G.R. No.

191336 January 25, 2012

CRISANTA ALCARAZ MIGUEL, Petitioner,

vs.
JERRY D. MONTANEZ, Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Crisanta
Alcaraz Miguel (Miguel) seeks the reversal and setting aside of the September 17, 2009 Decision 1 and
February 11, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 100544, entitled "Jerry D.
Montanez v. Crisanta Alcaraz Miguel."

Antecedent Facts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-Three
Thousand Eight Hundred Sixty-Four Pesos (₱143,864.00), payable in one (1) year, or until February 1, 2002,
from the petitioner. The respondent gave as collateral therefor his house and lot located at Block 39 Lot 39
Phase 3, Palmera Spring, Bagumbong, Caloocan City.

Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent before
the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a Kasunduang
Pag-aayos wherein the respondent agreed to pay his loan in installments in the amount of Two Thousand
Pesos (₱2,000.00) per month, and in the event the house and lot given as collateral is sold, the respondent
would settle the balance of the loan in full. However, the respondent still failed to pay, and on December 13,
2004, the Lupong Tagapamayapa issued a certification to file action in court in favor of the petitioner.

On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch 66, a
complaint for Collection of Sum of Money. In his Answer with Counterclaim, 3 the respondent raised the
defense of improper venue considering that the petitioner was a resident of Bagumbong, Caloocan City while
he lived in San Mateo, Rizal.

After trial, on August 16, 2006, the MeTC rendered a Decision, 4 which disposes as follows:

WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D. Montanez to
pay plaintiff the following:

1. The amount of [Php147,893.00] representing the obligation with legal rate of interest from February
1, 2002 which was the date of the loan maturity until the account is fully paid;

2. The amount of Php10,000.00 as and by way of attorney’s fees; and the costs.

SO ORDERED. 5

On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent raised the same
issues cited in his Answer. In its March 14, 2007 Decision, 6 the RTC affirmed the MeTC Decision, disposing as
follows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the appeal is hereby
DISMISSED, and the DECISION appealed from is hereby AFFIRMED in its entirety for being in accordance
with law and evidence.

SO ORDERED.7

Dissatisfied, the respondent appealed to the CA raising two issues, namely, (1) whether or not venue was
improperly laid, and (2) whether or not the Kasunduang Pag-aayos effectively novated the loan agreement. On
September 17, 2009, the CA rendered the assailed Decision, disposing as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed Decision dated March 14,
2007 of the Regional Trial Court (RTC) of Makati City, Branch 146, is REVERSED and SET ASIDE. A new
judgment is entered dismissing respondent’s complaint for collection of sum of money, without prejudice to
her right to file the necessary action to enforce the Kasunduang Pag-aayos.

SO ORDERED.8

1
Anent the issue of whether or not there is novation of the loan contract, the CA ruled in the negative. It
ratiocinated as follows:

Judging from the terms of the Kasunduang Pag-aayos, it is clear that no novation of the old obligation has
taken place.1âwphi1 Contrary to petitioner’s assertion, there was no reduction of the term or period originally
stipulated. The original period in the first agreement is one (1) year to be counted from February 1, 2001, or
until January 31, 2002. When the complaint was filed before the barangay on February 2003, the period of
the original agreement had long expired without compliance on the part of petitioner. Hence, there was
nothing to reduce or extend. There was only a change in the terms of payment which is not incompatible with
the old agreement. In other words, the Kasunduang Pag-aayos merely supplemented the old agreement. 9

The CA went on saying that since the parties entered into a Kasunduang Pag-aayos before the Lupon ng
Barangay, such settlement has the force and effect of a court judgment, which may be enforced by execution
within six (6) months from the date of settlement by the Lupon ng Barangay, or by court action after the lapse
of such time.10Considering that more than six (6) months had elapsed from the date of settlement, the CA
ruled that the remedy of the petitioner was to file an action for the execution of the Kasunduang Pag-aayos in
court and not for collection of sum of money. 11 Consequently, the CA deemed it unnecessary to resolve the
issue on venue.12

The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the proper remedy for the petitioner,
notwithstanding the Kasunduang Pag-aayos;13 and

(2) Whether or not the CA should have decided the case on the merits rather than remand the case for
the enforcement of the Kasunduang Pag-aayos.14

Our Ruling

Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, said agreement is
deemed rescinded pursuant to Article 2041 of the New Civil Code and the petitioner can insist on his original
demand. Perforce, the complaint for collection of sum of money is the proper remedy.

The petitioner contends that the CA erred in ruling that she should have followed the procedure for
enforcement of the amicable settlement as provided in the Revised Katarungang Pambarangay Law, instead of
filing a collection case. The petitioner points out that the cause of action did not arise from the Kasunduang
Pag-aayos but on the respondent’s breach of the original loan agreement.15

This Court agrees with the petitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the Kasunduang
Pag-aayos in this case, is binding between the contracting parties and, upon its perfection, is immediately
executory insofar as it is not contrary to law, good morals, good customs, public order and public
policy.16 This is in accord with the broad precept of Article 2037 of the Civil Code, viz:

A compromise has upon the parties the effect and authority of res judicata; but there shall be no execution
except in compliance with a judicial compromise.

Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force
and effect of res judicata even if not judicially approved. 17 It transcends being a mere contract binding only
upon the parties thereto, and is akin to a judgment that is subject to execution in accordance with the
Rules.18 Thus, under Section 417 of the Local Government Code, 19 such amicable settlement or arbitration
award may be enforced by execution by the Barangay Lupon within six (6) months from the date of
settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if
beyond the six-month period.

Under the first remedy, the proceedings are covered by the Local Government Code and the Katarungang
Pambarangay Implementing Rules and Regulations. The Punong Barangay is called upon during the hearing
to determine solely the fact of non-compliance of the terms of the settlement and to give the defaulting party
another chance at voluntarily complying with his obligation under the settlement. Under the second remedy,
the proceedings are governed by the Rules of Court, as amended. The cause of action is the amicable
settlement itself, which, by operation of law, has the force and effect of a final judgment. 20

It must be emphasized, however, that enforcement by execution of the amicable settlement, either under the
first or the second remedy, is only applicable if the contracting parties have not repudiated such settlement
within ten (10) days from the date thereof in accordance with Section 416 of the Local Government Code. If
2
the amicable settlement is repudiated by one party, either expressly or impliedly, the other party has two
options, namely, to enforce the compromise in accordance with the Local Government Code or Rules of Court
as the case may be, or to consider it rescinded and insist upon his original demand. This is in accord with
Article 2041 of the Civil Code, which qualifies the broad application of Article 2037, viz:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the
compromise or regard it as rescinded and insist upon his original demand.

In the case of Leonor v. Sycip,21 the Supreme Court (SC) had the occasion to explain this provision of law. It
ruled that Article 2041 does not require an action for rescission, and the aggrieved party, by the breach of
compromise agreement, may just consider it already rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the same Code, which speaks of "a cause
of annulment or rescission of the compromise" and provides that "the compromise may be annulled or
rescinded" for the cause therein specified, thus suggesting an action for annulment or rescission, said Article
2041 confers upon the party concerned, not a "cause" for rescission, or the right to "demand" the rescission of
a compromise, but the authority, not only to "regard it as rescinded", but, also, to "insist upon his original
demand". The language of this Article 2041, particularly when contrasted with that of Article 2039, denotes
that no action for rescission is required in said Article 2041, and that the party aggrieved by the breach of a
compromise agreement may, if he chooses, bring the suit contemplated or involved in his original demand, as
if there had never been any compromise agreement, without bringing an action for rescission thereof. He need
not seek a judicial declaration of rescission, for he may "regard" the compromise agreement already
"rescinded".22 (emphasis supplied)

As so well stated in the case of Chavez v. Court of Appeals, 23 a party's non-compliance with the amicable
settlement paved the way for the application of Article 2041 under which the other party may either enforce
the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or consider
it as rescinded and insist upon his original demand. To quote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of enforcement
of an amicable settlement, to wit: (a) by execution by the Punong Barangay which is quasi-judicial and
summary in nature on mere motion of the party entitled thereto; and (b) an action in regular form, which
remedy is judicial. However, the mode of enforcement does not rule out the right of rescission under Art. 2041
of the Civil Code. The availability of the right of rescission is apparent from the wording of Sec. 417 itself
which provides that the amicable settlement "may" be enforced by execution by the lupon within six (6)
months from its date or by action in the appropriate city or municipal court, if beyond that period. The use of
the word "may" clearly makes the procedure provided in the Revised Katarungang Pambarangay Law directory
or merely optional in nature.

Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the Barangay
Captain had the force and effect of a final judgment of a court, petitioner's non-compliance paved the way for
the application of Art. 2041 under which respondent may either enforce the compromise, following the
procedure laid out in the Revised Katarungang Pambarangay Law, or regard it as rescinded and insist upon
his original demand. Respondent chose the latter option when he instituted Civil Case No. 5139-V-97 for
recovery of unrealized profits and reimbursement of advance rentals, moral and exemplary damages, and
attorney's fees. Respondent was not limited to claiming ₱150,000.00 because although he agreed to the
amount in the "Kasunduan," it is axiomatic that a compromise settlement is not an admission of liability but
merely a recognition that there is a dispute and an impending litigation which the parties hope to prevent by
making reciprocal concessions, adjusting their respective positions in the hope of gaining balanced by the
danger of losing. Under the "Kasunduan," respondent was only required to execute a waiver of all possible
claims arising from the lease contract if petitioner fully complies with his obligations thereunder. It is
undisputed that herein petitioner did not.24 (emphasis supplied and citations omitted)

In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang Pag-
aayos. Such non-compliance may be construed as repudiation because it denotes that the respondent did not
intend to be bound by the terms thereof, thereby negating the very purpose for which it was executed.
Perforce, the petitioner has the option either to enforce the Kasunduang Pag-aayos, or to regard it as
rescinded and insist upon his original demand, in accordance with the provision of Article 2041 of the Civil
Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the
Kasunduang Pag-aayos. As such, it is error on the part of the CA to rule that enforcement by execution of
said agreement is the appropriate remedy under the circumstances.

Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-compliance of the respondent of
the terms thereof, remanding the case to the trial court for the enforcement of said agreement is clearly
unwarranted.

The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of the
Kasunduang Pag-aayos as it prolonged the process, "thereby putting off the case in an indefinite
pendency."25 Thus, the petitioner insists that she should be allowed to ventilate her rights before this Court
3
and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang Pag-aayos, in
order to finally enforce her right to payment. 26

The CA took off on the wrong premise that enforcement of the Kasunduang Pag-aayos is the proper remedy,
and therefore erred in its conclusion that the case should be remanded to the trial court. The fact that the
petitioner opted to rescind the Kasunduang Pag-aayos means that she is insisting upon the undertaking of
the respondent under the original loan contract. Thus, the CA should have decided the case on the merits, as
an appeal before it, and not prolong the determination of the issues by remanding it to the trial court.
Pertinently, evidence abounds that the respondent has failed to comply with his loan obligation. In fact, the
Kasunduang Pag-aayos is the well nigh incontrovertible proof of the respondent’s indebtedness with the
petitioner as it was executed precisely to give the respondent a second chance to make good on his
undertaking. And since the respondent still reneged in paying his indebtedness, justice demands that he
must be held answerable therefor.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the
Decision of the Regional Trial Court, Branch 146, Makati City, dated March 14, 2007 is REINSTATED.

SO ORDERED.

G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION

PEREZ, J.:

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

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a foreign
corporation not licensed to do business in the Philippines, prays that the Resolution 2 dated 21 November
2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be remanded to the RTC
for further proceedings. In the assailed Resolution, the RTC dismissed petitioner’s Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award 3 against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines, 4 on the ground that
petitioner lacked legal capacity to sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of U.S.
Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively
referred to as the "Yamaoka Patent"),6 and five (5) Philippine tuna processors, namely, Angel Seafood
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and
respondent Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent
No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for
purposes of enforcing his three aforementioned patents, granting licenses under those patents, and
collecting royalties.

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

4
 xxx

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

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

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

xxx

The parties likewise executed a Supplemental Memorandum of Agreement 10 dated 15 January 2003 and an
Agreement to Amend Memorandum of Agreement 11 dated 14 July 2003.

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

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

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

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of
the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS
($271,490.20)[;]14 and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED
FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx

xxx15

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

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

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

Issue

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

Our Ruling

The petition is impressed with merit.

5
The Corporation Code of the Philippines expressly provides:

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

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

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

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

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

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

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

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

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

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

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

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

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as
the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes - would
suggest, is a law especially enacted "to actively promote party autonomy in the resolution of disputes or the
freedom of the party to make their own arrangements to resolve their disputes." 29 It specifically provides
exclusive grounds available to the party opposing an application for recognition and enforcement of the
arbitral award.30

6
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition,
we do not see the need to discuss compliance with international obligations under the New York
Convention and the Model Law. After all, both already form part of the law.

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

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

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral award in accordance with the procedural rules to
be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial
arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International Trade Law on June 21, 1985 xxx."

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

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

Article V

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

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

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

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

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

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

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

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

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

7
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition
and enforcement of the award.

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

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

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

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization
Trust v. Court of Appeals,37 to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here
and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be
stressed, voluntarily and actively participated in the arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in consensual contracts. 38

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

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

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

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

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

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

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

[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving
conflicting factual allegations. Cases which depend on disputed facts for decision cannot be brought
immediately before us as we are not triers of facts. 44 A strict application of this rule may be excused when the
reason behind the rule is not present in a case, as in the present case, where the issues are not factual but
purely legal.1âwphi1 In these types of questions, this Court has the ultimate say so that we merely abbreviate
8
the review process if we, because of the unique circumstances of a case, choose to hear and decide the legal
issues outright.45

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

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

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

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

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

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

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

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

SO ORDERED.

9
G.R. No. 161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC.,Respondents.

x--------------------------------------------------------------------------------- x

G.R. No. 167994 January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL
COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the
parties. In G.R. No. 161957, the Court in its Decision of 28 February 2005 1 denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the
complaint for the annulment of the Addendum Contract on grounds of fraud and violation of the Constitution
and that the action should have been brought before the regular courts as it involved judicial issues. Both
parties filed separate motions for reconsideration. Gonzales avers in his Motion for Reconsideration 2 that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its argument
that the case involves a mining dispute that properly falls within the ambit of the Panel’s authority. Gonzales
adds that the Court failed to rule on other issues he raised relating to the sufficiency of his complaint before
the DENR Panel of Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or
Clarification3 seeking reconsideration of that part of the Decision holding that the case should not be brought
for arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration Law. 4 Respondents, citing
American jurisprudence5 and the UNCITRAL Model Law,6 argue that the arbitration clause in the Addendum
Contract should be treated as an agreement independent of the other terms of the contract, and that a
claimed rescission of the main contract does not avoid the duty to arbitrate. Respondents add that Gonzales’s
argument relating to the alleged invalidity of the Addendum Contract still has to be proven and adjudicated
on in a proper proceeding; that is, an action separate from the motion to compel arbitration. Pending
judgment in such separate action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision that "the case should not be
brought under the ambit of the Arbitration Law" appears to be premised on Gonzales’s having "impugn[ed] the
existence or validity" of the addendum contract. If so, it supposedly conveys the idea that Gonzales’s
unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid arbitration.
Hence, respondents submit that the court’s holding that "the case should not be brought under the ambit of
the Arbitration Law" be understood or clarified as operative only where the challenge to the arbitration
agreement has been sustained by final judgment.

Both parties were required to file their respective comments to the other party’s motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005, 8 while Gonzales filed his
only on 25 July 2006.9

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for
reconsideration in G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of the Regional
Trial Court (RTC) requiring him to proceed with the arbitration proceedings as sought by Climax-Arimco
Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation
of the Assistant Division Clerk of Court since the cases are rooted in the same Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel
arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31 March 2000 while the
complaint for the nullification of the Addendum Contract was pending before the DENR Panel of Arbitrators.
On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant to Clause 19.1 11 of
the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for arbitration was
subsequently filed and Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the said

10
arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of
Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April
2000 a motion to set the application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May
2000, he filed an Answer with Counterclaim,12 questioning the validity of the Addendum Contract containing
the arbitration clause. Gonzales alleged that the Addendum Contract containing the arbitration clause is void
in view of Climax-Arimco’s acts of fraud, oppression and violation of the Constitution. Thus, the arbitration
clause, Clause 19.1, contained in the Addendum Contract is also null and void ab initio and legally
inexistent.1awphi1.net

On 18 May 2000, the RTC issued an order declaring Gonzales’s motion to dismiss moot and academic in view
of the filing of his Answer with Counterclaim. 13

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16 June
2000, holding that the petition for arbitration is a special proceeding that is summary in nature. 15 However,
on 7 July 2000, the RTC granted Gonzales’s motion for reconsideration of the 16 June 2000 Order and set the
case for pre-trial on 10 August 2000, it being of the view that Gonzales had raised in his answer the issue of
the making of the arbitration agreement.16

Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the
same in its 24 July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not possessing the
cold neutrality of an impartial judge."17 On 5 August 2000, Judge Benito issued an Order granting the Motion
to Inhibit and ordered the re-raffling of the petition for arbitration. 18 The case was raffled to the sala of public
respondent Judge Oscar B. Pimentel of Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order. 19 Climax-
Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but
directs the court to hear the motion summarily and resolve it within ten days from hearing. Judge Pimentel
granted the motion and directed the parties to arbitration. On 13 February 2001, Judge Pimentel issued the
first assailed order requiring Gonzales to proceed with arbitration proceedings and appointing retired CA
Justice Jorge Coquia as sole arbitrator.20

Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March
2005.21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of
Judge Pimentel. Gonzales contends that public respondent Judge Pimentel acted with grave abuse of
discretion in immediately ordering the parties to proceed with arbitration despite the proper, valid, and timely
raised argument in his Answer with Counterclaim that the Addendum Contract, containing the arbitration
clause, is null and void. Gonzales has also sought a temporary restraining order to prevent the enforcement of
the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial
conference and the necessary hearings on the determination of the nullity of the Addendum Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

Sec. 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.

The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten
(10) days after such motions, petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"

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

11
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.

According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in petitions to
compel arbitration, which the RTC did not follow. Thus, referral of the parties to arbitration by Judge Pimentel
despite the timely and properly raised issue of nullity of the Addendum Contract was misplaced and without
legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by one of the parties to the alleged
arbitration agreement must be determined by the court prior to referring them to arbitration. They require
that the trial court first determine or resolve the issue of nullity, and there is no other venue for this
determination other than a pre-trial and hearing on the issue by the trial court which has jurisdiction over
the case. Gonzales adds that the assailed 13 February 2001 Order also violated his right to procedural due
process when the trial court erroneously ruled on the existence of the arbitration agreement despite the
absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-
Arimco cites Sec. 29 of R.A. No. 876:

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

Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only
where there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law against the
challenged orders or acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal from such
orders, which, under the Rules of Court, must be filed within 15 days from notice of the final order or
resolution appealed from or of the denial of the motion for reconsideration filed in due time. Gonzales has not
denied that the relevant 15-day period for an appeal had elapsed long before he filed this petition for
certiorari. He cannot use the special civil action of certiorari as a remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial
court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the defendant has failed to comply with that contract.
Respondent cites La Naval Drug Corporation v. Court of Appeals,22 which holds that in a proceeding to compel
arbitration, "[t]he arbitration law explicitly confines the court’s authority only to pass upon the issue of
whether there is or there is no agreement in writing providing for arbitration," and "[i]n the affirmative, the
statute ordains that the court shall issue an order ‘summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.’" 23Climax-Arimco argues that R.A. No. 876 gives no room for
any other issue to be dealt with in such a proceeding, and that the court presented with an application to
compel arbitration may order arbitration or dismiss the same, depending solely on its finding as to those two
limited issues. If either of these matters is disputed, the court is required to conduct a summary hearing on
it. Gonzales’s proposition contradicts both the trial court’s limited jurisdiction and the summary nature of the
proceeding itself.

Climax-Arimco further notes that Gonzales’s attack on or repudiation of the Addendum Contract also is not a
ground to deny effect to the arbitration clause in the Contract. The arbitration agreement is separate and
severable from the contract evidencing the parties’ commercial or economic transaction, it stresses. Hence,
the alleged defect or failure of the main contract is not a ground to deny enforcement of the parties’
arbitration agreement. Even the party who has repudiated the main contract is not prevented from enforcing
its arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a contract separate
from the commercial, economic or other transaction to be arbitrated. The statute, in particular paragraph 1 of
Sec. 2 thereof, considers the arbitration stipulation an independent contract in its own right whose
enforcement may be prevented only on grounds which legally make the arbitration agreement itself revocable,
thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy existing, between them at the time of the submission
and which may be the subject of an action, or the parties to any contract may in such contract agree to settle
by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.

xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contract—fraud and oppression in the
execution thereof—are also not grounds for the revocation of the arbitration clause in the Contract, Climax-
Arimco notes. Such grounds may only be raised by way of defense in the arbitration itself and cannot be used
to frustrate or delay the conduct of arbitration proceedings. Instead, these should be raised in a separate
action for rescission, it continues.
12
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876
should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an
application to compel arbitration where the court’s authority is limited to resolving the issue of whether there
is or there is no agreement in writing providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an
ordinary action which covers a matter that appears to be arbitrable or subject to arbitration under the
arbitration agreement. In the latter case, the statute is clear that the court, instead of trying the case, may, on
request of either or both parties, refer the parties to arbitration, unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed. Arbitration may even be ordered in the same
suit brought upon a matter covered by an arbitration agreement even without waiting for the outcome of the
issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law 24 states that where a
court before which an action is brought in a matter which is subject of an arbitration agreement refers the
parties to arbitration, the arbitral proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the
proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even though the
defendant therein has raised the twin issues of validity and nullity of the Addendum Contract and,
consequently, of the arbitration clause therein as well. The resolution of both Climax-Arimco’s Motion for
Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzales’s Petition for Certiorari in G.R.
No. 167994 essentially turns on whether the question of validity of the Addendum Contract bears upon the
applicability or enforceability of the arbitration clause contained therein. The two pending matters shall thus
be jointly resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be
dismissed on procedural grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that
far beyond the reglementary period. It is elementary in remedial law that the use of an erroneous mode of
appeal is cause for dismissal of the petition for certiorari and it has been repeatedly stressed that a petition
for certiorari is not a substitute for a lost appeal. As its nature, a petition for certiorari lies only where there is
"no appeal," and "no plain, speedy and adequate remedy in the ordinary course of law." 25 The Arbitration Law
specifically provides for an appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the
Rules of Court that raises pure questions of law.26 There is no merit to Gonzales’s argument that the use of
the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount the
filing of a petition for certiorari under Rule 65. 27 Proper interpretation of the aforesaid provision of law shows
that the term "may" refers only to the filing of an appeal, not to the mode of review to be employed. Indeed, the
use of "may" merely reiterates the principle that the right to appeal is not part of due process of law but is a
mere statutory privilege to be exercised only in the manner and in accordance with law.

