Republic of the
Supreme Court
THIRD
DIVISION
|
METROPOLITAN
CEBU WATER DISTRICT,
Petitioner, - versus - MACTAN ROCK INDUSTRIES, INC., Respondent. |
|
G.R. No. 172438 Present: VELASCO, JR., J., Chairperson, PERALTA, REYES,* and PERLAS-BERNABE, JJ. Promulgated: July 4, 2012 |
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D E C I S I O N
MENDOZA,
J.:
This
is a petition for review on certiorari under Rule 45 assailing the
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
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,
On
On
On
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
On
Decision of the CIAC
The CIAC promulgated its Decision[18]
on
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
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
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
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
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
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
The jurisdiction of the CIAC
may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or
application of contractual provisions; amount of damages and penalties; commencement
time and delays; maintenance and defects; payment default of employer or
contractor and changes in contract cost.
Excluded from the coverage of
this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the
The jurisdiction of the CIAC as a
quasi-judicial body is confined to construction disputes,[32] that
is, those arising from, or connected to, contracts involving all on-site works
on buildings or altering structures from land clearance through completion
including excavation, erection and assembly and installation of components and
equipment.[33] The CIAC has jurisdiction
over all such disputes whether the dispute arises before or after the completion
of the contract.[34]
Whether
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 19th Division of the CA, Cebu City,
erred in refusing to render judgment on the issue of jurisdiction raised in the
Second Petition on the ground that it had already been settled by the 18th
Division in its decision in the First Petition, even if the 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
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
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
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
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 fallo is 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.
JOSE CATRAL
Associate Justice
WE CONCUR:
PRESBITERO
J. VELASCO, JR.
Associate Justice
Chairperson
DIOSDADO
M. PERALTA BIENVENIDO
L. REYES
Associate Justice Associate Justice
ESTELA
M. PERLAS-BERNABE
Associate Justice
A T T E S T A T I O N
I attest that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to
Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
ANTONIO
T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. No. 296,
The Judiciary Act of 1948, as amended)
* Designated Acting Member in lieu of Associate Justice Roberto A.
Abad, per Special Order No. 1244 dated
[1] Rollo, pp. 23-31.
Nineteenth Division, penned by Associate Justice Isaias P. Dicdican, with
Associate Justice Ramon M. Bato, Jr. and Associate Justice Apolinario D.
Bruselas, Jr., concurring.
[2]
[3] Provincial Water Utilities Act of 1973.
[4] Rollo, p. 2.
[5] Id. at 24.
[6] Id. at 2-3.
[7] Id. at 45-50.
[8] Id. at 24.
[9] Id. at 51-68.
[10] 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 (sic) where MCWD is located.
[11] Rollo, pp. 66-67.
[12] Id. at 69-82.
[13] Id. at 83-84.
[14]
[15] Id. at 91-100.
[16] Id. at 25.
[17] Id.
[18] Id. at 101-120, with Chairperson Guadalupe O. Mansueto and
Eliseo I. Evangelista, concurring and Federico Y. Alikpala, Jr., dissenting.
[19]
[20]
[21]
[22] 412 Phil. 236 (2001), cited at rollo, p. 135.
[23] Rollo, p. 135.
[24] Id. at 137-138.
[25] CA rollo,
pp. 2-18.
[26] Rollo, pp. 203-204.
[27]
[28] Rollo, p. 28.
[29]
[30]
[31] Licomcen Incorporated v. Foundation Specialists, Inc., G.R. Nos. 167022 and 169678,
[32] National
Housing Authority v. First United Constructors Corporation, G.R. No.
176535,
[33] Fort Bonifacio Development Corporation v. Sorongon, G.R. No. 176709, May 8, 2009, 587 SCRA 613, 621,
citing Gammon
Philippines, Inc. v. Metro Rail Transit Development Corporation, 516 Phil. 561,
569 (2006). See also Fort Bonifacio Development Corporation v. Domingo,
G.R. No. 180765,
[34] National
Irrigation Administration v. Court of Appeals, 376 Phil. 362, 373 (1999).
[35] Heirs of
Maximino Derla v. Heirs of Catalina Derla Vda. De Hipolito, G.R. No.
157717, April 13, 2011, 648 SCRA 638, 653, citing Dapar v. Biascan, 482
Phil. 385, 405 (2004).
[36] Rollo, p. 49.
[37] Subic
Telecommunications Co., Inc. v. Subic Bay Metropolitan Authority, G.R. No.
185159, October 12, 2009, 603 SCRA 470, 481-482.
[38] Umale v.
Canoga Park Development Corporation, G.R. No. 167246,
[39] Cabreza, Jr. v. Cabreza,
G.R. No. 181962, January 16, 2012 and Umale v. Canoga Park Development
Corporation, G.R. No. 167246, July 20, 2011, 654 SCRA 155, 162. (Citations
omitted in both cases.)
[40] Umale v. Canoga Park Development Corporation, supra note 38.
[41] Rollo, pp. 83-84.
[42] Id. at 98.
[43] CA rollo, p. 9.
[44] Id. at 15.
[45] Rollo, pp. 94-96.
[46]
[47] CA rollo, pp. 9-10.
[48] Id. at 137.
[49]
[50] Licomcen Incorporated v. Foundation Specialists, Inc., supra note 31 at 97. See also HUTAMA-RSEA
Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation, G.R. No.
180640, April 24, 2009, 586 SCRA 746. 761, cited in William Golangco Construction Corporation v. Ray Burton Development
Corporation, G.R. No. 163582, August 9,
2010, 627 SCRA 74.
[51]
[52]
[53] 376 Phil. 362 (1999).
[54] G.R. No. 159520,
[55] G.R. No. 131903,
[56] G.R. No. 80916,
[57] G.R. No. 186487,
[58] G.R. No.
176535,
[59]
[60]
[61] Heunghwa
Industry Co., Ltd. v. DJ Builders Corporation, G.R. No. 169095, December 8,
2008, 573 SCRA 240, 263.
[62] National Irrigation Administration v. Court of Appeals, 376 Phil. 362, 374 (1999).
[63] 412 Phil. 236 (2001).
[64] Rollo, pp. 114-117. The portions
that were inadvertently deleted in the dispositive portion appear in bold
italics.
[65] Cobbarubias v. People, G.R. No. 160610,