
which it is a part comes to an end.
The separability of the arbitration
agreement is especially significant to the determination of whether the
invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the
invalidity of the main contract, also referred to as the “container” contract,
does not affect the validity of the
arbitration agreement. Irrespective
of the fact that the main contract is invalid, the arbitration clause/agreement
still remains valid and enforceable.[16]
(Emphasis in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the
pre-termination fee clause is not arbitrable, citing Gonzales v. Climax Mining Ltd. [17]
which declared that the therein complaint should be brought before the regular courts,
and not before an arbitral tribunal, as it involved a judicial issue. Held the Court:
We agree that the case should not be brought
under the ambit of the Arbitration Law xxx.
The question of validity of the contract containing the agreement to
submit to arbitration will affect the applicability of the arbitration clause
itself. A party cannot rely on the
contract and claim rights or obligations under it and at the same time impugn
its existence or validity. Indeed,
litigants are enjoined from taking inconsistent positions. As previously discussed, the complaint should
have been filed before the regular courts as it involved issues which are
judicial in nature.[18]
The ruling
in Gonzales was, on motion for
reconsideration filed by the parties, modified, however, in this wise:
x x x The adjudication of the petition in
G.R. No. 167994 effectively modifies part of the Decision dated
It bears noting that respondent does not seek to nullify the main
contract. It merely submits these issues
for resolution by the arbitration committee, viz:
a.
Whether or not
the interest of Claimant in the project or its economic return in its
investment was materially reduced as a result of any laws or regulations of the
Philippine Government or any agency or body under its control;
b.
Whether or not
the parties failed to reach an agreement on the amendments to the Agreement
within 90 days from notice to respondent on May 3, 2004 of the material
reduction in claimant’s economic return under the Agreement;
c.
Whether or not
as a result of (a) and (b) above, Claimant is entitled to terminate the
Agreement;
d.
Whether or not
Respondent accorded preferential treatment to EAUC in violation of the
Agreement;
e.
Whether or not
as a result of (d) above, Claimant is entitled to terminate the Agreement;
f.
Whether or not
Claimant is entitled to a termination fee equivalent to P708,691,543.00; and
g.
Who between
Claimant and Respondent shall bear the cost and expenses of the arbitration,
including arbitrator’s fees, administrative expenses and legal fees.[20]
In fine, the issues raised by respondent are subject to arbitration in
accordance with the arbitration clause in the parties’ agreement.
WHEREFORE, the
petition is DENIED.
SO ORDERED.
CONCHITA
CARPIO MORALES
Associate
Justice
WE CONCUR:
LEONARDO A.
QUISUMBING
Associate
Justice
Chairperson
|
ANTONIO T. CARPIO Associate Justice |
LUCAS P. BERSAMIN Associate Justice |
ROBERTO A.
ABAD
Associate
Justice
ATTESTATION
I attest
that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
LEONARDO
A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to
Article VIII, Section 13 of the Constitution, and the Division Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the
opinion of the Court.
REYNATO S. PUNO
Chief Justice
* Additional member per Special
Order No. 757 dated
** Additional member per Special Order
No. 765 dated
[1] Records, pp. 3-7.
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10] Penned by Court of Appeals Associate Justice Vicente S.E. Veloso, with the concurrence of Associate Justices Juan Q. Enriquez, Jr. and Estela M. Perlas-Bernabe. CA rollo, pp. 339-349.
[11]
[12]
[13] Rollo, pp. 9-48.
[14]
[15] Gonzales
v. Climax Mining, Ltd., G.R. No.167994,
[16]
[17] G.R.
No. 161957,
[18]
[19] Gonzales
v. Climax Mining, Ltd., G.R. No. 167994,
[20] Records, pp. 73-74.