Neither can BF Corporation v. Court of Appeals 28 cited by Gonzales support his theory. Gonzales argues that
said case recognized and allowed a petition for certiorari under Rule 65 "appealing the order of the Regional
Trial Court disregarding the arbitration agreement as an acceptable remedy." 29 The BF Corporation case had
its origins in a complaint for collection of sum of money filed by therein petitioner BF Corporation against
Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties contained a clause requiring prior resort to
arbitration before judicial intervention. The trial court found that an arbitration clause was incorporated in
the Conditions of Contract appended to and deemed an integral part of the Articles of Agreement. Still, the
trial court denied the motion to suspend proceedings upon a finding that the Conditions of Contract were not
duly executed and signed by the parties. The trial court also found that SPI had failed to file any written
notice of demand for arbitration within the period specified in the arbitration clause. The trial court denied
SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of filing an answer, SPI
filed a petition for certiorari under Rule 65, which the Court of Appeals, favorably acted upon. In a petition for
review before this Court, BF Corporation alleged, among others, that the Court of Appeals should have
dismissed the petition for certiorari since the order of the trial court denying the motion to suspend
proceedings "is a resolution of an incident on the merits" and upon the continuation of the proceedings, the
trial court would eventually render a decision on the merits, which decision could then be elevated to a higher
court "in an ordinary appeal."30

The Court did not uphold BF Corporation’s argument. The issue raised before the Court was whether SPI had
taken the proper mode of appeal before the Court of Appeals. The question before the Court of Appeals was
whether the trial court had prematurely assumed jurisdiction over the controversy. The question of
jurisdiction in turn depended on the question of existence of the arbitration clause which is one of fact. While
on its face the question of existence of the arbitration clause is a question of fact that is not proper in a
petition for certiorari, yet since the determination of the question obliged the Court of Appeals as it did to
interpret the contract documents in accordance with R.A. No. 876 and existing jurisprudence, the question is
likewise a question of law which may be properly taken cognizance of in a petition for certiorari under Rule
65, so the Court held.31

The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F. Corporation
led to the conclusion that in order that the question of jurisdiction may be resolved, the appellate court had to
deal first with a question of law which could be addressed in a certiorari proceeding. In the present case,
Gonzales’s petition raises a question of law, but not a question of jurisdiction. Judge Pimentel acted in
accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with
13
arbitration and appointed a sole arbitrator after making the determination that there was indeed an
arbitration agreement. It has been held that as long as a court acts within its jurisdiction and does not
gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing
more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of
certiorari.32 Even if we overlook the employment of the wrong remedy in the broader interests of justice, the
petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction. The Civil Code is explicit on the matter. 33 R.A. No. 876 also expressly authorizes arbitration of
domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international
character, was likewise recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution No.
71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state.34 The enactment of R.A. No.
9285 on 2 April 2004 further institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.

Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrator’s
decision. Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy existing, between them at the time of the submission
and which may be the subject of an action, or the parties to any contract may in such contract agree to settle
by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other controversies
which may be collateral, incidental, precedent or subsequent to any issue between the parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person
judicially declared to be incompetent, unless the appropriate court having jurisdiction approve a petition for
permission to submit such controversy to arbitration made by the general guardian or guardian ad litem of
the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. 35 that a submission to arbitration is a
contract. A clause in a contract providing that all matters in dispute between the parties shall be referred to
arbitration is a contract,36 and in Del Monte Corporation-USA v. Court of Appeals37 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. As a rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs." 38

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses
or agreements. It provides:

Sec. 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.

The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten
days after such motions, petitions, or applications have been heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The
jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein
was expounded upon in La Naval Drug Corporation v. Court of Appeals. 39 There it was held that R.A. No. 876
explicitly confines the court's authority only to the determination of whether or not there is an agreement in
writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order
"summarily directing the parties to proceed with the arbitration in accordance with the terms thereof." If the
court, upon the other hand, finds that no such agreement exists, "the proceeding shall be dismissed."40 The
cited case also stressed that the proceedings are summary in nature. 41 The same thrust was made in the
14
earlier case of Mindanao Portland Cement Corp. v. McDonough Construction Co. of Florida 42 which held,
thus:

Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to proceed to arbitration in accordance with the terms of
their agreement (Sec. 6, Republic Act 876). Respondent's arguments touching upon the merits of the dispute
are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a
summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should proceed to arbitration or not. x x x x 43

Implicit in the summary nature of the judicial proceedings is the separable or independent character of the
arbitration clause or agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans.
Co.44 and Del Monte Corporation-USA v. Court of Appeals.45

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 part comes to an
end.46

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. 47

The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2)
of the UNCITRAL Arbitration Rules. 48

The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin
Manufacturing Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint for six years, sold to Prima Paint a
list of its customers and promised not to sell paint to these customers during the same period. The consulting
agreement contained an arbitration clause. Prima Paint did not make payments as provided in the consulting
agreement, contending that F & C had fraudulently misrepresented that it was solvent and able for perform
its contract when in fact it was not and had even intended to file for bankruptcy after executing the
consultancy agreement. Thus, F & C served Prima Paint with a notice of intention to arbitrate. Prima Paint
sued in court for rescission of the consulting agreement on the ground of fraudulent misrepresentation and
asked for the issuance of an order enjoining F & C from proceeding with arbitration. F & C moved to stay the
suit pending arbitration. The trial court granted F & C’s motion, and the U.S. Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paint’s argument that it had been fraudulently induced by F
& C to sign the consulting agreement and held that no court should address this argument. Relying on Sec. 4
of the Federal Arbitration Act—which provides that "if a party [claims to be] aggrieved by the alleged failure x x
x of another to arbitrate x x x, [t]he court shall hear the parties, and upon being satisfied that the making of
the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order
directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement or the failure,
neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof"—
the U.S. High Court held that the court should not order the parties to arbitrate if the making of the
arbitration agreement is in issue. The parties should be ordered to arbitration if, and only if, they have
contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether an
arbitration agreement was made because its allegations of fraudulent inducement were not directed to the
arbitration clause itself, but only to the consulting agreement which contained the arbitration
agreement.50 Prima Paint held that "arbitration clauses are ‘separable’ from the contracts in which they are
embedded, and that where no claim is made that fraud was directed to the arbitration clause itself, a broad
arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by
fraud."51

There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave
abuse of discretion in ordering the parties to proceed with arbitration. Gonzales’s argument that the
Addendum Contract is null and void and, therefore the arbitration clause therein is void as well, is not
tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited only to the resolution
of the question of whether the arbitration agreement exists. Second, the separability of the arbitration clause
from the Addendum Contract means that validity or invalidity of the Addendum Contract will not affect the
enforceability of the agreement to arbitrate. Thus, Gonzales’s petition for certiorari should be dismissed.

This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively
modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not affect the applicability of
the arbitration clause itself. A contrary ruling would suggest that a party’s mere repudiation of the main
15
contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case
should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed
by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the
ground of fraud, as it had already been determined that the case should have been brought before the regular
courts involving as it did judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion,
Gonzales raises the same question of jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the regular courts. He insists that the
subject of his complaint is a mining dispute since it involves a dispute concerning rights to mining areas, the
Financial and Technical Assistance Agreement (FTAA) between the parties, and it also involves claimowners.
He adds that the Court failed to rule on other issues he raised, such as whether he had ceded his claims over
the mineral deposits located within the Addendum Area of Influence; whether the complaint filed before the
DENR Panel of Arbitrators alleged ultimate facts of fraud; and whether the action to declare the nullity of the
Addendum Contract on the ground of fraud has prescribed.1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were
resolved against him in the Decision of 28 February 2005. Gonzales does not raise any new argument that
would sway the Court even a bit to alter its holding that the complaint filed before the DENR Panel of
Arbitrators involves judicial issues which should properly be resolved by the regular courts. He alleged fraud
or misrepresentation in the execution of the Addendum Contract which is a ground for the annulment of a
voidable contract. Clearly, such allegations entail legal questions which are within the jurisdiction of the
courts.

The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of
Influence is a factual question which is not proper for determination before this Court. At all events,
moreover, the question is irrelevant to the issue of jurisdiction of the DENR Panel of Arbitrators. It should be
pointed out that the DENR Panel of Arbitrators made a factual finding in its Order dated 18 October 2001,
which it reiterated in its Order dated 25 June 2002, that Gonzales had, "through the various agreements,
assigned his interest over the mineral claims all in favor of [Climax-Arimco]" as well as that without the
complainant [Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there would
be no FTAA to speak of."52 This finding was affirmed by the Court of Appeals in its Decision dated 30 July
2003 resolving the petition for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the
DENR Panel.53

The Court of Appeals likewise found that Gonzales’s complaint alleged fraud but did not provide any
particulars to substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate facts or particulars relative to the
allegations.54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances
constituting fraud must be stated with particularity. This is to enable the opposing party to controvert the
particular facts allegedly constituting the same. Perusal of the complaint indeed shows that it failed to state
with particularity the ultimate facts and circumstances constituting the alleged fraud. It does not state what
particulars about Climax-Arimco’s financial or technical capability were misrepresented, or how the
misrepresentation was done. Incorporated in the body of the complaint are verbatim reproductions of the
contracts, correspondence and government issuances that reportedly explain the allegations of fraud and
misrepresentation, but these are, at best, evidentiary matters that should not be included in the pleading.

As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation attending the execution of
the Addendum Contract are grounds for the annulment of a voidable contract under the Civil Code. 55 Under
Art. 1391 of the Code, an action for annulment shall be brought within four years, in the case of fraud,
beginning from the time of the discovery of the same. However, the time of the discovery of the alleged fraud is
not clear from the allegations of Gonzales’s complaint. That being the situation coupled with the fact that this
Court is not a trier of facts, any ruling on the issue of prescription would be uncalled for or even unnecessary.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders
superfluous formal action on the Motion for Partial Reconsideration and/or Clarification filed by Climax
Mining Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY.

SO ORDERED.

16
G.R. No. 175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

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

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision 1 dated July 31,
2006 and the Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of
Makati City a Complaint for Rescission of Contract with Damages 3 against petitioner Cargill Philippines, Inc.
In its Complaint, respondent alleged that it was engaged in buying and selling of molasses and petitioner was
one of its various sources from whom it purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent would purchase
from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per
metric ton; that the delivery of the molasses was to be made in January/February 1997 and payment was to
be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996;
that sometime prior to September 15, 1996, the parties agreed that instead of January/February 1997, the
delivery would be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit
payable at sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its
obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.

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

ARBITRATION

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

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must
either dismiss the case or suspend the proceedings and direct the parties to proceed with arbitration,
pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission
of contract and could not be changed by the subject arbitration clause. It cited cases wherein arbitration
clauses, such as the subject clause in the contract, had been struck down as void for being contrary to public
policy since it provided that the arbitration award shall be final and binding on both parties, thus, ousting the
courts of jurisdiction.

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

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

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

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

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

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

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

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order 10 dated November 25, 1998.

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

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

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC Orders.

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

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

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

Hence, this petition.

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

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

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the
parties as valid and enforceable and yet in the same breath decreed that the arbitration cannot proceed
because petitioner assailed the existence of the entire agreement containing the arbitration clause. Petitioner
claims the inapplicability of the cited Gonzales case decided in 2005, because in the present case, it was
respondent who had filed the complaint for rescission and damages with the RTC, which based its cause of
action against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that the
same agreement contained the arbitration clause sought to be enforced by petitioner in this case. Thus,

18
whether petitioner assails the genuineness and due execution of the agreement, the fact remains that the
agreement sued upon provides for an arbitration clause; that respondent cannot use the provisions favorable
to him and completely disregard those that are unfavorable, such as the arbitration clause.

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

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

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

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

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

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

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered
upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd. 13 (Gonzales case),
wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal from an RTC
Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A.
No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered with Gonzales. Judge
Oscar Pimentel of the RTC of Makati then directed the parties to arbitration proceedings. Gonzales filed a
petition for certiorari with Us contending that Judge Pimentel acted with grave abuse of discretion in
19
immediately ordering the parties to proceed with arbitration despite the proper, valid and timely raised
argument in his Answer with counterclaim that the Addendum Contract containing the arbitration clause was
null and void. Climax-Arimco assailed the mode of review availed of by Gonzales, citing Section 29 of R.A. No.
876 contending that certiorariunder Rule 65 can be availed of only if there was no appeal or any adequate
remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled
that Gonzales' petition for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which
was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period.

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

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

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

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

We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought
under the arbitration law for the purpose of suspending the proceedings in the RTC.

We find merit in the petition.

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

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

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

ARBITRATION

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

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

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for
foreign arbitration, it is our considered opinion that the case at bench still cannot be brought under the

20
Arbitration Law for the purpose of suspending the proceedings before the trial court. We note that in its
Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the
alleged contract between the parties do not legally exist or is invalid. As posited by petitioner, it is their
contention that the said contract, bearing the arbitration clause, was never consummated by the parties. That
being the case, it is but proper that such issue be first resolved by the court through an appropriate trial. The
issue involves a question of fact that the trial court should first resolve.

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

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

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

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

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

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

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

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

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

We are not persuaded.

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

21
that even the party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.

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

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

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

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and
Geosciences Bureau, of the Department of Environment and Natural Resources (DENR) against respondents
Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking the declaration of nullity
or termination of the addendum contract and the other contracts emanating from it on the grounds of fraud
and oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon
petitioner's motion for reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was
a mining dispute, since the subject complaint arose from a contract between the parties which involved the
exploration and exploitation of minerals over the disputed area.1âwphi1 Respondents assailed the order of
the Panel of Arbitrators via a petition for certiorari before the CA. The CA granted the petition and declared
that the Panel of Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to
the resolution of mining disputes, such as those which raised a question of fact or matter requiring the
technical knowledge and experience of mining authorities and not when the complaint alleged fraud and
oppression which called for the interpretation and application of laws. The CA further ruled that the petition
should have been settled through arbitration under R.A. No. 876 − the Arbitration Law − as provided under
the addendum contract.

On a review on certiorari, we affirmed the CA’s finding that the Panel of Arbitrators who, under R.A. No. 7942
of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining
disputes, such as mining areas, mineral agreements, FTAAs or permits and surface owners, occupants and
claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of nullity of the
addendum contract; thus, the Panels' jurisdiction is limited only to those mining disputes which raised
question of facts or matters requiring the technical knowledge and experience of mining authorities. We then
said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the
adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on mining
disputes have recognized a distinction between (1) the primary powers granted by pertinent provisions of law
to the then Secretary of Agriculture and Natural Resources (and the bureau directors) of an executive or
administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting,
reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants which are questions of a judicial nature that
may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942. 28

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

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

22
ordinary courts of law. These questions are legal in nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial function.29

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

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

SO ORDERED.

June 29, 2016

23
G.R. No. 210858

DEPARTMENT OF FOREIGN AFFAIRS, Petitioner,

vs.
BCA INTERNATIONAL CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the Orders dated 11 October 20132 and 8 January 2014, 3 as well as the
Resolution dated 2 September 2013, 4 of the Regional Trial Court of Makati City (RTC), Branch 146, in SP.
PROC. No. M-7458.

The Facts

In an Amended Build-Operate-Transfer Agreement dated 5 April 2002 (Agreement), petitioner Department of

Foreign Affairs (DFA) awarded the Machine Readable Passport and Visa Project (MRPN Project) to respondent
BCA International Corporation (BCA), a domestic corporation. During the implementation of
the MRPN Project, DFA sought to terminate the Agreement. However, BCA opposed the termination and filed a
Request for Arbitration, according to the provision in the Agreement:

Section 19.02. Failure to Settle Amicably - If the Dispute cannot be settled amicably within ninety (90) days by
mutual discussion as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by
an arbitrage tribunal operating under International Law, hereinafter referred to as the "Tribunal", under
the UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled "Arbitration Rules on the United Nations Commission on the
International Trade Law". The DFA and the BCA undertake to abide by and implement the arbitration award.
The place of arbitration shall be Pasay City, Philippines, or such other place as may be mutually agreed upon
by both parties. The arbitration proceeding shall be conducted in the English language.5 (Emphasis supplied)

On 29 June 2009, an ad hoc arbitral tribunal6 was constituted. In an Order dated 15 April 2013, 7 the arbitral
tribunal approved BCA's request to apply in court for the issuance of subpoena, subject to the conditions that
the application will not affect its proceedings and the hearing set in October 2013 will proceed whether the
witnesses attend or not.

On 16 May 2013, BCA filed before the RTC a Petition for Assistance in Taking Evidence 8 pursuant to the
Implementing Rules and Regulations (IRR) of "The Alternative Dispute Resolution Act of 2004," or Republic
Act No. 9285 (RA 9285). In its petition, BCA sought the issuance of subpoena ad testificandum and
subpoena duces tecum to the following witnesses and documents in their custody: 9

Witnesses Documents to be produced

1. Secretary of Foreign Affairs or his a. Request for Proposal dated

representative/s, specifically September 10, 1999 for the MRP/V
Undersecretary Franklin M. Ebdalin and Project;
Ambassador Belen F. Anota b. Notice of Award dated September
29, 2000 awarding the MRP/V
Project Company to implement the
MRP/V Project;
c. Department of Foreign Affairs
Machine Readable Passport and
Visa Project Build-Operate-Transfer
Agreement dated February 8, 2001;
d. Department of Foreign Affairs
Machine Readable Passport and
Visa Project Amended Build-
Operate-Transfer Agreement dated
April 5, 2002;
e. Documents, records, papers and
correspondence between DFA and
BCA regarding the negotiations for
the contract of lease of the PNB
building, which was identified in
the Request for Proposal as the
Central Facility Site, and the failure

24
 of said negotiations;
f. Documents, records, reports,
studies, papers and
correspondence between DFA and
BCA regarding the search for
alternative Central Facility Site;
g. Documents, records, papers and
correspondence between DFA and
BCA regarding the latter’s
submission of the Project Master
Plan (Phase One of the MRP/V
Project);
h. Documents, records, papers and
correspondence among DFA, DFA’s
Project Planning Team, Questronix
Corporation, MRP/V Advisory
Board and other related
government agencies, and BCA
regarding the recommendation for
the issuance of the Certificate of
Acceptance in favor of BCA;
i. Certificate of Acceptance for Phase
One dated June 9, 2004 issued by
DFA;
j. Documents, records, papers and
correspondence between DFA and
BCA regarding the approval of the
Star Mall complex as the Central
Facility Site;
k. Documents, records, papers and
correspondence among DFA,
Questronix Corporation, MRP/V
Advisory Board and other related
government agencies, and BCA
regarding the recommendation for
the approval of the Stare Mall
complex as the Central Facility
Site;
l. Documents, records, papers and
correspondence between DFA and
BCA regarding the DFA’s request
for BCA to terminate its
Assignment Agreement with
Philpass, including BCA’s
compliance therewith;
m. Documents, records, papers and
correspondence between DFA and
BCA regarding the DFA’s demand
for BCA to prove its financial
capability to implement the MRP/V
Project, including the compliance
therewith by BCA;
n. Documents, records, papers and
correspondence between DFA and
BCA regarding the DFA’s attempt to
termiante the Amended BOT
Agreement, including BCA’s
response to DFA and BCA’s
attempts to mutually discuss the
matter with DFA;
o. Documents, records, papers and
correspondence among DFA and
MRP/V Advisory Board, DTI-BOT
Center, Department of Finance and
Commission on Audit regarding the
delays in the implementation of the
MRP/V Project, DFA’s requirement
for BCA to prove its financial
capability, and the opinions of the
said government agencies in

25
 relation to DFA’s attempt to
terminate the Amended BOT
Agreement; and
p. Other related documents, records,
papers and correspondence.

2. Secretary of Finance or his a. Documents, records, papers and

representative/s, specifically former correspondence between DFA and
Secretary of Finance Juanita D. Amatong Department of Finance regarding
the DFA’s requirement for BCA to
prove its financial capability to
implement the MRP/V Project and
its opinion thereon;
b. Documents, records, papers and
correspondence between DFA and
DOF regarding BCA’s compliance
with DFA’s demand for BCA to
further prove its financial capability
to implement the MRP/V Project;
c. Documents, records, papers and
correspondence between DFA and
DOF regarding the delays in the
implementation of the MRP/V
Project;
d. Documents, records, papers and
correspondence between DFA and
DOF regarding the DFA’s attempted
termination of the Amended BOT
Agreement; and
e. Other related documents, records,
papers and correspondence.

3. Chairman of the Commission on Audit a. Documents, records, papers and

or her representative/s, specifically Ms. correspondence between DFA and
Iluminada M.V. Fabroa (Director IV) COA regarding the COA’s conduct
of a sectoral performance audit on
the MRP/V Project;
b. Documents, records, papers and
correspondence between DFA and
COA regarding the delays in and its
recommendation to fast-track the
implementation of the MRP/V
Project;
c. Documents, records, papers and
correspondence between DFA and
COA regarding COA’s advice to
cancel the Assignment Agreement
between BCA and Philpass "for
being contrary to existing laws and
regulations and DOJ opinion";
d. Documents, records, papers and
correspondence between DFA and
COA regarding DFA’s attempted
termination of the Amended BOT
Agreement; and
e. Other related documents, records,
papers and correspondence.

4. Executive Director or any officer or a. Documents, records, papers and

representative of the Department of Trade correspondence between DFA and
and Industry Build-Operate-Transfer BOT Center regarding the delays in
Center, specifically Messrs. Noel Eli B. the implementation of the MRP/V
Kintanar, Rafaelito H. Taruc and Luisito Project, including DFA’s delay in
Ucab the issuance of the Certificate of
Acceptance for Phase One of the
MRP/V Project and in approving
the Central Facility Site at the Star

26
 Mall complex;
b. Documents, records, papers and
correspondence between DFA and
BOT Center regarding BCA’s
financial capability and the BOT
Center’s opinion on DFA’s demand
for BCA to further prove its
financial capability to implement
the MRP/V project;
c. Documents, records, papers and
correspondence between DFA and
BOT Center regarding the DFA’s
attempt to terminate the Amended
BOT Agreement, including the BOT
Center’s unsolicited advice dated
December 23, 2005 stating that the
issuance of the Notice of
Termination was "precipitate, and
done without first carefully
ensuring that there were sufficient
grounds to warrant such an
issuance" and was "devoid of
merit";
d. Documents, records, papers and
correspondence between DFA and
BOT Center regarding the DFA’s
unwarrented refusal to approve
BCA’s proposal to obtain the
required financing by allowing the
entry of a "strategic investor"; and
e. Other related documents, records,
papers and correspondence.

5. Chairman of the DFA MRP/V Advisory a. Documents, records, papers and

Board or his representative/s, specifically correspondence between DFA and
DFA Undersecretary Franklin M. Ebdalin the MRP/V Advisory Board
and MRP/V Project Manager, specifically regarding BCA[‘s] performance of its
Atty. Voltaire Mauricio obligations for Phase One of the
MRP/V Project, the MRP/V
Advisory Board’s recommendation
for the issuance of the Certificate of
Acceptance of Phase One of the
MRP/V Project and its preparation
of the draft of the Certificate of
Acceptance;
b. Documents, records, papers and
correspondence between DFA and
the MRP/V Advisory Board
regarding the latter’s
recommendation for the DFA to
approve the Star Mall complex as
the Central Facility Site;
c. Documents, records, papers and
correspondence between DFA and
the MRP/V Advisory Board
regarding BCA’s request to allow
the investment of S.F. Pass
International in Philpass;
d. Documents, records, papers and
correspondence between DFA and
the MRP/V Advisory Board
regarding BCA’s financial capability
and the MRP/V Advisory Board’s
opinion on DFA’s demand for BCA
to further prove its financial
capability to implement the MRP/V
Project;
e. Documents, records, papers and
correspondence between DFA and

27
 the MRP/V Advisory Board
regarding the DFA’s attempted
termination of the Amended BOT
Agreement; and
f. Other related documents, records,
papers and correspondence.

On 1 July 2013, DFA filed its comment, alleging that the presentation of the witnesses and documents was
prohibited by law and protected by the deliberative process privilege.

The RTC Ruling

In a Resolution dated 2 September 2013, the RTC ruled in favor of BCA and held that the evidence sought to
be produced was no longer covered by the deliberative process privilege. According to the RTC, the Court held
in Chavez v. Public Estates Authority 10 that acts, transactions or decisions are privileged only before a definite
proposition is reached by the agency and since DFA already made a definite proposition and entered into a
contract, DFA's acts, transactions or decisions were no longer privileged. 11

The dispositive portion of the RTC Resolution reads:

WHEREFORE, the petition is granted. Let subpoena ad testificandum [and subpoena] duces tecum be issued
to the persons listed in paragraph 11 of the Petition for them to appear and bring the documents specified in
paragraph 12 thereof, before the Ad Hoc Tribunal for the hearings on October 14, 15, 16, 17, 2013 at 9:00
a.m. and 2:00 p.m. at the Malcolm Hall, University of the Philippines, Diliman, Quezon City. 12

On 6 September 2013, the RTC issued the subpoena due es tecum and subpoena ad testificandum. On 12
September 2013, DFA filed a motion to quash the subpoena duces tecum and subpoena ad
testificandum, which BCA opposed.

In an Order dated 11 October 2013, the RTC denied the motion to quash and held that the motion was
actually a motion for reconsideration, which is prohibited under Rule 9.9 of the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules).

On 14, 16, and 17 October 2013, Undersecretary Franklin M. Ebdalin (Usec. Ebdalin), Atty. Voltaire Mauricio
(Atty. Mauricio), and Luisi to Ucab (Mr. Ucab) testified before the arbitral tribunal pursuant to the subpoena.

In an Order dated 8 January 2014, the RTC denied the motion for reconsideration filed by DFA. The RTC
ruled that the motion became moot with the appearance of the witnesses during the arbitration hearings.
Hence, DFA filed this petition with an urgent prayer for the issuance of a temporary restraining order and/or
a writ of preliminary injunction.

In a Resolution dated 2 April 2014, the Court issued a temporary restraining order enjoining the arbitral
tribunal from taking cognizance of the testimonies of Usec. Ebdalin, Atty. Mauricio, and Mr. Ucab.

The Issues

DFA raises the following issues in this petition: (1) the 1976 UNCITRAL Arbitration Rules and the Rules of
Court apply to the present arbitration proceedings, not RA 9285 and the Special ADR Rules; and (2) the
witnesses presented during the 14, 16, and 17 October 2013 hearings before the ad hoc arbitral tribunal are
prohibited from disclosing information on the basis of the deliberative process privilege.

The Ruling of the Court

We partially grant the petition.

Arbitration is deemed a special proceeding 13 and governed by the special provisions of RA 9285, its IRR, and
the Special ADR Rules. 14 RA 9285 is the general law applicable to all matters and controversies to be resolved
through alternative dispute resolution methods. 15 While enacted only in 2004, we held that RA 9285 applies
to pending arbitration proceedings since it is a procedural law, which has retroactive effect:

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

28
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. 16 (Emphasis supplied)

The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to all pending arbitration
proceedings.17 Consistent with Article 2046 of the Civil Code, 18 the Special ADR Rules were formulated and
were also applied to all pending arbitration proceedings covered by RA 9285, provided no vested rights are
impaired. 19Thus, contrary to DFA's contention, RA 9285, its IRR, and the Special ADR Rules are applicable to
the present arbitration proceeding. The arbitration between the DFA and BCA is still pending, since no
arbitral award has yet been rendered. Moreover, DFA did not allege any vested rights impaired by the
application of those procedural rules.

RA 9285, its IRR, and the Special ADR Rules provide that any party to an arbitration, whether domestic or
foreign, may request the court to provide assistance in taking evidence such as the issuance of subpoena ad
testificandum and subpoena duces tecum.20 The Special ADR Rules specifically provide that they shall apply to
assistance in taking evidence,21 and the RTC order granting assistance in taking evidence shall be
immediately executory and not subject to reconsideration or appeal. 22 An appeal with the Court of Appeals
(CA) is only possible where the RTC denied a petition for assistance in taking evidence. 23 An appeal to the
Supreme Court from the CA is allowed only under any of the grounds specified in the Special ADR
Rules.24 We rule that the DFA failed to follow the procedure and the hierarchy of courts provided in RA 9285,
its IRR, and the Special ADR Rules, when DFA directly appealed before this Court the RTC Resolution and
Orders granting assistance in taking evidence.

DFA contends that the RTC issued the subpoenas on the premise that RA 9285 and the Special ADR Rules
apply to this case. However, we find that even without applying RA 9285 and the Special ADR Rules, the RTC
still has the authority to issue the subpoenas to assist the parties in taking evidence.

The 1976 UNCITRAL Arbitration Rules, agreed upon by the parties to govern them, state that the "arbitral
tribunal shall apply the law designated by the parties as applicable to the substance of the dispute. Failing
such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws
rules which it considers applicable. "25 Established in this jurisdiction is the rule that the law of the place
where the contract is made governs, or lex loci contractus.26 Since there is no law designated by the parties as
applicable and the Agreement was perfected in the Philippines, "The Arbitration Law," or Republic Act No. 876
(RA 876), applies.

RA 876 empowered arbitrators to subpoena witnesses and documents when the materiality of the testimony
has been demonstrated to them. 27 In Transfield Philippines, Inc. v. Luzon Hydro Corporation, 28 we held that
Section 14 of RA 876 recognizes the right 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.

Considering that this petition was not filed in accordance with RA 9285, the Special ADR Rules and 1976
UNCITRAL Arbitration Rules, this petition should normally be denied. However, we have held time and again
that the ends of justice are better served when cases are determined on the merits after all parties are given
full opportunity to ventilate their causes and defenses rather than on technicality or some procedural
imperfections. 29More importantly, this case is one of first impression involving the production of evidence in
an arbitration case where the deliberative process privilege is invoked.

Thus, DFA insists that we determine whether the evidence sought to be subpoenaed is covered by the
deliberative process privilege.1âwphi1 DFA contends that the RTC erred in holding that the deliberative
process privilege is no longer applicable in this case. According to the RTC, based on Chavez v. Public Estates
Authority,30 "acts, transactions or decisions are privileged only before a definite proposition is reached by the
agency," and since, in this case, DFA not only made "a definite proposition" but already entered into a
contract then the evidence sought to be produced is no longer privileged. 31

We have held in Chavez v. Public Estates Authority32 that:

Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding
or review committee is not immediately accessible under the right to information. While the evaluation or
review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals.
However, once the committee makes its official recommendation, there arises a "definite proposition" on the
part of the government. From this moment, the public's right to information attaches, and any citizen can
access all the non-proprietary information leading to such definite proposition.

xxxx

The right to information, however, does not extend to matters recognized as privileged information under the
separation of powers. The right does not also apply to information on military and diplomatic secrets,
29
information affecting national security, and information on investigations of crimes by law enforcement
agencies before the prosecution of the accused, which courts have long recognized as confidential. The right
may also be subject to other limitations that Congress may impose by law.

There is no claim by PEA that the information demanded by petitioner is privileged information rooted in the
separation of powers. The information does not cover Presidential conversations, correspondences, or
discussions during closed-door Cabinet meetings which, like internal deliberations of the Supreme Court and
other collegiate courts, or executive sessions of either house of Congress, are recognized as confidential. This
kind of information cannot be pried open by a co-equal branch of government. A frank exchange of
exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties,
is essential to protect the independence of decision-making of those tasked to exercise Presidential,
Legislative and Judicial power. This is not the situation in the instant case.

We rule, therefore, that the constitutional right to information includes official information on on-going
negotiations before a final contract. The information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged information, military and diplomatic
secrets and similar matters affecting national security and public order. Congress has also prescribed other
limitations on the right to information in several legislations. (Emphasis supplied)

Contrary to the RTC's ruling, there is nothing in our Chavez v. Public Estates Authority 33 ruling which states
that once a "definite proposition" is reached by an agency, the privileged character of a document no longer
exists. On the other hand, we hold that before a "definite proposition" is reached by an agency, there are no
"official acts, transactions, or decisions" yet which can be accessed by the public under the right to
information. Only when there is an official recommendation can a "definite proposition" arise and,
accordingly, the public's right to information attaches. However, this right to information has certain
limitations and does not cover privileged information to protect the independence of decision-making by
the government.

Chavez v. Public Estates Authority34 expressly and unequivocally states that the right to information "should
not cover recognized exceptions like privileged information, military and diplomatic secrets and similar
matters affecting national security and public order." Clearly, Chavez v. Public Estates Authority35 expressly
mandates that "privileged information" should be outside the scope of the constitutional right to
information, just like military and diplomatic secrets and similar matters affecting national security and
public order. In these exceptional cases, even the occurrence of a "definite proposition" will not give rise to the
public's right to information.

Deliberative process privilege is one kind of privileged information, which is within the exceptions of
the constitutional right to information. In In Re: Production of Court Records and Documents and the
Attendance of Court Officials and Employees as Witnesses, 36 we held that:

Court deliberations are traditionally recognized as privileged communication. Section 2, Rule 10 of the
IRSC provides:

Section 2. Confidentiality of court sessions. - Court sessions are executive in character, with only the
Members of the Court present. Court deliberations are confidential and shall not be disclosed to outside
parties, except as may be provided herein or as authorized by the Court.

Justice Abad discussed the rationale for the rule in his concurring opinion to the Court Resolution
in Arroyo v. De Lima (TRO on Watch List Order case): the rules on confidentiality will enable the Members of
the Court to "freely discuss the issues without fear of criticism for holding unpopular positions" or fear of
humiliation for one's comments. The privilege against disclosure of these kinds of
information/communication is known as deliberative process privilege, involving as it does the
deliberative process of reaching a decision. "Written advice from a variety of individuals is an important
element of the government's decision-making process and that the interchange of advice could be stifled if
courts forced the government to disclose those recommendations;" the privilege is intended "to prevent the
'chilling' of deliberative communications."

The privilege is not exclusive to the Judiciary. We have in passing recognized the claim of this privilege by the
two other branches of government in Chavez v. Public Estates Authority (speaking through J. Carpio) when the
Court declared that -

[t]he information x x x like internal deliberations of the Supreme Court and other collegiate courts, or
executive sessions of either house of Congress, are recognized as confidential. This kind of information cannot
be pried open by a co-equal branch of government. A frank exchange of exploratory ideas and assessments,
free from the glare of publicity and pressure by interested parties, is essential to protect the independence of
decision-making of those tasked to exercise Presidential, Legislative and Judicial power. (Emphasis supplied)

In Akbayan v. Aquino, 37 we adopted the ruling of the U.S. Supreme Court in NLRB v. Sears, Roebuck
& Co,38 which stated that the deliberative process privilege protects from disclosure "advisory opinions,
30
recommendations, and deliberations comprising part of a process by which governmental decisions and
policies are formulated." We explained that "[w]ritten advice from a variety of individuals is an important
element of the government's decision-making process and that the interchange of advice could be stifled if
courts forced the government to disclose those recommendations"; thus, the privilege is intended "to prevent
the 'chilling' of deliberative communications." 39

The privileged character of the information does not end when an agency has adopted a definite proposition or
when a contract has been perfected or consummated; otherwise, the purpose of the privilege will be defeated.

The deliberative process privilege applies if its purpose is served, that is, "to protect the frank exchange of
ideas and opinions critical to the government's decision[-]making process where disclosure would discourage
such discussion in the future." 40 In Judicial Watch of Florida v. Department of Justice, 41 the U.S. District
Court for the District of Columbia held that the deliberative process privilege's "ultimate purpose x x x is to
prevent injury to the quality of agency decisions by allowing government officials freedom to debate alternative
approaches in private," and this ultimate purpose would not be served equally well by making the privilege
temporary or held to have expired. In Gwich 'in Steering Comm. v. Office of the Governor, 42 the Supreme Court
of Alaska held that communications have not lost the privilege even when the decision that the documents
preceded is finally made. The Supreme Court of Alaska held that "the question is not whether the decision
has been implemented, or whether sufficient time has passed, but whether disclosure of these preliminary
proposals could harm the agency's future decision[-]making by chilling either the submission of such
proposals or their forthright consideration."

Traditionally, U.S. courts have established two fundamental requirements, both of which must be met, for the
deliberative process privilege to be invoked.43 First, the communication must be predecisional, i.e.,
"antecedent to the adoption of an agency policy." Second, the communication must be deliberative, i.e., "a
direct part of the deliberative process in that it makes recommendations or expresses opinions on legal or
policy matters." It must reflect the "give-and-take of the consultative process."44 The Supreme Court of
Colorado also took into account other considerations:

Courts have also looked to other considerations in assessing whether material is predecisional and
deliberative. The function and significance of the document in the agency's decision-making process are
relevant. Documents representing the ideas and theories that go into the making of policy, which are
privileged, should be distinguished from "binding agency opinions and interpretations" that are "retained and
referred to as precedent" and constitute the policy itself.

Furthermore, courts examine the identity and decision-making authority of the office or person issuing the
material. A document from a subordinate to a superior official is more likely to be predecisional, "while a
document moving in the opposite direction is more likely to contain instructions to staff explaining the
reasons for a decision already made."

Finally, in addition to assessing whether the material is predecisional and deliberative, and in order to
determine if disclosure of the material is likely to adversely affect the purposes of the privilege, courts inquire
whether "the document is so candid or personal in nature that public disclosure is likely in the future to stifle
honest and frank communication within the agency." As a consequence, the deliberative process privilege
typically covers recommendations, advisory opinions, draft documents, proposals, suggestions, and
other subjective documents that reflect the personal opinions of the writer rather than the policy of
the agency. 45 (Emphasis

supplied)

Thus, "[t]he deliberative process privilege exempts materials that are 'predecisional' and 'deliberative,' but
requires disclosure of policy statements and final opinions 'that have the force of law or explain actions that
an agency has already taken."’46

In City of Colorado Springs v. White, 47 the Supreme Court of Colorado held that the outside consultant's
evaluation report of working environment and policies was covered by the deliberative process privilege
because the report contained observations on current atmosphere and suggestions on how to improve the
division rather than an expression of final agency decision. In Strang v. Collyer,48 the U.S. District Court for
the District of Columbia held that the meeting notes that reflect the exchange of opinions between agency
personnel or divisions of agency are covered by the deliberative process privilege because they "reflect the
agency's group thinking in the process of working out its policy" and are part of the deliberative process in
arriving at the final position. In Judicial Watch v. Clinton,49 the U.S. District Court for the District of Columbia
held that handwritten notes reflecting preliminary thoughts of agency personnel were properly withheld under
the deliberative process privilege. The U.S. District Court reasoned that "disclosure of this type of deliberative
material inhibits open debate and discussion, and has a chilling effect on the free exchange of ideas."

This Court applied the deliberative process privilege in In Re: Production of Court Records and Documents and
the Attendance of Court Officials and Employees as Wltnesses 50 and found that court records which are
"predecisional" and "deliberative" in nature - in particular, documents and other communications which are
31
part of or related to the deliberative process, i.e., notes, drafts, research papers, internal discussions, internal
memoranda, records of internal deliberations, and similar papers - are protected and cannot be the subject of
a subpoena if judicial privilege is to be preserved. We further held that this privilege is not exclusive to the
Judiciary and cited our ruling in Chavez v. Public Estates Authority.51

The deliberative process privilege can also be invoked in arbitration proceedings under RA 9285.

"Deliberative process privilege contains three policy bases: first, the privilege protects candid discussions
within an agency; second, it prevents public confusion from premature disclosure of agency opinions before
the agency establishes final policy; and third, it protects the integrity of an agency's decision; the public
should not judge officials based on information they considered prior to issuing their final decisions." 52 Stated
differently, the privilege serves "to assure that subordinates within an agency will feel free to provide the
decision[-]maker with their uninhibited opinions and recommendations without fear of later being subject to
public ridicule or criticism; to protect against premature disclosure of proposed policies before they have been
finally formulated or adopted; and to protect against confusing the issues and misleading the public by
dissemination of documents suggesting reasons and rationales for a course of action which were not in fact
the ultimate reasons for the agency's action."53

Under RA 9285,54 orders of an arbitral tribunal are appealable to the courts. If an official is compelled to
testify before an arbitral tribunal and the order of an arbitral tribunal is appealed to the courts, such official
can be inhibited by fear of later being subject to public criticism, preventing such official from making candid
discussions within his or her agency. The decision of the court is widely published, including details involving
the privileged information. This disclosure of privileged information can inhibit a public official from
expressing his or her candid opinion. Future quality of deliberative process can be impaired by undue
exposure of the decision-making process to public scrutiny after the court decision is made.

Accordingly, a proceeding in the arbitral tribunal does not prevent the possibility of the purpose of the
privilege being defeated, if it is not allowed to be invoked. In the same manner, the disclosure of an
information covered by the deliberative process privilege to a court arbitrator will defeat the policy bases and
purpose of the privilege.

DFA did not waive the privilege in arbitration proceedings under the Agreement. The Agreement does not
provide for the waiver of the deliberative process privilege by DFA. The Agreement only provides that:

Section 20.02 None of the parties shall, at any time, before or after the expiration or sooner termination of
this Amended BOT Agreement, without the consent of the other party, divulge or suffer or permit its
officers, employees, agents or contractors to divulge to any person, other than any of its or their respective
officers or employees who require the same to enable them properly to carry out their duties, any of the
contents of this Amended BOT Agreement or any information relating to the negotiations concerning
the operations, contracts, commercial or financial arrangements or affair[s] of the other parties
hereto. Documents marked "CONFIDENTIAL" or the like, providing that such material shall be kept
confidential, and shall constitute prima facieevidence that such information contained therein is subject to
the terms of this provision.

Section 20.03 The restrictions imposed in Section 20.02 herein shall not apply to the disclosure of
any information:

xxxx

C. To a court arbitrator or administrative tribunal the course of proceedings before it to which the
disclosing party is party; x x x55 (Emphasis supplied)

Section 20.02 of the Agreement merely allows, with the consent of the other party, disclosure by a party to
a court arbitrator or administrative tribunal of the contents of the "Amended BOT Agreement or any
information relating to the negotiations concerning the operations, contracts, commercial or financial
arrangements or affair[s]of the other parties hereto." There is no express waiver of information forming part
of DFA's predecisional deliberative or decision-making process. Section 20.02 does not state that a party to
the arbitration is compelled to disclose to the tribunal privileged information in such party's possession.

On the other hand, Section 20.03 merely allows a party, if it chooses, without the consent of the other
party, to disclose to the tribunal privileged information in such disclosing party's possession. In short,
a party can disclose privileged information in its possession, even without the consent of the other
party, if the disclosure is to a tribunal. However, a party cannot be compelled by the other party to
disclose privileged information to the tribunal, where such privileged information is in its possession
and not in the possession of the party seeking the compulsory disclosure.

Nothing in Section 20.03 mandates compulsory disclosure of privileged information. Section 20.03 merely
states that "the restrictions imposed in Section 20.02," referring to the "consent of the other party," shall not

32
apply to a disclosure of privileged information by a party in possession of a privileged information. This is
completely different from compelling a party to disclose privileged information in its possession against its
own will.

Rights cannot be waived if it is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a third person with a right recognized by law. 56 There is a public policy involved in a claim of
deliberative process privilege - "the policy of open, frank discussion between subordinate and chief concerning
administrative action."57Thus, the deliberative process privilege cannot be waived. As we have held
in Akbayan v. Aquino, 58 the deliberative process privilege is closely related to the presidential
communications privilege and protects the public disclosure of information that can compromise the quality
of agency decisions:

Closely related to the "presidential communications" privilege is the deliberative process privilegerecognized
in the United States. As discussed by the U.S. Supreme Court in NLRB v. Sears, Roebuck & Co, deliberative
process covers documents reflecting advisory opinions, recommendations and deliberations comprising part of
a process by which governmental decisions and policies are formulated. Notably, the privileged status of such
documents rests, not on the need to protect national security but, on the "obvious realization that officials
will not communicate candidly among themselves if each remark is a potential item of discovery and
front page news," the objective of the privilege being to enhance the quality of agency
decisions. (Emphasis supplied)

As a qualified privilege, the burden falls upon the government agency asserting the deliberative process
privilege to prove that the information in question satisfies both requirements - predecisional and
deliberative. 59 "The agency bears the burden of establishing the character of the decision, the deliberative
process involved, and the role played by the documents in the course of that process." 60 It may be overcome
upon a showing that the discoverant's interests in disclosure of the materials outweigh the government's
interests in their confidentiality.61 "The determination of need must be made flexibly on a case-by-case, ad
hoc basis," and the "factors relevant to this balancing include: the relevance of the evidence, whether there is
reason to believe the documents may shed light on government misconduct, whether the information sought
is available from other sources and can be obtained without compromising the government's deliberative
processes, and the importance of the material to the discoverant's case." 62

In the present case, considering that the RTC erred in applying our ruling in Chavez v. Public Estates
Authority,63and both BCA's and DFA's assertions of subpoena of evidence and the deliberative process
privilege are broad and lack specificity, we will not be able to determine whether the evidence sought to be
produced is covered by the deliberative process privilege. The parties are directed to specify their claims before
the RTC and, thereafter, the RTC shall determine which evidence is covered by the deliberative process
privilege, if there is any, based on the standards provided in this Decision. It is necessary to consider the
circumstances surrounding the demand for the evidence to determine whether or not its production is
injurious to the consultative functions of government that the privilege of non-disclosure protects.

WHEREFORE, we resolve to PARTIALLY GRANT the petition and REMAND this case to the Regional Trial
Court of Makati City, Branch 146, to determine whether the documents and records sought to be subpoenaed
are protected by the deliberative process privilege as explained in this Decision. The Resolution dated 2 April
2014 issuing a Temporary Restraining Order is superseded by this Decision.

SO ORDERED.

33
July 19, 2017

G.R. No. 225051

DEPARTMENT OF FOREIGN AFFAIRS (DFA), Petitioner

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

DECISION

PERALTA, J.:

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

The facts are as follows:

In an Amended Build-Operate-Transfer (BOT) Agreement1 dated April 5, 2002 (Agreement), petitioner DF A

awarded the Machine Readable Passport and Visa Project (MRP/V Project) to respondent BCA International
Corporation. In the course of implementing the MRPN Project, conflict arose and petitioner sought to
terminate the Agreement.

Respondent opposed the termination and filed a Request for Arbitration on April 20, 2006. The Arbitral
Tribunal was constituted on June 29, 2009. 2

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

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

34
Petitioner opposed respondent's manifestation, arguing that such amendment at the very late stage of the
proceedings will cause undue prejudice to its interests. However, the Arbitral Tribunal gave respondent a
period of time within which to file its Amended Statement of Claims and gave petitioner time to formally
interpose its objections.5

In the Amended Statement of Claims 6 dated October 25, 2013, respondent interposed the alternative relief
that, in the event specific performance by petitioner was no longer possible, petitioner prayed that the Arbitral
Tribunal shall render judgment ordering petitioner to pay respondent ₱l ,648,611,531.00, representing the
net income respondent is expected to earn under the Agreement, and ₱l00,000,000.00 as exemplary,
temperate or nominal damages. 7

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

On August 6, 2014, respondent filed a Motion to Withdraw Amended Statement of Claims 9 in the light of
petitioner's opposition to the admission of the Amended Statement of Claims and to avoid further delay in the
arbitration of its claims, without prejudice to the filing of such claims for liquidated and other damages at the
appropriate time and proceeding. Thereafter, respondent filed a motion to resume proceedings.

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

On November 6, 2015, petitioner filed an Opposition to the Motion to Admit Attached Amended Statement of
Claims.

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

Procedural Order No. 11 reads:

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

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

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

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

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

On February 18, 2016, respondent filed a Motion for Partial Reconsideration 13 of Procedural Order No. 11 and
prayed for the admission of its Amended Statement of Claims by the Arbitral Tribunal without denying
respondent's right to present evidence on the actual damages, such as attorney's fees and legal cost that it
continued to incur.

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

The Arbitral Tribunal, thereafter, issued Procedural Order No. 12 dated June 8, 2016, which resolved
respondent's Motion for Partial Reconsideration of Procedural Order No. 11, disallowing the presentation of
35
additional evidence-in-chief by respondent to prove the increase in the amount of its claim as a limitation to
the Tribunals' decision granting respondent's Motion to Amend its Statement of Claims. In Procedural Order
No. 12, the Tribunal directed the parties to submit additional documentary evidence in support of their
respective positions in relation to the Amended Statement of Claims and to which the other party may submit
its comment or objections.

Procedural Order No. 12 reads:

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

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

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

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

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

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

Petitioner raised these issues:

THE AD HOC ARBITRAL TRIBUNAL COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION WHEN IT ADMITTED THE AMENDED STATEMENT OF CLAIMS DATED 30
APRIL 2015 NOTWITHSTANDING THAT:

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

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

III. THE AMENDMENT CIRCUMVENTS THE TEMPORARY RESTRAINING ORDER DATED 02 APRIL 2014
ISSUED BY THIS HONORABLE COURT IN G.R. NO. 210858; AND

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

Petitioner states that Article 20 of the 1976 UNCITRAL Arbitration Rules grants a tribunal the discretion to
deny a motion to amend where the tribunal "considers it inappropriate to allow such amendment having
36
regard to the delay in making it or prejudice to the other party or any other circumstances." It further
proscribes an amendment where "the amended claim falls outside the scope of the arbitral clause or separate
arbitration agreement."

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

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

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

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

Respondent avers that petitioner's objections to the admission of its Amended Statement of Claims by the
Arbitral Tribunal, through the assailed Procedural Order Nos. 11 and 12, are properly within the competence
and jurisdiction of the Arbitral Tribunal to resolve. The Arbitral Tribunal derives their authority to hear and
resolve the parties' dispute from the contractual consent of the parties expressed in Section 19. 02 of the
Agreement.

In a Resolution dated July 25, 2016, the Court resolved to note the Office of the Solicitor General's Very
Urgent Motion for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction dated
July 5, 2016.

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

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

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

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

Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "the arbitral tribunal shall apply
the law designated by the parties as applicable to the substance of the dispute." "Failing such designation by
the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers
applicable." Established in this jurisdiction is the rule that the law of the place where the contract is made
governs, or lex loci contractus.17 As the parties did not designate the applicable law and the Agreement was
perfected in the Philippines, our Arbitration laws, particularly, RA No. 876, 18 RA No. 928519 and its IRR, and
the Special ADR Rules apply.20 The IRR of RA No. 9285 provides that "[t]he arbitral tribunal shall decide the
37
dispute in accordance with such law as is chosen by the parties. In the absence of such agreement, Philippine
law shall apply."21

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

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

xxxx

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

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

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

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

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

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

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

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

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

b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that rendered such
final order or decision;

c. Failed to apply any provision, principle, policy or rule contained in these Special ADR Rules resulting in
substantial prejudice to the aggrieved party; and

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

jurisdiction.
38
The mere fact that the petitioner disagrees with the Court of Appeals' determination of questions of fact, of law
or both questions of fact and law, shall not warrant the exercise of the Supreme Court's discretionary power.
The error imputed to the Court of Appeals must be grounded upon any of the above prescribed grounds for
review or be closely analogous thereto.

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

RULE 19.37. Filing of Petition with Supreme Court. - A party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals issued pursuant to these Special ADR Rules may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law, which
must be distinctly set forth.1âwphi1

It is clear that an appeal by certiorari to the Supreme Court is from a judgment or final order or resolution of
the Court of Appeals and only questions of law may be raised. There have been instances when we overlooked
the rule on hierarchy of courts and took cognizance of a petition for certiorari alleging grave abuse of
discretion by the Regional Trial Court when it granted interim relief to a party and issued an Order assailed
by the petitioner, considering the transcendental importance of the issue involved therein 35 or to better serve
the ends of justice when the case is determined on the merits rather on technicality. 36 However, in this case,
the appeal by certiorari is not from a final Order of the Court of Appeals or the Regional Trial Court, but from
an interlocutory order of the Arbitral Tribunal; hence, the petition must be dismissed.

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

SO ORDERED.

SECOND DIVISION
39
G.R. No. 220546, December 07, 2016

LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED IRON SANDS, LTD., Petitioners,
v. BRIDESTONE MINING AND DEVELOPMENT CORPORATION AND ANACONDA MINING AND
DEVELOPMENT CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This petition for review on certiorari with prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order (TRO) seeks to reverse and set aside the September 8, 2015 Decision1 of the
Court of Appeals (CA) in CA-G.R. SP No. 133296, which affirmed the March 18, 20132 and September 18,
20133 Orders of the Regional Trial Court, Branch 59, Makati City (RTC), in the consolidated case for
rescission of contract and damages.

The Antecedents.

On October 25, 2012, respondents Bridestone Mining and Development Corporation (Bridestone) and
Anaconda Mining and Development Corporation (Anaconda) filed separate complaints before the RTC for
rescission of contract and damages against petitioners Luzon Iron Development Group Corporation (Luzon
Iron) and Consolidated Iron Sands, Ltd. (Consolidated Iron), docketed as Civil Case No. 12-1053 and Civil
Case No. 12-1054, respectively. Both complaints sought the rescission of the Tenement Partnership and
Acquisition Agreement (TPAA)4 entered into by Luzon Iron and Consolidated Iron, on one hand, and
Bridestone and Anaconda, on the other, for the assignment of the Exploration Permit Application of the
former in favor of the latter. The complaints also sought the return of the Exploration Permits to Bridestone
and Anaconda.5

Thereafter, Luzon Iron and Consolidated Iron filed their Special Appearance with Motion to Dismiss6
separately against Bridestone's complaint and Anaconda's complaint. Both motions to dismiss presented
similar grounds for dismissal. They contended that the RTC could not acquire jurisdiction over Consolidated
Iron because it was a foreign corporation that had never transacted business in the Philippines. Likewise,
they argued that the RTC had no jurisdiction over the subject matter because of an arbitration clause in the
TPAA.

On December 19, 2012, the RTC ordered the consolidation of the two cases.7 Subsequently, Luzon Iron and
Consolidated Iron filed their Special Appearance and Supplement to Motions to Dismiss,8 dated January 31,
2013, seeking the dismissal of the consolidated cases. The petitioners alleged that Bridestone and Anaconda
were guilty of forum shopping because they filed similar complaints before the Department of Environment
and Natural Resources (DENR), Mines and Geosciences Bureau, Regional Panel of Arbitrators against Luzon
Iron.

The RTC Orders

In its March 18, 2013 Order, the RTC denied the motions to dismiss, as well as the supplemental motion to
dismiss, finding that Consolidated Iron was doing business in the Philippines, with Luzon Iron as its resident
agent. The RTC ruled that it had jurisdiction over the subject matter because under clause 14.8 of the TPAA,
the parties could go directly to courts when a direct and/or blatant violation of the provisions of the TPAA had
been committed. The RTC also opined that the complaint filed before the DENR did not constitute forum
shopping because there was neither identity of parties nor identity of reliefs sought.

Luzon Iron and Consolidated Iron moved for reconsideration, but the RTC denied their motion in its
September 18, 2013 Order.

Undaunted, they filed their petition for review with prayer for the issuance of a writ of preliminary injunction
and/or TRO before the CA.

The CA Ruling

In its September 8, 2015 Decision, the CA affirmed the March 18, 2013 and September 18, 2013 RTC Orders
in denying the motions to dismiss and the supplemental motions to dismiss. It agreed that the court acquired
jurisdiction over the person of Consolidated Iron because the summons may be validly served through its
agent Luzon Iron, considering that the latter was merely the business conduit of the former. The CA also
sustained the jurisdiction of the RTC over the subject matter opining that the arbitration clause in the TPAA
provided for an exception where parties could directly go to court.

Further, the CA also disregarded the averment of forum shopping, explaining that in the complaint before the
RTC, both Consolidated Iron and Luzon Iron were impleaded but in the complaint before the DENR only the
latter was impleaded. It stated that there was no identity of relief and no identity of cause of action.

40
Hence, this appeal raising the following:

ISSUES

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT ACQUIRED
JURISDICTION OVER THE PERSON OF CONSOLIDATED IRON;

II

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT HAS JURISDICTION
OVER THE SUBJECT MATTER OF THE CONSOLIDATED CASES; AND

III

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT BRIDESTONE/ANACONDA WERE NOT
GUILTY OF FORUM SHOPPING.9

Petitioners Luzon Iron and Consolidated Iron insist that the RTC has no jurisdiction over the latter because it
is a foreign corporation which is neither doing business nor has transacted business in the Philippines. They
argue that there could be no means by which the trial court could acquire jurisdiction over the person of
Consolidated Iron under any mode of service of summons. The petitioners claim that the service of summons
to Consolidated Iron was defective because the mere fact that Luzon Iron was a wholly-owned subsidiary of
Consolidated Iron did not establish that Luzon Iron was the agent of Consolidated Iron. They emphasize that
Consolidated Iron and Luzon Iron are two distinct and separate entities.

The petitioners further assert that the trial court had no jurisdiction over the consolidated cases because of
the arbitration clause set forth in the TPAA. They reiterate that Luzon Iron and Consolidated Iron were guilty
of forum shopping because their DENR complaint contained similar causes of action and reliefs sought. They
stress that the very evil sought to be prevented by the prohibition on forum shopping had occurred when the
DENR and the RTC issued conflicting orders in dismissing or upholding the complaints filed before them.

Position of Respondents

In their Comment/Opposition,10 dated January 7, 2016, respondents Bridestone and Anaconda countered
that the RTC validly acquired jurisdiction over the person of Consolidated Iron. They posited that
Consolidated Iron was doing business in the Philippines as Luzon Iron was merely its conduit. Thus, they
insisted that summons could be served to Luzon Iron as Consolidated Iron's agent. Likewise, they denied that
they were guilty of forum shopping as the issues and the reliefs prayed for in the complaints before the RTC
and the DENR differed.

Further, the respondents asserted that the trial court had jurisdiction over the complaints because the TPAA
itself allowed a direct resort before the courts in exceptional circumstances. They cited paragraph 14.8 thereof
as basis explaining that when a direct and/or blatant violation of the TPAA had been committed, a party
could go directly to the courts. They faulted the petitioners in not moving for the referral of the case for
arbitration instead of merely filing a motion to dismiss. They added that actions that are subject to arbitration
agreement were merely suspended, and not dismissed.

Reply of Petitioners

In their Reply,11 dated April 29, 2016, the petitioners stated that Consolidated Iron was not necessarily doing
business in the Philippines by merely establishing a wholly-owned subsidiary in the form of Luzon Iron. Also,
they asserted that Consolidated Iron had not been validly served the summons because Luzon Iron is neither
its resident agent nor its representative in the Philippines. The petitioners explained that Luzon Iron, as a
wholly-owned subsidiary, had a separate and distinct personality from Consolidated Iron.

The petitioners explained that Paragraph 14.8 of the TPAA should not be construed as an authority to directly
resort to court action in case of a direct and/or blatant violation of the TPAA because such interpretation
would render the arbitration clause nugatory. They contended that, even for the sake of argument, the
judicial action under the said provisions was limited to issues or matters which were inexistent in the present
case. They added that a party was not required to file a formal request for arbitration before an arbitration
clause became operational. Lastly, they insisted that the respondents were guilty of forum shopping in
simultaneously filing complaints before the trial court and the DENR.

The Court's Ruling

The petition is impressed with merit.

Filing of complaints
before the RTC and the
41
DENR is forum shopping

Forum shopping is committed when multiple suits involving the same parties and the same causes of action
are filed, either simultaneously or successively, for the purpose of obtaining a favorable judgment through
means other than appeal or certiorari.12 The prohibition on forum shopping seeks to prevent the possibility
that conflicting decisions will be rendered by two tribunals.13

In Spouses Arevalo v. Planters Development Bank,14 the Court elaborated that forum shopping vexed the
court and warranted the dismissal of the complaints. Thus:

Forum shopping is the act of litigants who repetitively avail themselves of multiple judicial remedies in
different fora, simultaneously or successively, all substantially founded on the same transactions and the
same essential facts and circumstances; and raising substantially similar issues either pending in or already
resolved adversely by some other court; or for the purpose of increasing their chances of obtaining a favorable
decision, if not in one court, then in another. The rationale against forum-shopping is that a party should not
be allowed to pursue simultaneous remedies in two different courts, for to do so would constitute abuse of
court processes which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts.

xxxx

What is essential in determining the existence of forum-shopping is the vexation caused the courts and
litigants by a party who asks different courts and/or administrative agencies to rule on similar or related
causes and/or grant the same or substantially similar reliefs, in the process creating the possibility of
conflicting decisions being rendered upon the same issues.

xxxx

We emphasize that the grave evil sought to be avoided by the rule against forum-shopping is the rendition by
two competent tribunals of two separate and contradictory decisions. To avoid any confusion, this Court
adheres strictly to the rules against forum shopping, and any violation of these rules results in the dismissal
of a case. The acts committed and described herein can possibly constitute direct contempt.15 [Emphases
supplied]

There is forum shopping when the following elements are present: (a) identity of parties, or at least such
parties representing the same interests in both actions; (b) identity of rights asserted and reliefs prayed for,
the relief being founded on the same facts; and (c) the identity of the two preceding particulars, such that any
judgment rendered in the other action will, regardless of which party is successful, amounts to res judicata in
the action under consideration.16 All the above-stated elements are present in the case at bench.

First, there is identity of parties. In both the complaints before the RTC and the DENR, Luzon Iron was
impleaded as defendant while Consolidated Iron was only impleaded in the complaint before the RTC. Even if
Consolidated Iron was not impleaded in the DENR complaint, the element still exists. The requirement is only
substantial, and not absolute, identity of parties; and there is substantial identity of parties when there is
community of interest between a party in the first case and a party in the second case, even if the latter was
not impleaded in the other case.17 Consolidated Iron and Luzon Iron had a common interest under the TPAA
as the latter was a wholly-owned subsidiary of the former.

Second, there is identity of causes of action. A reading of the complaints filed before the RTC and the DENR
reveals that they had almost identical causes of action and they prayed for similar reliefs as they ultimately
sought the return of their respective Exploration Permit on the ground of the alleged violations of the TPAA
committed by the petitioners.18 In Yap v. Chua,19 the Court ruled that identity of causes of action did not
mean absolute identity.

Hornbook is the rule that identity of causes of action does not mean absolute identity; otherwise, a party
could easily escape the operation of res judicata by changing the form of the action or the relief sought. The
test to determine whether the causes of action are identical is to ascertain whether the same evidence will
sustain both actions, or whether there is an identity in the facts essential to the maintenance of the two
actions. If the same facts or evidence would sustain both, the two actions are considered the same, and a
judgment in the first case is a bar to the subsequent action. Hence, a party cannot, by varying the form of
action or adopting a different method of presenting his case, escape the operation of the principle that one
and the same cause of action shall not be twice litigated between the same parties or their privies. xxx20
[Emphases supplied]

In the case at bench, both complaints filed before different fora involved similar facts and issues, the
resolution of which depends on analogous evidence. Thus, the filing of two separate complaints by the
petitioners with the RTC and the DENR clearly constitutes forum shopping.

It is worth noting that the very evil which the prohibition against forum shopping sought to prevent had
happened—the RTC and the DENR had rendered conflicting decisions. The trial court ruled that it had

42
jurisdiction notwithstanding the arbitration clause in the TPAA. On the other hand, the DENR found that it
was devoid of jurisdiction because the matter was subject to arbitration.

Summons were not

validly served

Section 12 of Rule 14 of the Revised Rules of Court provides that "[w]hen the defendant is a foreign private
juridical entity which has transacted business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents within the Philippines."

The Rule on Summons, as it now reads, thus, makes the question whether Consolidated Iron was "doing
business in the Philippines" irrelevant as Section 12, Rule 14 of the Rules of Court was broad enough to cover
corporations which have "transacted business in the Philippines."

In fact, under the present legal milieu, the rules on service of summons on foreign private juridical entities
had been expanded as it recognizes additional modes by which summons may be served. A.M No. 11-3-6-
SC21 thus provides:

Section 12. Rule 14 of the Rules of Court is hereby amended to read as follows:

"SEC. 12. Service upon foreign private juridical entity. — When the defendant is a foreign private juridical
entity which has transacted business in the Philippines, service may be made on its resident agent designated
in accordance with law for that purpose, or, if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines.

If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service may,
with leave of court, be effected out of the Philippines through any of the following means:

a) By personal service coursed through the appropriate court in the foreign country with the assistance of the
Department of Foreign Affairs;

b) By publication once in a newspaper of general circulation in the country where the defendant may be found
and by serving a copy of the summons and the court order by registered mail at the last known address of the
defendant;

c) By facsimile or any recognized electronic means that could generate proof of service; or

d) By such other means as the court may in its discretion direct."

The petitioners are mistaken in arguing that it cannot be served summons because under Section 15, Rule 14
of the Rules of Court, extrajudicial service of summons may be resorted to only when the action is in rem or
quasi in rem and not when the action is in personam. The premise of the petitioners is erroneous as the rule
on extraterritorial service of summons provided in Section 15, Rule 14 of the Rules of Court is a specific
provision dealing precisely with the service of summons on a defendant which does not reside and is not
found in the Philippines. On the other hand, Section 12, Rule 14 thereof, specifically applies to a defendant
foreign private juridical entity which had transacted business in the Philippines. Both rules may provide for
similar modes of service of summons, nevertheless, they should only be applied in particular cases, with one
applicable to defendants which do not reside and are not found in the Philippines and the other to foreign
private juridical entities which had transacted business in the Philippines.

In the case at bench, it is crystal clear that Consolidated Iron transacted business in the Philippines as it was
a signatory in the TPAA that was executed in Makati. Hence, as the respondents argued, it may be served
with the summons in accordance with the modes provided under Section 12, Rule 14 of the Rules of Court.

In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc.,23 the Court elucidated on the means by
which summons could be served on a foreign juridical entity, to wit:

On this score, we find for the petitioners. Before it was amended by A.M. No. 11-3-6-SC, Section 12 of Rule 14
of the Rules of Court reads:

SEC. 12. Service upon foreign private juridical entity. — When the defendant is a foreign private juridical
entity which has transacted business in the Philippines, service may be made on its resident agent designated
in accordance with law for that purpose, or, if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines.

Elucidating on the above provision of the Rules of Court, this Court declared in Pioneer International, Ltd. v.
Guadiz, Jr. that when the defendant is a foreign juridical entity, service of summons maybe made upon:

Its resident agent designated in accordance with law for that purpose;chanrobleslaw

43
The government official designated by law to receive summons if the corporation does not have a resident
agent; or,

Any of the corporation's officers or agents within the Philippines.24 [Emphasis supplied]
The Court, however, finds that Consolidated Iron was not properly served with summons through any of the
permissible modes under the Rules of Court. Indeed, Consolidated Iron was served with summons through
Luzon Iron. Such service of summons, however, was defective.

It is undisputed that Luzon Iron was never registered before the Securities and Exchange Commission (SEC)
as Consolidated Iron's resident agent. Thus, the service of summons to Consolidated Iron through Luzon Iron
cannot be deemed a service to a resident agent25cralawred under the first mode of service.

Likewise, the respondents err in insisting that Luzon Iron could be served summons as an agent of
Consolidated Iron, it being a wholly-owned subsidiary of the latter. The allegations in the complaint must
clearly show a connection between the principal foreign corporation and its alleged agent corporation with
respect to the transaction in question as a general allegation of agency will not suffice.26 In other words, the
allegations of the complaint taken as whole should be able to convey that the subsidiary is but a business
conduit of the principal or that by reason of fraud, their separate and distinct personality should be
disregarded.27 A wholly-owned subsidiary is a distinct and separate entity from its mother corporation and
the fact that the latter exercises control over the former does not justify disregarding their separate
personality. It is true that under the TPAA, Consolidated Iron wielded great control over the actions of Luzon
Iron under the said agreement. This, nonetheless, does not warrant the conclusion that Luzon Iron was a
mere conduit of Consolidated Iron. In Pacific Rehouse Corporation v. CA,28 the Court ruled:

Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-
Securities, "[c]ontrol, by itself, does not mean that the controlled corporation is a mere instrumentality or a
business conduit of the mother company. Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its corporate fiction. There must be a perpetuation
of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify
piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.29 [Emphasis supplied]

In the case at bench, the complaint merely contained a general statement that Luzon Iron was the resident
agent of Consolidated Iron, and that it was a wholly-owned subsidiary of the latter. There was no allegation
showing that Luzon Iron was merely a business conduit of Consolidated Iron, or that the latter exercised
control over the former to the extent that their separate and distinct personalities should be set aside. Thus,
Luzon Iron cannot be deemed as an agent of Consolidated Iron in connection with the third mode of service of
summons.

To reiterate, the Court did not acquire jurisdiction over Consolidated Iron because the service of summons,
coursed through Luzon Iron, was defective. Luzon Iron was neither the resident agent nor the conduit or
agent of Consolidated Iron.

On the abovementioned procedural issues alone, the dismissal of the complaints before the RTC was
warranted. Even granting that the complaints were not procedurally defective, there still existed enough
reason for the trial court to refrain from proceeding with the case.

Controversy must be
referred for arbitration

The petitioners insisted that the RTC had no jurisdiction over the subject matter because under Paragraph
15.1 of the TPAA, any dispute out of or in connection with the TPAA must be resolved by arbitration. The said
provision provides:

If, for any reasonable reason, the Parties cannot resolve a material fact, material event or any dispute arising
out of or in connection with this TPAA, including any question regarding its existence, validity or termination,
within 90 days from its notice, shall be referred to and finally resolved by arbitration in Singapore in
accordance with the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the
time being in force, which rules are deemed to be incorporated by reference in this clause 15.1.30

The RTC, as the CA agreed, countered that Paragraph 14.8 of the TPAA allowed the parties to directly resort
to courts in case of a direct and/or blatant violation of the provisions of the TPAA. Paragraph 14.8 stated:

Each Party agrees not to commence or procure the commencement of any challenge or claim, action, judicial
or legislative enquiry, review or other investigation into the sufficiency, validity, legality or constitutionality of
(i) the assignments of the Exploration Permit Applications(s) (sic) to LIDGC, (ii) any other assignments
contemplated by this TPAA, and/or (iii) or (sic) any agreement to which the Exploration Permit Application(s)
may be converted, unless a direct and/or blatant violation of the provisions of the TPAA has been
committed.31

In Bases Conversion Development Authority v. DMCI Project Developers, Inc.,32 the Court emphasized that
the State favored arbitration, to wit:
44
The state adopts a policy in favor of arbitration. Republic Act No. 9285 expresses this policy:

SEC. 2. Declaration of Policy. — It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of Alternative
Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This Act shall be without prejudice to the adoption
by the Supreme Court of any ADR system, such as mediation, conciliation, arbitration, or any combination
thereof as a means of achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the Supreme Court may approve from time to time.

Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as 1949
when our Civil Code was approved. Republic Act No. 876 later explicitly recognized the validity and
enforceability of parties' decision to submit disputes and related issues to arbitration.

Arbitration agreements are liberally construed in favor of proceeding to arbitration. We adopt the
interpretation that would render effective an arbitration clause if the terms of the agreement allow for such
interpretation.33 [Emphases supplied]

Thus, consistent with the state policy of favoring arbitration, the present TPAA must be construed in such a
manner that would give life to the arbitration clause rather than defeat it, if such interpretation is
permissible. With this in mind, the Court views the interpretation forwarded by the petitioners as more in line
with the state policy favoring arbitration.

Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such a way that the arbitration clause is
given life, especially since such construction is possible in the case at bench. A synchronized reading of the
abovementioned TPAA provisions will show that a claim or action raising the sufficiency, validity, legality or
constitutionality of: (a) the assignments of the EP to Luzon Iron; (b) any other assignments contemplated by
the TPAA; or (c) any agreement to which the EPs may be converted, may be instituted only when there is a
direct and/or blatant violation of the TPAA. In turn, the said action or claim is commenced by proceeding with
arbitration, as espoused in the TPAA.

The Court disagrees with the respondents that Paragraph 14.8 of the TPAA should be construed as an
exception to the arbitration clause where direct court action may be resorted to in case of direct and/or
blatant violation of the TPAA occurs. If such interpretation is to be espoused, the arbitration clause would be
rendered inutile as practically all matters may be directly brought before the courts. Such construction is
anathema to the policy favoring arbitration.

A closer perusal of the TPAA will also reveal that paragraph 14 and all its sub-paragraphs are general
provisions, whereas paragraphs 15 and all its sub-clauses specifically refer to arbitration. When general and
specific provisions are inconsistent, the specific provision shall be paramount and govern the general
provision.34

The petitioners' failure to refer the case for arbitration, however, does not render the arbitration clause in the
TPAA inoperative. In Koppel, Inc. v. Makati Rotary Club Foundation, Inc. (Koppel),35 the Court explained that
an arbitration clause becomes operative, notwithstanding the lack of a formal request, when a party has
appraised the trial court of the existence of an arbitration clause, viz:

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

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

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

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

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. — A party to a pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or in a submission agreement, may request the court
to refer the parties to arbitration in accordance with such agreement.
45
xxxx

Attention must be paid, however, to the salient wordings of Rule 4.1. It reads: "[a] party to a pending action
filed in violation of the arbitration agreement xxx may request the court to refer the parties to arbitration in
accordance with such agreement."

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

In this case, it is conceded that petitioner was not able to file a separate "request" of arbitration before the
MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with Counterclaim, had
already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contract and, more
significantly, of its desire to have the same enforced in this case. This act of petitioner is enough valid
invocation of his right to arbitrate. xxx36 [Emphases supplied; italics in the original]

It is undisputed that the petitioners Luzon Iron and Consolidated Iron never made any formal request for
arbitration. As expounded in Koppel, however, a formal request is not the sole means of invoking an
arbitration clause in a pending suit. Similar to the said case, the petitioners here made the RTC aware of the
existence of the arbitration clause in the TPAA as they repeatedly raised this as an issue in all their motions
to dismiss. As such, it was enough to activate the arbitration clause and, thus, should have alerted the RTC
in proceeding with the case.

Moreover, judicial restraint should be exercised pursuant to the competence-competence principle embodied
in Rule 2.4 of the Special Rules of Court on Alternative Dispute Resolution.37 The said provision reads:

RULE 2.4. Policy Implementing Competence-Competence Principle. — The arbitral tribunal shall be accorded
the first opportunity or competence to rule on the issue of whether or not it has the competence or
jurisdiction to decide a dispute submitted to it for decision, including any objection with respect to the
existence or validity of the arbitration agreement. When a court is asked to rule upon issue/s affecting the
competence or jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the
arbitral tribunal is constituted, the court must exercise judicial restraint and defer to the competence or
jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such
issues.

Where the court is asked to make a determination of whether the arbitration agreement is null and void,
inoperative or incapable of being performed, under this policy of judicial restraint, the court must make no
more than a prima facie determination of that issue.

Unless the court, pursuant to such prima facie determination, concludes that the arbitration agreement is
null and void, inoperative or incapable of being performed, the court must suspend the action before it and
refer the parties to arbitration pursuant to the arbitration agreement. [Emphasis supplied]

Generally, the action of the court is stayed if the matter raised before it is subject to arbitration.38 In the case
at bench, however, the complaints filed before the RTC should have been dismissed considering that the
petitioners were able to establish the ground for their dismissal, that is, violating the prohibition on forum
shopping. The parties, nevertheless, are directed to initiate arbitration proceedings as provided under
Paragraph 15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8, 2015 Decision of the Court of Appeals in CA-G.R.
SP No. 133296, affirming the March 18, 2013 and September 18, 2013 Orders of the Regional Trial Court,
Branch 59, Makati City, is hereby SET ASIDE. The complaints in Civil Case Nos. 12-1053 and 12-1054 are
DISMISSED. The parties, however, are ORDERED to commence arbitration proceedings pursuant to
Paragraph 15.1 of the Tenement Partnership and Acquisition Agreement.
SO ORDERED.

November 23, 2016

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

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

DECISION

BRION, J.:

46
The fundamental importance of this case lies in its delineation of the extent of permissible judicial review over
arbitral awards. We make this determination from the prism of our existing laws on the subject and the
prevailing state policy to uphold the autonomy of arbitration proceedings.

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

Brief Factual Antecedents

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

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

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

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

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

17. ARBITRATION

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

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

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

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

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

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

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

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

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

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

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

47
 2.1. If so, how much and for what period?

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

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

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

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

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

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

The Arbitral Award12

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

The tribunal found that Fruehauf made several demands for the return of the leased premises before and
after: the expiration of the lease14 and that there was no express or implied renewal of the lease after June 9,
2003. It recognized that the sub-lessor, Capitol, remained in possession of the lease. However, relying on the
commentaries of Arturo Tolentino on the subject, the tribunal held that it was not enough for lessor to simply
vacate the leased property; it is necessary that he place the thing at the disposal of the lessor, so that the latter
can receive it without any obstacle. 15

For failing to return the property' to Fruehauf, TEAM remained liable for the payment of rents. However, if it
can prove that Fruehauf received rentals from Capitol, TEAM can deduct these from its
liability. 16 Nevertheless, the award of rent and damages was without prejudice to TEAM's right to seek
redress from its sub-lessee, Capitol. 17

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

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

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

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

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

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

TEAM moved for reconsideration 28 which the tribunal denied. 29 Thus, TEAM petitioned the RTC to partially
vacate or modify the arbitral award.30 It argued that the tribunal failed to properly appreciate the facts and
the terms of the lease contract.

48
The RTC Ruling

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

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because according to Section 29
35 of the Arbitration Law, an ordinary appeal under Rule 41 is not the proper mode of appeal against an order
confirming an arbitral award. 36

TEAM moved for reconsideration but the R TC denied the motion on November 15, 2009.37 Thus, TEAM filed a
petition for certiorari38before the CA arguing that the RTC gravely abused its discretion in: (1) denying due
course to its notice of appeal; and (2) denying the motion to partially vacate and/or modify the arbitral
award.39

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

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

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

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

The CA decision 45

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

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

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

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

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

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

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

(ADR) Law:54

SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the regional trial court
confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of
Appeals in accordance with the rules of procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be required
by the appellant court to post counterbond executed in favor of the prevailing party equal to the amount of
the award in accordance with the rules to be promulgated by the Supreme Court. 55

49
However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules) which govern the appeal procedure.

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

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

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

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

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

The Arguments

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

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

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a petition to
vacate the award, (2) a petition for review under Rule 43 raising questions of fact, of law, or mixed questions
of fact and law, or (3) a petition for certiorari under Rule 65.64 Fruehauf cites an article from the Philippine
Dispute Resolution Center65and Insular Savings Bank v. Far East Bank and Trust, Co.66

TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral
tribunal's errors were sufficient grounds to vacate or modify the award. 67 It insists that the RTC's
misappreciation of the facts from a patently erroneous award warranted an appeal under Rule 41. 68

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

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

The Issues

This case raises the following questions:

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

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

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

50
Our Ruling

The petition is meritorious.

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

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

However, this contractual and consensual character means that the parties cannot implead a third-party in
the proceedings even if the latter's participation is necessary for a complete settlement of the dispute. The

tribunal does not have the power to compel a person to participate in the arbitration proceedings without that
person's consent. It also has no authority to decide on issues that the parties did not submit (or agree to
submit) for its resolution.

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

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

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

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

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

An Arbitral Tribunal does not exercise

quasi-judicial powers

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

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

As a contractual and consensual: body, the arbitral tribunal does not have any inherent powers over the
parties. It has no power to issue coercive writs or compulsory processes. Thus, there is a need to resort to the
51
regular courts for interim measures of protection 82 and for the recognition or enforcement of the arbitral
award. 83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation. Upoh
the rendition of the final award, the tribunal becomes functus officio and - save for a few exceptions84 - ceases
to have any further jurisdiction over the dispute.85 The tribunal's powers (or in the case of ad hoc tribunals,
their very existence) stem from the obligatory force of the arbitration agreement and its ancillary
stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

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

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

SECTION 1. Scope.-This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency
in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission,
Central: Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks
and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic Act No. 6657, Government
Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration
Commission, and voluntary arbitrators authorized by law.93 (emphasis supplied)

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

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

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

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

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

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

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

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

52
The first rule of legal construction, verba legis, requires that, wherever possible, the words used in the
Constitution or in the statute must be given their ordinary meaning except where technical terms are
employed. 100Notably, all of the cases cited in the ABS-CBN Case involved labor disputes.

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

Art. 212 Definitions. xxx

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

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

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

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

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

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

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

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

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

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

What are remedies from a final domestic

arbitral award?

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

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

53
Rule 2.1. General policies. -- It is the policy of the State to actively promote the use of various modes of ADR
and to respect party autonomy or the freedom of the parties to make their own arrangements in the resolution
of disputes with the greatest cooperation of and the least intervention from the courts. xxx

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

xxxx

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

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we likewise defended the
autonomy of arbitral awards through our policy of non-intervention on their substantive merits:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as
to the facts. Courts are without power to amend or overrule merely because of disagreement with
matters of law or facts determined by the arbitrators. They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the commencement, not the end, of litigation. Errors
of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators,
are insufficient to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus,
more limited than judicial review of a trial. 115

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

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

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

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

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

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

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

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

(d) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made. 117

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

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

(i) the party making the application furnishes proof that:

54
 (aa) a party to the arbitration agreement was under some incapacity; or the said agreement is
not valid under the law to which the parties have subjected it or, failing any indication thereon,
under the law of the Philippines; or

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

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

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

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration under the
law of the Philippines; or

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

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

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

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

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

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

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

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

a. Where there was an evident miscalculation of figures or an evident mistake in the description of any
person, thing or property referred to in the award;

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

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

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

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

55
Not even the Court's expanded certiorari jurisdiction under the Constitution 126 can justify judicial intrusion
into the merits of arbitral awards. While the Constitution expanded the scope of certiorari proceedings, this
power remains limited to a review' of the acts of "any branch or instrumentality of the Government." As a purely
private creature of contract, an arbitral tribunal remains outside the scope of certiorari.

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

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

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

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

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

The remedies against an order

Confirming, vacating, correcting, or
modifying an arbitral award

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

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

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

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

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

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

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

The correctness or incorrectness

of the arbitral award

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

56
Our refusal to review the award is not a simple matter of putting procedural technicalities over the
substantive merits of a case; it goes into the very legal substance of the issues. There is no law granting the
judiciary authority to review the merits of an arbitral award. If we were to insist on reviewing the correctness
of the award: (or consent to the CA's doing so), it would be tantamount to expanding our jurisdiction without
the benefit of legislation. This translates to judicial legislation - a breach of the fundamental principle of
separation of powers.

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

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

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

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would
have been simple errors of law.1âwphi1 It was the tribunal - not the RTC or the CA - that had jurisdiction
and authority over the issue by virtue of the parties' submissions; the CA's substitution of its own judgment
for the arbitral award cannot be more compelling than the overriding public policy to uphold the autonomy of
arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law. 136 The CA's ruling is an unjustified judicial intrusion in excess of its jurisdiction - a
judicial overreach. 137

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

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

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

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

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

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

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

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

57
SO ORDERED.

G.R. No. 189563 April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner,

vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.

DECISION

SERENO, CJ:

This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the Decision 4 of the
Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02-461, ordering respondent to pay
petitioner a sum of money.

The antecedent facts, as culled from the CA, are as follows:

On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications
equipment (sic), accessories, spares, services and software, at a total purchase price of Two Million One
Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price
for the goods delivered, One Virtual promised to pay a portion thereof totalling US$1.2 Million in accordance
with the payment schedule dated 22 November 1999. To ensure the prompt payment of this amount, it
obtained defendant UCPB General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of
GILAT.

During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual
the purchased products and equipment, as evidenced by airway bills/Bill of Lading (Exhibits "F", "F-1" to "F-
8"). All of the equipment (including the software components for which payment was secured by the surety
bond, was shipped by GILAT and duly received by One Virtual. Under an endorsement dated December 23,
1999 (Exhibit "E"), the surety issued, with One Virtual’s conformity, an amendment to the surety bond, Annex
"A" thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due
date of May 30, 2000 in accordance with the payment schedule attached as Annex "A" to the surety bond,
prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand letter (Exhibit "G") for
payment of the said amount of US$400,000.00. No part of the amount set forth in this demand has been paid
to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the succeeding
payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond, prompting GILAT
to send a second demand letter dated January 24, 2001, for the payment of the full amount of
US$1,200,000.00 guaranteed under the surety bond, plus interests and expenses (Exhibits "H") and which
letter was received by the defendant surety on January 25, 2001. However, defendant UCPB failed to settle
the amount of US$1,200,000.00 or a part thereof, hence, the instant complaint." 5(Emphases in the original)

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint 6 against respondent UCPB
General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests
and expenses. After due hearing, the RTC rendered its Decision, 7 the dispositive portion of which is herein
quoted:

WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and against the
defendant, ordering, to wit:

1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars
(US$1,200,000.00) representing the principal debt under the Surety Bond, with legal interest thereon
at the rate of 12% per annum computed from the time the judgment becomes final and executory until
the obligation is fully settled; and

2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four
Cents (US$44,004.04) representing attorney’s fees and litigation expenses.
58
Accordingly, defendant’s counterclaim is hereby dismissed for want of merit.

SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject
equipments [sic] and the same was installed. Even with the delivery and installation made, One Virtual failed
to pay any of the payments agreed upon. Demand notwithstanding, defendant failed and refused and
continued to fail and refused to settle the obligation." 8

Considering that its liability was indeed that of a surety, as "spelled out in the Surety Bond executed by and
between One Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond Obligee," 9 respondent agreed
and bound itself to pay in accordance with the Payment Milestones. This obligation was not made dependent
on any condition outside the terms and conditions of the Surety Bond and Payment Milestones. 10

Insofar as the interests were concerned, the RTC denied petitioner’s claim on the premise that while a surety
can be held liable for interest even if it becomes more onerous than the principal obligation, the surety shall
only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause. 11 Here,
respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to
pay.12 The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00 representing the
principal debt under the Surety Bond, with legal interest at the rate of 12% per annum computed from the
time the judgment becomes final and executory, and USD44,004.04 representing attorney’s fees and litigation
expenses.

On 18 October 2007, respondent appealed to the CA.13 The appellate court rendered a Decision 14 in the
following manner:

WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial court’s Decision dated
December 28, 2006 is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and One Virtual are ordered
to proceed to arbitration, the outcome of which shall necessary bind the parties, including the surety,
defendant-appellant United Coconut Planters Bank General Insurance Co., Inc.

SO ORDERED. (Emphasis in the original)

The CA ruled that in "enforcing a surety contract, the ‘complementary-contracts-construed-together’ doctrine

finds application." According to this doctrine, the accessory contract must be construed with the principal
agreement.15 In this case, the appellate court considered the Purchase Agreement entered into between
petitioner and One Virtual as the principal contract, 16 whose stipulations are also binding on the parties to
the suretyship.17 Bearing in mind the arbitration clause contained in the Purchase Agreement 18 and pursuant
to the policy of the courts to encourage alternative dispute resolution methods, 19 the trial court’s Decision was
vacated; petitioner and One Virtual were ordered to proceed to arbitration.

On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The
motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009.

Hence, the instant Petition.

On 31 August 2010, respondent filed a Comment 21 on the Petition for Review. On 24 November 2010,
petitioner filed a Reply.22

ISSUES

From the foregoing, we reduce the issues to the following:

1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to
arbitrate; and

2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent
of its obligation under the Suretyship Agreement.

THE COURT’S RULING

The existence of a suretyship agreement does not give the surety the right to intervene in the principal
contract, nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as
the surety.

Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled
to it applies for this relief.23 This referral, however, can only be demanded by one who is a party to the

59
arbitration agreement.24 Considering that neither petitioner nor One Virtual has asked for a referral, there is
no basis for the CA’s order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code 25 clearly provide that the creditor may proceed against the
surety without having first sued the principal debtor. 26 Even the Surety Agreement itself states that
respondent becomes liable upon "mere failure of the Principal to make such prompt payment." 27 Thus,
petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before
proceeding against respondent.28

On the other hand, respondent maintains that a surety contract is merely an accessory contract, which
cannot exist without a valid obligation. 29 Thus, the surety may avail itself of all the defenses available to the
principal debtor and inherent in the debt30 – that is, the right to invoke the arbitration clause in the Purchase
Agreement.

We agree with petitioner.

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal
debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes the existence of a
principal contract.31 Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, its liability to the creditor or "promise" of the principal is said to be direct, primary and
absolute; in other words, a surety is directly and equally bound with the principal. 32 He becomes liable for the
debt and duty of the principal obligor, even without possessing a direct or personal interest in the obligations
constituted by the latter.33Thus, a surety is not entitled to a separate notice of default or to the benefit of
excussion.34 It may in fact be sued separately or together with the principal debtor. 35

After a thorough examination of the pieces of evidence presented by both parties, 36 the RTC found that
petitioner had delivered all the goods to One Virtual and installed them. Despite these compliances, One
Virtual still failed to pay its obligation,37 triggering respondent’s liability to petitioner as the former’s
surety.1âwphi1 In other words, the failure of One Virtual, as the principal debtor, to fulfill its monetary
obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.

Consequently, we cannot sustain respondent’s claim that the Purchase Agreement, being the principal
contract to which the Suretyship Agreement is accessory, must take precedence over arbitration as the
preferred mode of settling disputes.

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd., 38 that "[the] acceptance
[of a surety agreement], however, does not change in any material way the creditor’s relationship with the
principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. In
other words, the acceptance does not give the surety the right to intervene in the principal contract. The
surety’s role arises only upon the debtor’s default, at which time, it can be directly held liable by the creditor
for payment as a solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. We agree
with petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement,
because it is not a party to that contract. 39 An arbitration agreement being contractual in nature, 40 it is
binding only on the parties thereto, as well as their assigns and heirs. 41

Second, Section 24 of Republic Act No. 928542 is clear in stating that a referral to arbitration may only take
place "if at least one party so requests not later than the pre-trial conference, or upon the request of both
parties thereafter." Respondent has not presented even an iota of evidence to show that either petitioner or
One Virtual submitted its contesting claim for arbitration.

Third, sureties do not insure the solvency of the debtor, but rather the debt itself. 43 They are contracted
precisely to mitigate risks of non-performance on the part of the obligor. This responsibility necessarily places
a surety on the same level as that of the principal debtor. 44 The effect is that the creditor is given the right to
directly proceed against either principal debtor or surety. This is the reason why excussion cannot be
invoked.45 To require the creditor to proceed to arbitration would render the very essence of suretyship
nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court of
Appeals,46 "if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor."

Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the
payment of the latter’s obligation, provided that the delay is inexcusable.

Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum from
the time of its first demand on respondent on 5 June 2000 or at most, from the second demand on 24
January 2001 because of the latter’s delay in discharging its monetary obligation. 47 Citing Article 1169 of the
Civil Code, petitioner insists that the delay started to run from the time it demanded the fulfilment of
respondent’s obligation under the suretyship contract. Significantly, respondent does not contest this point,
but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last
demand on 24 January 2001.
60
In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or the refusal
of a party to pay is without any justifiable cause. 48 In this case, respondent’s failure to heed the demand was
due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase
Agreement.49 The CA, however, made no pronouncement on this matter.

We sustain petitioner.

Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the
debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance
of the obligation, and the latter fails to comply.50 Delay, as used in Article 1169, is synonymous with default
or mora, which means delay in the fulfilment of obligations. 51 It is the nonfulfillment of an obligation with
respect to time.52 In order for the debtor (in this case, the surety) to be in default, it is necessary that the
following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 53

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying,
its liability becomes more than the principal obligation. 54 The increased liability is not because of the contract,
but because of the default and the necessity of judicial collection.55

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la
Hotel,56 citing RCPI v. Verchez,57 we held thus:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will
not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking
or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid
cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of
the promissee that may include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the
basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the
one who has been injured by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous
event, to excuse him from his ensuing liability. (Emphasis ours)

We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified
by the circumstances – that is, One Virtual’s advice regarding petitioner’s alleged breach of obligations. The
lower court’s Decision itself belied this contention when it said that "plaintiff is not disputing that it did not
complete commissioning work on one of the two systems because One Virtual at that time is already in
default and has not paid GILAT."58Assuming arguendo that the commissioning work was not completed,
respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time,
petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice
president of Gilat, repeatedly stated that petitioner had delivered all equipment, including the licensed
software; and that the equipment had been installed and in fact, gone into operation. 59 Notwithstanding these
compliances, respondent still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time
judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions of
Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand
before an action for performance was filed, interest on the amount due begins to run, not from the date of the
filing of the complaint, but from the date of that extra-judicial demand.60 Considering that respondent failed
to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the extrajudicial
demand of petitioner was sent on 5 June 2000,61 we agree with the latter that interest must start to run from
the time petitioner sent its first demand letter (5 June 2000), because the obligation was already due and
demandable at that time.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames, 62 which modified
the guidelines established in Eastern Shipping Lines v. CA63 in relation to Bangko Sentral-Monetary Board
Circular No. 799 (Series of 2013), to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
61
demanded.1âwphi1 In the absence of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are hereby
compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of
extra judicial demand, until the satisfaction of the debt in accordance with the revised guidelines enunciated
in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution
of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court,
Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal interest is
concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from 5 June 2000
until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.

SO ORDERED.

November 21, 2016

G.R. No. 216600

FEDERAL EXPRESS CORPORATION and RHICKE S. JENNINGS, Petitioners

vs.
AIRFREIGHT 2100, INC. and ALBERTO D. LINA, Respondents

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by Federal
Express Corporation (FedEx) and Rhicke S. Jennings (Jennings), assailing the January 20, 2015 Decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 135835, which affirmed the May 7, 2014 Order 3 of the Regional
Trial Court, Branch 70, Pasig City

62
(RTC), dismissing its petition for the issuance of a confidentiality/protective order.

FedEx is a foreign corporation doing business in the Philippines primarily engaged in international air
carriage, logistics and freight forwarding, while Jennings serves as its Managing Director for the Philippines
and Indonesia. Respondent Airfreight 2100 (Air21) is a domestic corporation likewise involved in the freight
forwarding business, while Alberto Lina (Lina) is the Chairman of its Board of Directors.

The Antecedents

FedEx, having lost its International Freight Forwarder's (IFF) license to engage in international freight
forwarding in the Philippines, executed various Global Service Program (GSP) contracts with Air2l, an
independent contractor, to primarily undertake its delivery and pick-up services within the country.4

Under the GSP arrangement, the packages sent by FedEx customers from abroad would be picked up at a
Philippine airport and delivered by Air21 to its respective consignees. Conversely, packages from Philippine
clients would be delivered by Air21 to the airport and turned over to FedEx for shipment to consignees
abroad. As stipulated in the GSP contracts, Air21 guaranteed that all shipments would be cleared through
customs in accordance with Philippine law. In the implementation of these contracts, however, several issues
relating to money remittance, value-added taxes, dynamic fuel charge, trucking costs, interests, and penalties
ensued between the parties.

On May 11, 2011, in an effort to settle their commercial dispute, FedEx and Air21 agreed to submit
themselves to arbitration before the Philippine Dispute Resolution Center (PDRC). Thus, on June 24, 2011,
FedEx filed its Notice of Arbitration. On October 3, 2011, the Arbitral Tribunal was constituted.

As part of the arbitration proceedings, Jennings, John Lumley Holmes (Holmes), the Managing Director of
SPAC Legal of FedEx; and David John Ross (Ross), Senior Vice President of Operations, Middle East, India
and Africa, executed their respective statements 5 as witnesses for FedEx. Ross and Holmes deposed that
Federal Express Pacific, Inc., a subsidiary of FedEx, used to have an IFF license to engage in the business of
freight forwarding in the Philippines. This license, however, was suspended pending a case in court filed by
Merit International, Inc. (Merit) and Ace Logistics, Inc. (Ace), both freight forwarding companies, which
questioned the issuance of the IFF to FedEx. Absent the said license, FedEx executed the GSP contracts with
Air21 to be able to conduct its business in the Philippines. Ross and Holmes, in their individual statements,
averred that Merit and Ace were either owned or controlled by Air21 employees or persons connected with the
Lina Group of Companies, which included Air21.

Jennings, in his cross-examination, was identified as the source of the information that Merit and Ace were
Air21's proxies and was asked if he had any written proof of such proxy relationship. 6 He answered in the
negative. In his re-direct examination, he was made to expound on the supposed proxy relationship between
Merit, Ace and Air21.7He responded that Merit and Ace were just very small companies with meager
resources, yet they were able to finance and file a case to oppose the grant of IFF license to FedEx. Jennings
also disclosed that one of the directors of Ace was a friend of Lina and that Loma Orbe, the President of Merit,
was the former "boss" of Lito Alvarez, who was also associated with Air21.

Feeling aggrieved by those statements, Lina for himself and on behalf of Air21, filed a complaint for grave
slander against Jennings before the Office of the City Prosecutor in Taguig City. 8 Lina claimed that the
defamatory imputation of Jennings that Merit and Ace were Air21 's proxies brought dishonor, discredit and
contempt to his name and that of Air21. Lina quoted certain portions of the written statements of Holmes and
Ross and the Transcript of Stenographic Notes (TSN) of the April 25, 2013 arbitration hearing reflecting
Jennings' testimony to support his complaint.

Consequently, FedEx and Jennings (petitioners) filed their Petition for Issuance of a Confidentiality/Protective
Order with Application for Temporary Order of Protection and/or Preliminary Injunction before the RTC
alleging that all information and documents obtained in, or related to, the arbitration proceedings were
confidential.9 FedEx asserted that the testimony of Jennings, a witness in the arbitration proceedings, should
not be divulged and used to bolster the complaint-affidavit for grave slander as this was inadmissible in
evidence.

On January 16, 2014, the RTC granted petitioners' application for the Temporary Order of Protection.

Meanwhile, on February 3, 2014, the arbitral tribunal rendered an award in favor of FedEx.

Subsequently, in the assailed Order, dated May 7, 2014, the RTC denied FedEx's petition for lack of merit,
stating that the statements and arbitration documents were not confidential information. It went on to state
that "[t]he statement and 'Arbitration Documents' which purportedly consists the crime of Grave Slander
under Articles 353 and 358 of the Revised Penal Code are not in any way related to the subject under
Arbitration." The RTC further wrote that "a crime cannot be protected by the confidentiality rules under ADR.
The said rules should not be used as a shield in the commission of any crime." Thus, it disposed:

63
WHEREFORE, in view of the foregoing, the Petition for Issuance of a Confidentiality/Protective Order is
hereby DENIED for lack of merit.

The case is hereby DISMISSED.

SO ORDERED.10

Dissatisfied, petitioners challenged the RTC order before the CA via a petition for review.

On January 20, 2015, the CA denied the petition. In its assailed decision, the CA explained that the
declarations by Jennings were not confidential as they were not at all related to the subject of mediation as
the arbitration proceedings revolved around the parties' claims for sum of money. 11 Thus, the CA ruled that
"statements made without any bearing on the subject proceedings are not confidential in nature." It must be
emphasized that other declarations given therein, if relative to the subject of mediation or arbitration, are
certainly confidential."12

Hence, this present petition before the Court.

GROUNDS IN SUPPORT OF THE PETITION

A.

THE COURT OF APPEALS FAILED TO APPLY, OR OTHERWISE MISAPPLIED, SECTIONS 3(H) AND 23 OF
THE ADR ACT.

B.

THE COURT OF APPEALS FAILED TO APPLY RULE 10.5 OF THE SPECIAL ADR RULES.

C.

THE TEST APPLIED BY THE COURT OF APPEALS FOR DETERMINING CONFIDENTIALITY OF

INFORMATION IS NOT SANCTIONED BY AND IS INCONSISTENT WITH THE ADR ACT AND THE
SPECIAL ADR RULES.

D.

THE ASSAILED DECISION RESULTS TO SUBSTANTIAL PREJUDICE TO PETITIONERS.

E.

THE ASSAILED DECISION DEFEATS PUBLIC POLICY ON CONFIDENTIALITY OF THE RECORDS OF AND
COMMUNICATIONS MADE IN THE COURSE OF ARBITRATION. 13

FedEx argues that the Jennings' statements were part of the (a) records and evidence of Arbitration (Section
23); (b) witness statements made therein (Section 3[h][3]); and (c) communication made in a dispute
resolution proceedings (Section 3 [h][l]).14 They, thus, averred that Jennings' oral statements made during the
April 25, 2013 arbitration hearing and the TSN of the hearings, conducted on April 22 and 25, 2013, form
part of the records of arbitration and must, therefore, be considered confidential information.

For said reason, petitioners assert that Rule 10.5 of the Special Alternative Dispute Resolution (ADR) Rules,
allowing for the issuance of a confidentiality/protective order, was completely disregarded by the CA when it
denied the petition filed by FedEx as a result of Lina divulging what were supposed to be confidential
information from ADR proceedings.

Petitioners also claim that in ruling that Jennings' statements were not confidential information, by applying
the test of relevance that "statements made without any bearing on the subject proceedings are not
confidential in nature," the CA used a "test" that had no basis in law and whose application in its petition
amounted to judicial legislation.15

Respondent Air21 and Lina (respondents), in their Comment,16 essentially countered that:

While the Alternative Dispute Resolution Act of 2004 (the "ADR Law") confers communications made during
arbitration the privilege against disclosure, otherwise known as the confidentiality principle, to assist the
parties in having a speedy, efficient and impartial resolution of their disputes, said privilege cannot be
invoked to shield any party from criminal responsibility. The privilege is not absolute. The ADR Law does not
exist in a vacuum without regard to other existing jurisprudence and laws, particularly the Revised Penal
64
Code. Otherwise, we will permit a dangerous situation where arbitration proceedings will be used by an
unscrupulous disputant as a venue for the commission of crime, which cannot be punished by the simple
invocation of the privilege. Such an absurd interpretation of our laws cannot be deemed to be the underlying
will of our Congress in framing and enacting our law on arbitration. To be sure, a crime cannot be protected
or extinguished through a bare invocation of the confidentiality rule.17

The Court's Ruling

The crucial issue in this case is whether the testimony of Jennings given during the arbitration proceedings
falls within the ambit of confidential information and, therefore, covered by the mantle of a
confidentiality/protection order.

The Court finds the petition meritorious.

Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative Dispute Resolution of 2004 (ADR Act) defines
confidential information as follows:

"Confidential information" means any information, relative to the subject of mediation or arbitration,
expressly intended by the source not to be disclosed, or obtained under circumstances that would create a
reasonable expectation on behalf of the source that the information shall not be disclosed. It shall include (1)
communication, oral or written, made in a dispute resolution proceedings, including any memoranda,
notes or work product of the neutral party or non-party participant, as defined in this Act; (2) an oral or
written statement made or which occurs during mediation or for purposes of considering, conducting,
participating, initiating, continuing of reconvening mediation or retaining a mediator; and (3) pleadings,
motions manifestations, witness statements, reports filed or submitted in an arbitration or for expert
evaluation. [Emphases Supplied]

The said list is not exclusive and may include other information as long as they satisfy the requirements of
express confidentiality or implied confidentiality.18

Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules) allows "[a] party, counsel or witness who disclosed or who was compelled to
disclose information relative to the subject of ADR under circumstances that would create a reasonable
expectation, on behalf of the source, that the information shall be kept confidential xxx the right to prevent
such information from being further disclosed without the express written consent of the source or the party
who made the disclosure." Thus, the rules on confidentiality and protective orders apply when:

1. An ADR proceeding is pending;

2. A party, counsel or witness disclosed information or was otherwise compelled to disclose information;

3. The disclosure was made under circumstances that would create a reasonable expectation, on behalf of the
source, that the information shall be kept confidential;

4. The source of the information or the party who made the disclosure has the right to prevent such
information from being disclosed;

5. The source of the information or the party who made the disclosure has not given his express consent to
any disclosure; and

6. The applicant would be materially prejudiced by an unauthorized disclosure of the information obtained, or
to be obtained, during the ADR proceeding.

Gauged by the said parameters, the written statements of witnesses Ross, Holmes and Jennings, as well as
the latter's oral testimony in the April 25, 2013 arbitration hearing, both fall under Section 3 (h) [1] and [3] of
the ADR Act which states that "communication, oral or written, made in a dispute resolution
proceedings, including any memoranda, notes or work product of the neutral party or non-party participant,
as defined in this Act; and (3) pleadings, motions, manifestations, witness statements, reports filed or
submitted in an arbitration or for expert valuation," constitutes confidential information.

Notably, both the parties and the Arbitral Tribunal had agreed to the Terms of Reference (TOR) that "the
arbitration proceedings should be kept strictly confidential as provided in Section 23 of the ADR Act and
Article 25-A19 of the PDRCI Arbitration Rules (Arbitration Rules) and that they should all be bound by such
confidentiality requirements."

The provisions of the ADR Act and the Arbitration Rules repeatedly employ the word "shall" which, in
statutory construction, is one of mandatory character in common parlance and in ordinary

65
signification.20 Thus, the general rule is that information disclosed by a party or witness in an ADR
proceeding is considered privileged and confidential.

In evaluating the merits of the petition, Rule 10.8 of the Special ADR Rules mandates that courts should be
guided by the principle that confidential information shall not be subject to discovery and shall be
inadmissible in any adversarial proceeding, to wit:

Rule 10.8. Court action. - If the court finds the petition or motion meritorious, it shall issue an order enjoining
a person or persons from divulging confidential information.

In resolving the petition or motion, the courts shall be guided by the following principles applicable to all ADR
proceedings: Confidential information shall not be subject to discovery and shall be inadmissible in any
adversarial proceeding, whether judicial or quasi judicial. However, evidence or information that is otherwise
admissible or subject to discovery does not become inadmissible or protected from discovery solely by reason
of its use therein.

Article 5.42 of the Implementing Rules and Regulations (JRR)21 of the ADR Act likewise echoes that arbitration
proceedings, records, evidence and the arbitral award and other confidential information are privileged and
confidential and shall not be published except [i] with the consent of the parties; or [ii] for the limited purpose
of disclosing to the court relevant documents where resort to the court is allowed. Given that the witness
statements of Ross, Holmes and Jennings, and the latter's arbitration testimony, fall within the ambit of
confidential information, they must, as a general rule, remain confidential. Although there is no unbridled
shroud of confidentiality on information obtained or disclosed in an arbitration proceeding, the presence of
the above criteria must be apparent; otherwise, the general rule should be applied. Here in this case, only a
perceived imputation of a wrongdoing was alleged by the respondents.

In denying the said application for confidentiality/protection order, the RTC and the CA did not consider the
declarations contained in the said witness statements and arbitration testimony to be related to the subject of
arbitration and, accordingly, ruled that they could not be covered by a confidentiality order.

The Court does not agree. Suffice it to say that the phrase "relative to the subject of mediation or arbitration"
need not be strictly confined to the discussion of the core issues in the arbitral dispute. By definition,
"relative" simply means "connected to," which means that parties in arbitration proceedings are encouraged to
discuss openly their grievances and explore the circumstances which might have any connection in
identifying the source of the conflict in the hope of finding a better alternative to resolve the parties' dispute.
An ADR proceeding is aimed at resolving the parties' conflict without court intervention. It was not designed
to be strictly technical or legally confined at all times. By mutual agreement or consent of the parties to a
controversy or dispute, they acquiesce to submit their differences to arbitrators for an informal hearing and
extra-judicial determination and resolution. Usually, an ADR hearing is held in private and the decision of the
persons selected to comprise the tribunal will take the place of a court judgment. This avoids the formalities,
delays and expenses of an ordinary litigation. Arbitration, as envisioned by the ADR Act, must be taken in
this perspective.

Verily, it is imperative that legislative intent or spirit be the controlling factor, the leading star and guiding
light in the application and interpretation of a statute. 22 If a statute needs construction, the influence most
dominant in that process is the intent or spirit of the act. 23 A thing which is within the intent of the lawmaker
is as much within the statute as if within the letter; and a thing which is within the letter of the statute is not
within the statute unless within the intent of the lawmakers.24 In other words, a statute must be read
according to its spirit or intent and legislative intent is part and parcel of the statute. It is the controlling
factor in interpreting a statute. Any interpretation that contradicts the legislative intent is unacceptable.

In the case at bench, the supposed questionable statements surfaced when FedEx's suspended IFF license
was discussed during the arbitration hearing. In fact, when Jennings was asked by Arbitrator Panga to
expound on how the opposition of Ace and Merit could be related to the ongoing arbitration, Jennings replied
that, to his mind, it was indicative of the leverage that Air21 had over FedEx as it was able to withhold large
sums of money and siphon their joint plans from being properly established. Whether the information
disclosed in the arbitration proceeding would be given weight by the tribunal in the resolution of their dispute
is a separate matter. Likewise, the relevance or materiality of the said statements should be best left to the
arbitrators' sound appreciation and judgment. Even granting that the weight of the said statements was not
fundamental to the issues in the arbitration process, nevertheless, they were still connected to, and
propounded by, a witness who relied upon the confidentiality of the proceedings and expect that his
responses be reflected.

Arbitration, being an ADR proceeding, was primarily designed to be a prompt, economical and amicable forum
for the resolution of disputes.1âwphi1 It guarantees confidentiality in its processes to encourage parties to
ventilate their claims or disputes in a less formal, but spontaneous manner. It should be emphasized that the
law favors settlement of controversies out of court. Thus, a person who participates in an arbitration
proceeding is entitled to speak his or her piece without fear of being prejudiced should the process become

66
unsuccessful. Hence, any communication made towards that end should be regarded as confidential and
privileged.

To restate, the confidential nature of the arbitration proceeding is well-entrenched in Section 23 of the ADR
Act:

SEC. 23. Confidentiality of Arbitration Proceedings. - The arbitration proceedings, including the records,
evidence and the arbitral award, shall be considered confidential and shall not be published except (1) with
the consent of the parties, or (2) for the limited purpose of disclosing to the court of relevant documents in
cases where resort to the court is allowed herein. Provided, however, that the court in which the action or the
appeal is pending may issue a protective order to prevent or prohibit disclosure of documents or information
containing secret processes, developments, research and other information where it is shown that the
applicant shall be materially prejudiced by an authorized disclosure thereof.

If Lina had legal grounds to suspect that Jennings committed slanderous remarks even before the arbitration
proceeding commenced, then he must present evidence independent and apart from some quoted portions of
the arbitration documents.

It must be stressed that the very soul of an arbitration proceeding would be rendered useless if it would be
simply used as an avenue for evidence gathering or an entrapment mechanism to lure the other unsuspecting
party into conveying information that could be potentially used against him in another forum or in court.

Ultimately, the RTC and the CA failed to consider the fact that an arbitration proceeding is essentially a
unique proceeding that is non-litigious in character where the parties are bound by a different set of rules as
clearly encapsulated under the Special ADR Rules. Inevitably, when Lina cited portions of the said arbitration
documents, he violated their covenant in the TOR to resolve their dispute through the arbitration process and
to honor the confidentiality of the said proceeding. To disregard this commitment would impair the very
essence of the ADR proceeding. By itself, this would have served as a valid justification for the grant of the
confidentiality/protection order in favor of FedEx and Jennings.

Thus, the claimed slanderous statements by Jennings during the arbitration hearing are deemed confidential
information and the veil of confidentiality over them must remain.

WHEREFORE, the petition is GRANTED. The January 20, 2015 Decision of the Court of Appeals (CA), in CA-
G.R. SP No. 135835, is REVERSED and SET ASIDE.

The Petition for the Issuance of a Confidentiality/Protective Order filed by Federal Express Corporation and
Rhicke S. Jennings is hereby GRANTED.

SO ORDERED.

67
G.R. No. 160071, June 06, 2016

ANDREW D. FYFE, RICHARD T. NUTTALL, AND RICHARD J. WALD, Petitioners, v. PHILIPPINE AIRLINES,
INC., Respondent.

DECISION

BERSAMIN, J.:

This case concerns the order issued by the Regional Trial Court granting the respondent's application to
vacate the adverse arbitral award of the panel of arbitrators, and the propriety of the recourse from such
order.

The Case

Under review are the resolutions promulgated in C.A.-G.R. No. 71224 entitled Andrew D. Fyfe, Richard T.
Nuttall and Richard J. Wald v. Philippine Airlines, Inc. on May 30, 20031 and September 19, 2003,2 whereby
the Court of Appeals (CA) respectively granted the respondent's Motion to Dismiss Appeal (without Prejudice
to the Filing of Appellee's Brief), and denied the petitioners' Motion for Reconsideration.

Antecedents

In 1998, the respondent underwent rehabilitation proceedings in the Securities and Exchange Commission
(SEC),3 which issued an order dated July 1, 1998 decreeing, among others, the suspension of all claims for
payment against the respondent.4 To convince its creditors to approve the rehabilitation plan, the respondent
decided to hire technical advisers with recognized experience in the airline industry. This led the respondent
through its then Director Luis Juan K. Virata to consult with people in the industry, and in due course came
to meet Peter W. Foster, formerly of Cathay Pacific Airlines.5 Foster, along with Michael R. Scantlebury,
negotiated with the respondent on the details of a proposed technical services agreement.6 Foster and
Scantlebury subsequently organized Regent Star Services Ltd. (Regent Star) under the laws of the British
Virgin Islands.7 On January 4, 1999, the respondent and Regent Star entered into a Technical Services
Agreement (TSA) for the delivery of technical and advisory or management services to the respondent,8
effective for five years, or from January 4, 1999 until December 31, 2003.9 On the same date, the respondent,
pursuant to Clause 6 of the TSA,10 submitted a Side Letter," the relevant portions of which stated:

For and in consideration of the services to be faithfully performed by Regent Star in accordance with the
terms and conditions of the Agreement, the Company agrees to pay Regent Star as follows:
chanRoblesvirtualLawlibrary
1.1 Upon execution of the Agreement, Four Million Seven Hundred Thousand US Dollars (US$4,700,000.00),
representing advisory fees for two (2) years from the date of signature of the Agreement, with an additional
amount of not exceeding One Million Three Hundred Thousand US Dollars (US$1,300,000.00) being due and

68
demandable upon Regent Star's notice to the Company of its engagement of an individual to assume the
position of CCA under the Agreement;

xxxx

In addition to the foregoing, the Company agrees as follows:

xxxx

In the event of a full or partial termination of the Agreement for whatever reason by either the Company or a
Senior Technical Adviser/Regent Star prior to the end of the term of the Agreement, the following penalties
are payable by the terminating party:

A. During the first 2 years

1. Senior Company Adviser (CCA) -

US$800,000.00
2. Senior Commercial Adviser (SCA) -
800,000.00
3. Senior Financial Adviser (FSA) -
700,000.00
4. Senior Ground Services and Training Adviser (SAG) -
500,000.00
5. Senior Engineering and Maintenance Adviser (SAM) -
500,000.00

xxxx

For the avoidance of doubt, it is understood and agreed that in the event that the terminating party is an
individual Senior Technical Adviser the liability to pay such Termination Amount to the Company shall rest
with that individual party, not with RSS. Similarly, if the terminating party is the Company, the liability to the
aggrieved party shall be the individual Senior Technical Adviser, not to RSS.12

Regent Star, through Foster, conformed to the terms stated in the Side Letter.13 The SEC approved the TSA
on January 19, 1999.14

In addition to Foster and Scantlebury, Regent Star engaged the petitioners in respective capacities,
specifically: Andrew D. Fyfe as Senior Ground Services and Training Adviser; Richard J. Wald as Senior
Maintenance and Engineering Adviser; and Richard T. Nuttall as Senior Commercial Adviser. The petitioners
commenced to render their services to the respondent, immediately after the TSA was executed.15

On July 26, 1999, the respondent dispatched a notice to Regent Star terminating the TSA on the ground of
lack of confidence effective July 31, 1999.16 In its notice, the respondent demanded the offsetting of the
penalties due to the petitioners with the two-year advance advisory fees it had paid to Regent Star, thus:

The side letter stipulates that "[i]n the event of a full or partial termination of the Agreement for whatever
reason by either the Company or a Senior Technical Adviser/Regent Star prior to the end of the term of the
Agreement, the following penalties are payable by the terminating party:"

During the first 2 years:

Senior Company Adviser

-
US$800,000.00
Senior Commercial Adviser
-
800,000.00
Senior Financial Adviser
-
700,000.00
Senior Ground Services and Training Adviser
-
500.000.00
Senior Engineering and Maintenance Adviser
-
500,000.00
TOTAL

US$3,300,000.00

69
There is, therefore, due to RSS from PAL the amount of US$3,300,000.00 by way of stipulated penalties.

However, RSS has been paid by PAL advance "advisory fee for two (2) years from date of signature of the
Agreement" the amount of US$5,700,000. Since RSS has rendered advisory services from 4 January to 31
July 1999, or a period of seven months, it is entitled to retain only the advisory fees for seven months. This is
computed as follows:

US$5,700.000 - US$237,500/month x7 = US$1,662,500

24 months

The remaining balance of the advance advisory fee, which corresponds to the unserved period of 17 months,
or US$4,037,500, should be refunded by RSS to PAL.

Off-setting the amount of US$3,300,000 due from PAL to RSS against the amount of US$4,037,500 due from
RSS to PAL, there remains a net balance of US$737,500 due and payable to PAL. Please settle this amount at
your early convenience, but not later than August 15, 1999.17ChanRoblesVirtualawlibrary

On June 8, 1999, the petitioners, along with Scantlebury and Wald, wrote to the respondent, through its
President and Chief Operating Officer, Avelino Zapanta, to seek clarification on the status of the TSA in view
of the appointment of Foster, Scantleburry and Nuttall as members of the Permanent Rehabilitation Receiver
(PRR) for the respondent.18 A month later, Regent Star sent to the respondent another letter expressing
disappointment over the respondent's ignoring the previous letter, and denying the respondent's claim for
refund and set-off. Regent Star then proposed therein that the issue be submitted to arbitration in accordance
with Clause 1419 of the TSA.20

Thereafter, the petitioners initiated arbitration proceedings in the Philippine Dispute Resolution Center, Inc.
(PDRCI) pursuant to the TSA.

Ruling of the PDRCI

After due proceedings, the PDRCI rendered its decision ordering the respondent to pay termination
penalties,21viz.:

On issue No. 1 we rule that the Complainants are entitled to their claim for termination penalties.

When the PAL, terminated the Technical Services Agreement on July 26, 1999 which also resulted in the
termination of the services of the senior technical advisers including those of the Complainants it admitted
that the termination penalties in the amount of US$3,300,000.00 as provided in the Letter dated January 4,
1999 are payable to the Senior Technical Advisers by PAL. Xxx. PAL's admission of its liability to pay the
termination penalties to the complainants was made also in its Answer. PAIAs counsel even stipulated during
the hearing that the airline company admits that it is liable to pay Complainants the termination
penalties.xxx.

However, PAL argued that although it is liable to pay termination penalties the Complainants are not entitled
to their respective claims because considering that PAL had paid RSS advance "advisory fees for two (2) years"
in the total amount of US$5,700,000.00 and RSS had rendered advisory services for only seven (7) months
from January 4, 1999 to July 31, 1999 that would entitle RSS to an (sic) advisory fees of only
US$1,662,500.00 and therefore the unserved period of 17 months equivalent to US$4,037,500.00 should be
refunded. And setting off the termination penalties of US$3,300,000.00 due RSS from PAL against the
amount of US$4,037,500.00 still due PAL from RSS there would remain a net balance of US$737,500.00 still
due PAL from RSS and/or the Senior Technical Advisers which the latter should pay pro-rata as follows: Peter
W. Forster, the sum of US$178,475.00; Richard T. Nuttall, the sum of US$178,475.00; Michael R.
Scantlebury; the sum of US$156,350.00, Andrew D. Fyfe, the sum of US$111,362.50; and Richard J. Wald
the sum of US$111,362.50. RSS is a special company which the Senior Technical Advisers had utilized for the
specific purpose of providing PAL with technical advisory services they as a group had contracted under the
Agreement. Hence when PAL signed the Agreement with RSS, it was for all intents and purposes an
Agreement signed individually with the Senior Technical Advisers including the Complainants. The RSS and
the five (5) Senior Technical Advisers should be treated as one and the same,

The Arbitration Tribunals is not convinced.

xxxx

PAL cannot refuse to pay Complainants their termination penalties by setting off against the unserved period
of seventeen (17) months of their advance advisory fees as the Agreement and the Side Letter clearly do not
allow refund. This Arbitration Tribunal cannot read into the contract, which is the law between the parties,
what the contract docs not provide or what the parties did not intend. It is basic in contract interpretation
that contracts that are not ambiguous are to be interpreted according to their literal meaning and should not
be interpreted beyond their obvious intendment. x x x. The penalties work as security for the Complainants
against the uncertainties of their work at PAL whose closure was a stark reality they were facing. (TSN
70
Hearing on April 27, 2000, pp. 48-49) This would not result in unjust enrichment for the Complainants
because the termination of the services was initiated by PAL itself without cause. In feet, PAL admitted that at
the time their services were terminated the Complainants were performing well in their respective assigned
works,22 x x x.

PAL also presented hypothetical situations and certain computations that it claims would result to an
"injustice" to PAL which would then "lose a very substantial amount of money" if the claimed refund is not
allowed. PAL had chosen to prc-terminate the services of the complainants and must therefore pay the
termination penalties provided in the Side Letter. If it finds itself losing "substantial" sums of money because
of its contractual commitments, there is nothing this Arbitration Tribunal can do to remedy the situation.
Jurisprudence teaches us that neither the law nor the courts will extricate a party from an unwise or
undesirable contract that he or she entered into with all the required formalities and with full awareness of its
consequences. (Opulencia vs. Cowl of Appeals, 293 SCRA 385 (1998)23

Decision of the RTC

Dissatisfied with the outcome, the respondent filed its Application to Vacate Arbitral Award in the Regional
Trial Court, in Makati City (RTC), docketed as SP Proc. M-5147 and assigned to Branch 57,24 arguing that
the arbitration decision should be vacated in view of the July 1, 1998 order of the SEC placing the respondent
under a state of suspension of payment pursuant to Section 6(c) of Presidential Decree No. 902-A, as
amended by P.D. No. 1799.25cralawred

The petitioners countered with their Motion to Dismiss,26 citing the following grounds, namely: (a) lack of
jurisdiction over the persons of the petitioners due to the improper service of summons; (b) the application did
not state a cause of action; and (c) the application was an improper remedy because the respondent should
have filed an appeal in the CA pursuant to Rule 43 of the Rules of Court.27cralawred

On March 7, 2001, the RTC granted the respondent's Application to Vacate Arbitral Award,28 disposing:

WHEREFORE, the subject arbitral award dated September 29, 2000 is hereby vacated and set aside, without
prejudice to the complainants' filing with the SEC rehabilitation receiver of PAL their subject claim for
appropriate adjudication. The panel of arbitrators composed of lawyers Beda Fajardo, Arturo de Castro and
Bienvenido Magnaye is hereby ordered discharged on the ground of manifest partiality.

No pronouncement as to cost and attorney's fees.

SO ORDERED.29ChanRoblesVirtualawlibrary

Anent jurisdiction over the persons of the petitioners, the RTC opined:

On the objection that the Court has not acquired jurisdiction over the person of the complainants because
summonses were not issued and served on them, the Court rules that complainants have voluntarily
submitted themselves to the jurisdiction of the Court by praying the Court to grant them affirmative relief,
i.e., that the Court confirm and declare final and executory the subject arbitral award. Moreover, under
Sections 22 and 26 of the Arbitration Law (R.A. 876), an application or petition to vacate arbitral award is
deemed a motion and service of such motion on the adverse party or his counsel is enough to confer
jurisdiction upon the Court over the adverse party.

It is not disputed that complainants were duly served by personal delivery with copies of the application to
vacate. In feet, they have appeared through counsel and have filed pleadings. In line with this ruling, the
objection that the application to vacate does not state a cause of action against complainants must
necessarily fall inasmuch as this present case is a special proceeding (Sec. 22, Arbitration Law), and Section
3(a), Rule 1 of the 1997 Rules of Civil Procedure is inapplicable here.30

On whether or not the application to vacate was an appropriate remedy under Sections 24 and 26 of the
Arbitration Law, and whether or not the July 1, 1998 order of the SEC deprived the Panel of Arbitrators of the
authority to hear the petitioners' claim, the RTC held:

The rationale for the suspension is to enable the rehabilitation receiver to exercise his powers without any
judicial or extra-judicial interference that might unduly hinder the rescue of the distressed corporation, x x x.
PD No. 902-A does not provide for the duration of the suspension; therefore, it is deemed to be effective
during the entire period that the corporate debtor is under SEC receivership.

There is no dispute that PAL is under receivership (Exhibits "1" and "2"). In its Order dated 1 July 1998, the
SEC declared that "all claims for payment against PAL are deemed suspended."' This Order effectively
deprived all other tribunals of jurisdiction to hear and decide all actions for claims against PAL for the
duration of the receivership.

xxxx

71
Unless and until the SEC lifts the Order dated 1 July 1998, the Panel of Arbitrators cannot take cognizance of
complainant' claims against PAL without violating the exclusive jurisdiction of the SEC. The law has granted
SEC the exclusive jurisdiction to pursue the rehabilitation of a private corporation through the appointment
of a rehabilitation receiver (Sec 6 (d), PD No. 902-A, as amended by PD 1799). "exclusive jurisdiction
precludes the idea of co-existence and refers to jurisdiction possessed to the exclusion of others, x x x. Thus,
"(I)nstead of vexing the courts with suits against the distressed firm, they are directed to file their claims with
the receiver who is the duly appointed officer of the SEC.

x x x.31ChanRoblesVirtualawlibrary

After their motion for reconsideration32 was denied,33 the petitioners appealed to the CA by notice of appeal.

Resolution of the CA

The respondent moved to dismiss the appeal,34 arguing against the propriety of the petitioners' remedy, and
positing that Section 29 of the Arbitration Law limited appeals from an order issued in a proceeding under the
Arbitration Law to a review on certiorari upon questions of law.35

On May 30, 2003, the CA promulgated the now assailed resolution granting the respondent's Motion to
Dismiss Appeal.36 It declared that the appropriate remedy against the order of the RTC vacating the award
was a petition for review on certiorari under Rule 45, viz.:

The term "certiorari" in the aforequoted provision refers to an ordinary appeal under Rule 45, not the special
action of certiorari under Rule 65. As Section 29 proclaims, it is an "appeal." This being the case, the proper
forum for this action is, under the old and the new rules of procedure, the Supreme Court. Thus, Section 2(c)
of Rule 41 of the 1997 Rules of Civil Procedure states that,
"In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by
petition for review on certiorari in accordance with Rule 45. "
Furthermore, Section 29 limits the appeal to "questions of law," another indication that it is referring to an
appeal by certiorari under Rule 45 which, indeed, is the customary manner of reviewing such issues.

Based on the foregoing, it is clear that complainants-in-arbitration/appellants filed the wrong action with the
wrong forum.

WHEREFORE, premises considered, the Motion to Dismiss Appeal (Without Prejudice to the Filing of
Appellee's Brief) is GRANTED and the instant appeal is hereby ordered DISMISSED.

SO ORDERED.37ChanRoblesVirtualawlibrary

The petitioners moved for reconsideration,38 but the CA denied their motion.39

Hence, this appeal by the petitioners.

Issues

The petitioners anchor this appeal on the following grounds, namely:

SECTION 29 OF THE ARBITRATION LAW, WHICH LIMITS THE MODE OF APPEAL FROM THE ORDER OF A
REGIONAL TRIAL COURT IN A PROCEEDING MADE UNDER THE ARBITRATION LAW TO A PETITION FOR
REVIEW ON CERTIORARI UNDER RULE 45 OF THE RULES, IS UNCONSTITUTIONAL FOR UNDULY
EXPANDING THE JURISDICTION OF THIS HONORABLE COURT WITHOUT THIS HONORABLE COURT'S
CONCURRENCE;

II

THE COURT OF APPEALS HAD JURISDICTION OVER THE CA APPEAL BECAUSE:

A.

THIS HONORABLE COURT HAS PREVIOUSLY UPHELD THE EXERCISE BY THE COURT OF APPEALS OF
JURISDICTION OVER AN APPEAL INVOLVING QUESTIONS OF FACT OR OF MIXED QUESTIONS OF FACT
AND LAW FROM A REGIONAL TRIAL COURT'S ORDER VACATING AN ARBITRAL AWARD

B.

WHERE, AS IN THIS CASE, TFIE ISSUES ON APPEAL CONCERNED THE ABSENCE OF EVIDENCE AND
LACK OF LEGAL BASIS TO SUPPORT THE REGIONAL TRIAL COURT'S ORDER VACATING THE ARBITRAL
AWARD, GRAVE MISCHIEF WOULD RESULT IF THE REGIONAL TRIAL COURT'S BASELESS FINDINGS OF
FACT OR MIXED FINDINGS OF FACT ARE PLACED BEYOND APPELLATE REVIEW; AND
72
C.

THE COURT OF APPEALS' DISMISSAL OF THE CA APPEAL V/OULD IN EFFECT RESULT IN THE
AFFIRMATION OF THE REGIONAL TRIAL COURT'S EXERCISE OF JURISDICTION, OVER PERSONS UPON
WHOM IT FAILED TO VALIDLY ACQUIRE SUCH JURISDICTION AND OF APPELLATE JURISDICTION OVER
THE PDRCI ARBITRAL AWARD EVEN IF SUCH APPELLATE POWER IS EXCLUSIVELY LODGED WITH THE
COURT OF APPEALS UNDER RULE 43 OF THE RULES

III

INSTEAD OF DISMISSING THE CA APPEAL OUTRIGHT, THE COURT OF APPEALS SHOULD HAVE
SHORTENED THE PROCEEDINGS AND EXPEDITED JUSTICE BY EXERCISING ORIGINAL JURISDICTION
OVER THE APPLICATION TO VACATE PURSUANT TO RULE 43 OF THE RULES, ESPECIALLY CONSIDERING
THAT THE PARTIES HAD IN FACT ALREADY FILED THEIR RESPECTIVE BRIEFS AND THE COMPLETE
RECORDS OF BOTH THE RTC APPLICATION TO VACATE AND THE PDRCI ARBITRATION WERE ALREADY
IN ITS POSSESSION; AND

IV

IN THE EVENT THAT AN APPEAL FROM AN ORDER VACATING AN ARBITRAL AWARD MAY BE MADE ONLY
IN CERTIORARI PROCEEDINGS AND ONLY TO THE SUPREME COURT, THE COURT OF APPEALS SHOULD
NOT HAVE DISMISSED THE CA APPEAL, BUT IN THE HIGHER INTEREST OF JUSTICE, SHOULD HAVE
INSTEAD ENDORSED THE SAME TO THIS HONORABLE COURT, AS WAS DONE IN SANTIAGO V.
GONZALES.40

The petitioners contend that an appeal from the order arising from arbitration proceedings cannot be by
petition for review on certiorari under Rule 45 of the Rules of Court because the appeal inevitably involves
mixed questions of law and fact; that their appeal in the CA involved factual issues in view of the RTC's
finding that the panel of arbitrators had been guilty of evident partiality even without having required the
respondent to submit independent proof thereon; that the appropriate remedy was either a petition for
certiorari under Rule 65 of the Rules of Court, or an ordinary appeal under Rule 41 of the Rules of Court,
conformably with the rulings in Asset Privatization Trust v. Court of Appeals41 and Adamson v. Court of
Appeals,42 respectively; and that the CA erroneously upheld the RTC's denial of their Motion To Dismiss
Appeal on the basis of their counsel's voluntary appearance to seek affirmative relief because under Section
20, Rule 14 of the Rules of Court their objection to the personal jurisdiction of the court was not a voluntary
appearance even if coupled with other grounds for a motion to dismiss.

In riposte, the respondent avers that the petition for review on certiorari should be denied due course because
of the defective verification/certification signed by the petitioners' counsel; and that the special powers of
attorney (SPAs) executed by the petitioners in favor of their counsel did not sufficiently vest the latter with the
authority to execute the verification/certification in their behalf.

On the merits, the respondent maintains that: (a) the term certiorari used in Section 29 of the Arbitration Law
refers to a petition for review under Rule 45 of the Rules of Court; (b) the constitutional challenge against
Section 29 of the Arbitration Law was belatedly made; (c) the petitioners' claim of lack of jurisdiction on the
part of the RTC should fail because an application to vacate an arbitral award under Sections 22 and 26 of
the Arbitration Law is only required to be in the form of a motion; and (d) the complete record of the
arbitration proceedings submitted to the RTC sufficiently proved the manifest partiality and grave abuse of
discretion on the part of the panel of arbitrators.

To be resolved are: (a) whether or not the petition for review should be dismissed for containing a defective
verification/certification; and (b) whether or not the CA erred in dismissing the appeal of the petitioners for
being an inappropriate remedy.

Ruling of the Court

We deny the petition for review on certiorari.

I
There was sufficient compliance with the rule on
verification and certification against forum shopping

The respondent insists that the verification/certification attached to the petition was defective because it was
executed by the petitioners' counsel whose authority under the SPAs was only to execute the certification of
non-forum shopping; and that the signing by the counsel of the certification could not also be allowed
because the Rules of Court and the pertinent circulars and rulings of the Court require that the petitioners
must themselves execute the same.

The insistence of the respondent is unwarranted. The SPAs individually signed by the petitioners vested in
their counsel the authority, among others, "to do and perform on my behalf any act and deed relating to the
73
case, which it could legally do and perform, including any appeals or further legal proceedings." The authority
was sufficiently broad to expressly and specially authorize their counsel, Atty. Ida Maureen V. Chao-Kho, to
sign the verification/certification on their behalf.

The purpose of the verification is to ensure that the allegations contained in the verified pleading are true and
correct, an d are not the product of the imagination or a matter of speculation; and that the pleading is filed
in good faith.43 This purpose was met by the verification/certification made by Atty. Chao-Kho in behalf of
the petitioners, which pertinently stated that:

2. Petitioners caused the preparation of the foregoing Petition for Review on Certiorari, and have read and
understood all the allegations contained therein. Further, said allegations are true and correct based on their
own knowledge and authentic records in their and the Finn's possession.44

The tenor of the verification/certification indicated that the petitioners, not Atty. Chao-Kho, were certifying
that the allegations were true and correct based on their knowledge and authentic records. At any rate, a
finding that the verification was defective would not render the petition for review invalid. It is settled that the
verification was merely a formal requirement whose defect did not ne gate the validity or efficacy of the verified
pleading, or affect the jurisdiction of the court.45

We also uphold the efficacy of the certification on non-forum shopping executed by Atty. Chao-Kho on the
basis of the authorization bestowed under the SPAs by the petitioners. The lawyer of the party, in order to
validly execute the certification, must be "specifically authorized" by the client for that purpose.46 With the
petitioners being non-residents of the Philippines, the sworn certification on non-forum shopping by Atty.
Chao-Kho sufficiently complied with the objective of ensuring that no similar action had been brought by
them or the respondent against each other, to wit:

5. Significantly, Petitioners are foreign residents who reside and are presently abroad. Further, the Firm is
Petitioners' sole legal counsel in the Philippines, and hence, is in a position to know that Petitioners have no
other cases before any court o[r] tribunal in the Philippines;47

In this regard, we ought not to exact a literal compliance with Section 4, Rule 45, in relation to Section 2,
Rule 42 of the Rules of Court, that only the party himself should execute the certification. After all, we have
not been shown by the respondent any intention on the part of the petitioners and their counsel to
circumvent the requirement for the verification and certification on non-forum shopping.48

II
Appealing the RTC order
vacating an arbitral award

The petitioners contend that the CA gravely erred in dismissing their appeal for being an inappropriate
remedy, and in holding that a petition for review on certiorari under Rule 45 was the sole remedy under
Section 29 of the Arbitration Law. They argue that the decision of the RTC involving arbitration could be
assailed either by petition for certiorari under Rule 65, as held in Asset Privatization Trust, or by an ordinary
appeal under Rule 41, as opined in Adamson.

The petitioners are mistaken.

Firstly, the assailed resolution of the CA did not expressly declare that the petition for review on certiorari
under Rule 45 was the sole remedy from the RTC's order vacating the arbitral award. The CA rather
emphasized that the petitioners should have filed the petition for review on certiorari under Rule 45
considering that Section 29 of the Arbitration Law has limited the ground of review to "questions of law."
Accordingly, the CA correctly dismissed the appeal of the petitioners because pursuant to Section 2,49 Rule
41 of the Rules of Court an appeal of questions of law arising in the courts in the first instance is by petition
for review on certiorari under Rule 45.

It is noted, however, that since the promulgation of the assailed decision by the CA on May 30, 2003, the law
on the matter underwent changes. On February 4, 2004. Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004) was passed by Congress, and was approved by the President on April 2, 2004.
Pursuant to Republic Act No. 9285, the Court promulgated on September 1, 2009 in A.M. No. 07-11-08-SC
the Special Rules of Court on Alternative Dispute Resolution, which are now the present rules of procedure
governing arbitration. Among others, the Special Rules of Court on Alternative Dispute Resolution requires an
appeal by petition for review to the CA of the final order of the RTC confirming, vacating, correcting or
modifying a domestic arbitral award, to wit:

Rule 19.12 Appeal to the Court of Appeals. - An appeal to the Court of Appeals through a petition for review
under this Special Rule shall only be allowed from the following orders of the Regional Trial Court:
Granting or denying an interim measure of protection;

Denying a petition for appointment of an arbitrator;

Denying a petition for assistance in taking evidence;

74
Enjoining or refusing to enjoin a person from divulging confidential information;

Confirming, vacating or correcting/modifying a domestic arbitral award;

Setting aside an international commercial arbitration award;

Dismissing the petition to set aside an international commercial arbitration award even if the court does not
decide to recognize or enforce such award;

Recognizing and/or enforcing an international commercial arbitration award;

Dismissing a petition to enforce an international commercial arbitration award;

Recognizing and/or enforcing a foreign arbitral award;

Refusing recognition and/or enforcement of a foreign arbitral award;

Granting or dismissing a petition to enforce a deposited mediated settlement agreement; and

Reversing the ruling of the arbitral tribunal upholding its jurisdiction.

Although the Special Rules of Court on Alternative Dispute Resolution provides that the appropriate remedy
from an order of the RTC vacating a domestic arbitral award is an appeal by petition for review in the CA, not
an ordinary appeal under Rule 41 of the Rules of Court, the Court cannot set aside and reverse the assailed
decision on that basis because the decision was in full accord with the law or rule in force at the time of its
promulgation.

The ruling in Asset Privatization Trust v. Court of Appeals50 cannot be the governing rule with respect to the
order of the RTC vacating an arbitral award. Asset Privatization Trust justified the resort to the petition for
certiorari under Rule 65 only upon finding that the RTC had acted without jurisdiction or with grave abuse of
discretion in confirming the arbitral award. Nonetheless, it is worth reminding that the petition for certiorari
cannot be a substitute for a lost appeal.51

Also, the petitioners have erroneously assumed that the appeal filed by the aggrieved party in Adamson v.
Court of Appeals52 was an ordinary one. Adamson concerned the correctness of the ruling of the CA in
reversing the decision of the trial court, not the propriety of the remedy availed of by the aggrieved party. Nor
did Adamson expressly declare that an ordinary appeal could be availed of to assail the RTC's ruling involving
arbitration. As such, the petitioners' reliance on Adamson to buttress their resort to the erroneous remedy
was misplaced.

We remind that the petitioners cannot insist on their chosen remedy despite its not being sanctioned by the
Arbitration Law. Appeal as a remedy is not a matter of right, but a mere statutory privilege to be exercised
only in the manner and strictly in accordance with the provisions of the law.53

III
Panel of Arbitrators had no jurisdiction
to hear and decide the petitioners' claim

The petitioners' appeal is dismissible also because the arbitration panel had no jurisdiction to hear their
claim. The RTC correctly opined that the SEC's suspension order effective July 1, 1998 deprived the
arbitration panel of the jurisdiction to hear any claims against the respondent. The Court has clarified in
Castillo v. Uniwide Warehouse Club, Inc.54 why the claim for payment brought against a distressed
corporation like the respondent should not prosper following the issuance of the suspension order by the
SEC, regardless of when the action was filed, to wit:

Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to all
actions for claims filed against a corporation, partnership or association under management or receivership,
without distinction, except only those expenses incurred in the ordinary course of business. In the oft-cited
case of Rubberworld (Phils.) Inc. v. NLRC, the Court noted that aside from the given exception, the law is clear
and makes no distinction as to the claims that are suspended once a management committee is created or a
rehabilitation receiver is appointed. Since the law makes no distinction or exemptions, neither should this
Court. Ubi lex non dislinguit nee nos distinguere debemos. Philippine Airlines, Inc. v. Zamora declares that
the automatic suspension of an action for claims against a corporation under a rehabilitation receiver or
management committee embraces all phases of the suit, that is, the entire proceedings of an action or suit
and not just the payment of claims.

The reason behind the imperative nature of a suspension or stay order in relation to the creditors claims
cannot be downplayed, for indeed the indiscriminate suspension of actions for claims intends to expedite the
rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation
75
receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might
unduly hinder or prevent the rescue of the debtor company. To allow such other actions to continue would
only add to the burden of the management committee or rehabilitation receiver, whose time, effort and
resources would be wasted in defending claims against the corporation, instead of being directed toward its
restructuring and rehabilitation.

At this juncture, it must be conceded that the date when the claim arose, or when the action was filed, has no
bearing at all in deciding whether the given action or claim is covered by the stay or suspension order. What
matters is that as long as the corporation is under a management committee or a rehabilitation receiver, all
actions for claims against it, whether for money or otherwise, must yield to the greater imperative of corporate
revival, excepting only, as already mentioned, claims for payment of obligations incurred by the corporation in
the ordinary course of business.55 (Bold emphasis supplied)

IV
The requirement of due process was observed

The petitioners' challenge against the jurisdiction of the RTC on the ground of the absence of the service of the
summons on them also fails.

Under Section 2256 of the Arbitration Law, arbitration is deemed a special proceeding, by virtue of which any
application should be made in the manner provided for the making and hearing of motions, except as
otherwise expressly provided in the Arbitration Law.

The RTC observed that the respondent's Application to Vacate Arbitral Award was duly served personally on
the petitioners, who then appeared by counsel and filed pleadings. The petitioners countered with their
Motion to Dismiss vis-a-vis the respondent's application, specifying therein the various grounds earlier
mentioned, including the lack of jurisdiction over their persons due to the improper service of summons.
Under the circumstances, the requirement of notice was fully complied with, for Section 2657 of the
Arbitration Law required the application to be served upon the adverse party or his counsel within 30 days
after the award was filed or delivered "as prescribed by law for the service upon an attorney in an action."

V
Issue of the constitutionality of the
Arbitration Law is devoid of merit

The constitutionality of Section 29 of the Arbitration Law is being challenged on the basis that Congress has
thereby increased the appellate jurisdiction of the Supreme Court without its advice and concurrence, as
required by Section 30, Article VI of the 1987 Constitution, to wit:

Section 30. No law shall be passed increasing the appellate jurisdiction of the Supreme Court as provided in
this Constitution without its advice and concurrence.

The challenge is unworthy of consideration. Based on the tenor and text of Section 30, Article VI of the 1987
Constitution, the prohibition against increasing the appellate jurisdiction of the Supreme Court without its
advice and concurrence applies prospectively, not retrospectively. Considering that the Arbitration Law had
been approved on June 19, 1953, and took effect under its terms on December 19, 1953, while the
Constitution was ratified only on February 2, 1987, Section 29 of the Arbitration Law could not be declared
unconstitutional.chanrobleslaw

WHEREFORE, the Court DENIES the petition for review on certiorari for lack of merit; AFFIRMS the
resolution promulgated on May 30, 2003 by the Court of Appeals in CA-G.R. CV No. 71224; and ORDERS the
petitioners to pay the costs of suit.

SO ORDERED.

76
G.R. No. 173137, January 11, 2016

BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS, INC.,

Respondent.

G.R. NO. 173170

NORTH LUZON RAILWAYS CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS, INC. Respondent.

DECISION

LEONEN, J.:

An arbitration clause in a document of contract may extend to subsequent documents of contract executed
for the same purpose. Nominees of a party to and beneficiaries of a contract containing an arbitration clause
may become parties to a proceeding initiated based on that arbitration clause.

On June 10, 1995, Bases Conversion Development Authority (BCDA) entered into a Joint Venture Agreement1
with Philippine National Railways (PNR) and other foreign corporations.2chanroblesvirtuallawlibrary

Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila to Clark
with possible extensions to Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva Ecija.3
BCDA shall establish North Luzon Railways Corporation (Northrail) for purposes of constructing, operating,
and managing the railroad system.4 The Joint Venture Agreement contained the following provision:

ARTICLE XVI
ARBITRATION

If any dispute arise hereunder which cannot be settled by mutual accord between the parties to such dispute,
then that dispute shall be referred to arbitration. The arbitration shall be held in whichever place the parties
to the dispute decide and failing mutual agreement as to a location within twenty-one (21) days after the
occurrence of the dispute, shall be held in Metro Manila and shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876) supplemented by the Rules of Conciliation and Arbitration
of the International Chamber of Commerce. All award of such arbitration shall be final and binding upon the
parties to the dispute.5

BCDA organized and incorporated Northrail.6 Northrail was registered with the Securities and Exchange
Commission on August 22, 1995.7chanroblesvirtuallawlibrary

BCDA invited investors to participate in the railroad project's financing and implementation. Among those
invited were D.M. Consunji, Inc. and Metro Pacific Corporation.8chanroblesvirtuallawlibrary

On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its
nominee as party.9 Under the amended Joint Venture Agreement, D.M. Consunji, Inc. shall be an additional
investor of Northrail.10 It shall subscribe to 20% of the increase in Northrail's authorized capital
stock.11chanroblesvirtuallawlibrary

On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement, including D.M. Consunji,
Inc. and/or its nominee, entered into a Memorandum of Agreement.12 Under this agreement, the parties
77
agreed that the initial seed capital of P600 million shall be infused to Northrail.13 Of that amount, P200
million shall be D.M. Consunji, Inc.'s share, which shall be converted to equity upon NorthraiPs
privatization.14 Later, D.M. Consunji, Inc.'s share was increased to P300
million.15chanroblesvirtuallawlibrary

Upon BCDA and Northrail's request,16 DMCI Project Developers, Inc. (DMCI-PDI) deposited P300 million into
NorthraiPs account with Land Bank of the Philippines.17 The deposit was made on August 7, 199618 for its
"future subscription of the Northrail shares of stocks."19 In NorthraiPs 1998 financial statements submitted
to the Securities and Exchange Commission, this amount was reflected as "Deposits For Future
Subscription."20 At that time, NorthraiPs application to increase its authorized capital stock was still pending
with the Securities and Exchange Commission.21chanroblesvirtuallawlibrary

In letters22dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties that DMCI-PDI shall
be its designated nominee for all the agreements it entered and would enter with them in connection with the
railroad project. Pertinent portions of the letters provide:

[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating PDI as its nominee in both agreements and such other
agreements that may be signed by the parties in furtherance of or in connection with the PROJECT. By this
nomination, all the rights, obligations, warranties and commitments of DMCI under the JVA and MOA shall
henceforth be assumed performed and delivered by PDI.23 (Emphasis supplied)

Later, Northrail withdrew from the Securities and Exchange Commission its application for increased
authorized capital stock.24 Moreover, according to DMCI-PDI, BCDA applied for Official Development
Assistance from Obuchi Fund of Japan.25 This required Northrail to be a 100% government-owned and
controlled corporation.26chanroblesvirtuallawlibrary

On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300
million deposit.27 DMCI-PDI cited Northrail's failure to increase its authorized capital stock as reason for the
demand.28 BCDA and Northrail refused to return the deposit29 for the following reasons:

a) At the outset, DMCI PDI/FBDC's participation in Northrail was as a joint venture partner and co-investor
in the Manila Clark Rapid Railway Project, and as such, was granted corresponding representation in the
Northrail Board.

b) DMCI PDI/FBDC was privy to all the deliberations of the Northrail Board and participated in the decisions
made and policies adopted to pursue the project.

c) DMCI PDI/FBDC had full access to the financial statements of Northrail and was regularly informed of the
corporation's financial condition.30chanrobleslaw

Upon BCDA's request, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 116,
Series of 200131 on June 27, 2001. The OGCC stated that "since no increase in capital stock was
implemented, it is but proper to return the investments of both FBDC and
DMCI[.]"32chanroblesvirtuallawlibrary

In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for the refund of its P300 million deposit for
future Northrail subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's request:

We regret to say that we are of the position that the P300 [million] contribution should not be returned to
DMCI for the following reasons:
the P300 million was in the nature of a contribution, not deposits for future subscription; and

DMCI, as a joint venture partner, must share in profits and losses.35

On August 17, 2005,36 DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the
arbitration clause in the June 10, 1995 Joint Venture Agreement.37 BCDA and Northrail failed to
respond.38chanroblesvirtuallawlibrary

DMCI-PDI filed before the Regional Trial Court of Makati39 a Petition to Compel Arbitration40 against BCDA
and Northrail, pursuant to the alleged arbitration clause in the Joint Venture Agreement.41 DMCI-PDI prayed
for "an order directing the parties to proceed to arbitration in accordance with the terms and conditions of the
agreement."42chanroblesvirtuallawlibrary

BCDA filed a Motion to Dismiss43 on the ground that there was no arbitration clause that DMCI-PDI could
enforce since DMCI-PDI was not a party to the Joint Venture Agreement containing the arbitration clause.44
Northrail filed a separate Motion to Dismiss45 on the ground that the court did not have jurisdiction over it
and that DMCI-PDI had no cause for arbitration against it.46chanroblesvirtuallawlibrary

In the Decision47 dated February 9, 2006, the trial court denied BCDA's and Northrail's Motions to Dismiss
and granted DMCI-PDI's Petition to Compel Arbitration. The dispositive portion of the decision reads:
78
WHEREFORE, the petition is granted. The parties are ordered to present their dispute to arbitration in
accordance with Article XVI of the Joint Agreement.

SO ORDERED.48chanrobleslaw

The trial court ruled that the arbitration clause in the Joint Venture Agreement should cover all subsequent
documents including the amended Joint Venture Agreement and the Memorandum of Agreement. The three
(3) documents constituted one contract for the formation and funding of
Northrail.49chanroblesvirtuallawlibrary

The trial court also ruled that even though DMCI-PDI was not a signatory to the Joint Venture Agreement and
the Memorandum of Agreement, it was an assignee of D.M. Consunji, Inc.'s rights. Therefore, it could invoke
the arbitration clause in the Joint Venture Agreement.50chanroblesvirtuallawlibrary

In an Order51 dated June 9, 2006, the trial court denied BCDA and Northrail's Motion for Reconsideration of
the February 9, 2006 trial court Decision.

BCDA filed a Rule 45 Petition before this court, assailing the February 9, 2006 trial court Order granting
DMCI-PDI's Petition to Compel Arbitration and the June 9, 2006 Order denying BCDA and Northrail's Motion
for Reconsideration.52chanroblesvirtuallawlibrary

The issue in this case is whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration.

BCDA argued that only the parties to an arbitration agreement can be bound by that agreement.53 The
arbitration clause that DMCI-PDI sought to enforce was in the Joint Venture Agreement, to which DMCI-PDI
was not a party.54 There was also no evidence that the right to compel arbitration under the Joint Venture
Agreement was assigned to DMCI-PDI.55 Assuming that there was such an assignment, BCDA did not
consent to or recognize it.56 Therefore, the trial court's conclusion that DMCI-PDI was D.M. Consunji, Inc.'s
assignee had no basis.57 In BCDA's view, DMCI-PDI had no right to compel BCDA to submit to
arbitration.58chanroblesvirtuallawlibrary

BCDA also argued that the trial court decided the Motion to Dismiss in violation of the parties' right to due
process. The trial court should have conducted a hearing so that the parties could have presented their
respective positions on the issue of assignment. The trial court merely accepted DMCI-PDI's allegations,
without basis.59chanroblesvirtuallawlibrary

In a separate Petition for Review,60 Northrail argued that it cannot be compelled to submit itself to arbitration
because it was not a party to the arbitration agreement.61chanroblesvirtuallawlibrary

Northrail also argued that DMCI-PDI cannot initiate an action to compel BCDA and Northrail to arbitration
because DMCI-PDI itself was not a party to the arbitration agreement. DMCI-PDI was not D.M. Consunji,
Inc.'s assignee because BCDA did not consent to that assignment.62chanroblesvirtuallawlibrary

In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule 45 was a wrong mode of appeal.64 The
issues raised by BCDA did not involve questions of law.65chanroblesvirtuallawlibrary

DMCI-PDI pointed out that BCDA breached their agreement when it failed to apply the P300 million deposit to
Northrail subscriptions. It turned out that such application was rendered impossible by the alleged loan
requirement that Northrail be wholly owned by the government and by Northrail's withdrawal from the
Securities and Exchange Commission of its application for an increase in authorized capital
stock.66chanroblesvirtuallawlibrary

DMCI-PDI also argued that it is an assignee and nominee of D.M. Consunji, Inc., which is a party to the
contracts. Therefore, it is also a party to the arbitration clause.67chanroblesvirtuallawlibrary

DMCI-PDI contended that the arbitration agreement extended to all documents relating to the project.68 Even
though the agreement was expressed only in the Joint Venture Agreement, its effect extends to the
amendment to the Joint Venture Agreement and Memorandum of Agreement.69chanroblesvirtuallawlibrary

DMCI-PDI emphasized that BCDA had always recognized it as D.M. Consunji's assignee in its
correspondences with the OGCC and with the President of DMCI, Mr. Isidro Consunji.70 In those letters,
BCDA described DMCI-PDI's participation as being the "joint venture partner . . . and co-investor in the
Manila Clark Rapid Railway Project[.]"71 Hence, it is now estopped from denying its personality in this
case.72chanroblesvirtuallawlibrary

We rule for DMCI-PDI.chanRoblesvirtualLawlibrary

I
The state has a policy in favor of arbitration

79
At the outset, we must state that BCDA and Northrail invoked the correct remedy. Rule 45 is applicable when
the issues raised before this court involved purely questions of law. In Villamor v.
Balmores:73chanroblesvirtuallawlibrary

[t]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] of
facts." The test is "whether the appellate court can determine the issue raised without reviewing or evaluating
the evidence." Meanwhile, there is a question of fact when there is "doubt ... as to the truth or falsehood of
facts." The question must involve the examination of probative value of the evidence
presented.74chanroblesvirtuallawlibrary

BCDA and Northrail primarily ask us to construe the arbitration clause in the Joint Venture Agreement. They
assert that the clause does not bind DMCI-PDI and Northrail. This issue is a question of law. It does not
require us to examine the probative value of the evidence presented. The prayer is essentially for this court to
determine the scope of an arbitration clause.

Arbitration is a mode of settling disputes between parties.75 Like many alternative dispute resolution
processes, it is a product of the meeting of minds of parties submitting a pre-defined set of disputes. They
agree among themselves to a process of dispute resolution that avoids extended litigation.

The state adopts a policy in favor of arbitration. Republic Act No. 928576 expresses this policy:

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy
in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets. As
such, the State shall provide means for the use of ADR as an efficient tool and an alternative procedure for
the resolution of appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme
Court of any ADR system, such as mediation, conciliation, arbitration, or any combination thereof as a means
of achieving speedy and efficient means of resolving cases pending before all courts in the Philippines which
shall be governed by such rules as the Supreme Court may approve from time to time. (Emphasis supplied)

Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as 1949
when our Civil Code was approved.77 Republic Act No. 87678 later explicitly recognized the validity and
enforceability of parties' decision to submit disputes and related issues to
arbitration.79chanroblesvirtuallawlibrary

Arbitration agreements are liberally construed in favor of proceeding to arbitration.80 We adopt the
interpretation that would render effective an arbitration clause if the terms of the agreement allow for such
interpretation.81 In LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc.,82
this court said:

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.83chanrobleslaw

This manner of interpreting arbitration clauses is made explicit in Section 25 of Republic Act No. 9285:

SEC. 25. Interpretation of the Act.-In interpreting the Act, the court shall have due regard to the policy of the
law in favor of arbitration. Where action is commenced by or against multiple parties, one or more of whom
are parties to an arbitration agreement, the court shall refer to arbitration those parties who are bound by the
arbitration agreement although the civil action may continue as to those who are not bound by such
arbitration agreement.

Hence, we resolve the issue of whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration
proceedings in light of the policy in favor of arbitration.

BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on the
assumption that DMCI-PDI was not a party to the agreement containing the arbitration clause.

Three documents — (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and (c)
Memorandum of Agreement — represent the agreement between BCDA, Northrail, and D.M. Consunji, Inc.
Among the three documents, only the Joint Venture Agreement contains the arbitration clause. DMCI-PDI
was allegedly not a party to the Joint Venture Agreement.

To determine the coverage of the arbitration clause, the relation among the three documents and DMCI-PDI's
involvement in the execution of these documents must first be understood.

The Joint Venture Agreement was executed by BCDA, PNR, and some foreign corporations.84 The purpose of
the Joint Venture Agreement was for the construction of a railroad system from Manila to Clark with a
80
possible extension to Subic Bay and later to San Fernando, La Union, Laoag, Ilocos Norte, and San Jose,
Nueva Ejica.85 Under the Joint Venture Agreement, BCDA agreed to incorporate Northrail, which shall have
an authorized capital stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall have a 30% equity with
Northrail.87 Other Filipino partners shall have a total of 50% equity, while foreign partners shall have at most
20% equity.88 Pertinent provisions of the Joint Venture Agreement are as follows:

JOINT VENTURE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Joint Venture Agreement (JVA) made and executed at Makati, Metro Manila, this__ day of June 1995 by
and between:

The BASES CONVERSION DEVELOPMENT AUTHORITY

. . . hereinafter referred to as BASECON;

The PHILIPPINE NATIONAL RAILWAYS ...;

The following corporations collectively referred to as the Foreign Group:

a) CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A... .;

b) ENTRECANALES Y TAVORA, SA . . .;

c) CUBIERTAS MZOV, S.A. . . .;

d) COBRA, S.A....; and

e) Others who may later participate in the JVA.chanRoblesvirtualLawlibrary

-and-

EUROMA DEVELOPMENT CORPORATION . . .

WITNESSETH:

....

WHEREAS, a project identified pursuant to the aforesaid policy is the establishment of a Premier
International Airport Complex located at the former Clark Air Base as expressed in Executive Order 174 s.
1994 in order to accommodate the expected heavy flow of passenger and cargo traffic to and from the
Philippines, to start the development of the Northern Luzon Grid and to accelerate the development of Central
Luzon and finally to decongest Metro Manila of its vehicular traffic;

WHEREAS, in order to implement and provide such a mass transit and access system, the parties hereto
agreed to construct a double-trac[k] railway system from Manila to Clark with a possible extension to Subic
Bay and later to San Fernando, La Union, as the second phase, and finally to Laoag, Ilocos Norte and to San
Jose, Nueva Ecija, as the third phase of the project, hereinafter referred to as the PROJECT;

ARTICLE I
DEFINITION OF TERMS

....

1.5 "PROJECT" means the construction, operation and management of a double-track railway system from
Manila to Clark with an extension to Subic Bay, and a possible extension to San Fernando, La Union, as the
second phase, and finally to Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the
PROJECT.

1.6 "North Luzon Railways Corporation (NORTHRAIL)["] means the joint venture corporation to be established
in accordance with Article II hereof.
. . . .chanRoblesvirtualLawlibrary

ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION

81
2.1 BASECON shall establish and incorporate in accordance with the laws of the Republic of the Philippines a
corporation to be known as NORTH LUZON RAILWAYS CORPORATION (NORTHRAIL) with an initial
capitalization of one hundred million pesos (PI 00,000,000.00).

2.2 NORTHRAIL shall eventually have an authorized capital stock of FIVE BILLION FIVE HUNDRED MILLION
PESOS (P 5.5 Billion) divided into 55,000,000 shares with par value of P 100 per share.
. . . .chanRoblesvirtualLawlibrary

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1 To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to develop,
construct, manage, own, lease, sublease and operate establishments and facilities of all kinds related to the
railroad system;
. . . .chanRoblesvirtualLawlibrary

ARTICLE IV

PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES

4.1 NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the parties to
this JVA in accordance with the following equity proportion/participation:

Foreign Group up to 20%

Euroma/Filipino partners 50%
BASECON/PNR 30%

....

4.4 The shares owned by Filipino stockholders including BASECON, PNR, EUROMA Development Corporation
and hereinafter to be owned by Filipino corporations shall not be less than sixty percent (60%) at any given
time.
. . . .chanRoblesvirtualLawlibrary

ARTICLE XVI

ARBITRATION

16. If any dispute arise hereunder which cannot be settled by mutual accord between the parties to such
dispute, then that dispute shall be referred to arbitration. The arbitration shall be held in whichever place the
parties to the dispute decide and failing mutual agreement as to a location within twenty-one (21) days after
the occurrence of the dispute, shall be held in Metro Manila and shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876) as supplemented by the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. All award of such arbitration shall be final and
binding upon the parties to the dispute.

ARTICLE XVII
ASSIGNMENT

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or except
as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and this Agreement.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assignees and designees or nominees whenever possible.89chanrobleslaw

The Joint Venture Agreement was amended on February 8, 199690 to include D.M. Consunji, Inc. and/or its
nominee as party.91 The participations of the parties in Northrail were also modified. Pertinent provisions of
the amended Joint Venture Agreement are reproduced as follows:

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and
executed at_____________ , Metro Manila, on this 8th day of February 1996 by and
among:chanRoblesvirtualLawlibrary

BASES CONVERSION DEVELOPMENT AUTHORITY . . . hereinafter referred to as BASECON;

82
with

PHILIPPINE NATIONAL RAILWAYS ...

and

The following corporations collectively referred to as the FOREIGN GROUP:

CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A.. . .;

ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, S.A. . . .;

COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and

Other investors who may later participate in the Joint Venture;chanRoblesvirtualLawlibrary

and

Other local investors to be represented by EUROMA DEVELOPMENT CORPORATION . . .

and

P.M. CONSUNJI. INC. and/or its nominee . . .

WITNESSETH THAT

WHEREAS, a Joint Venture Agreement (JVA) was executed on the 10th of June 1995 between BASECON,
PNR, FOREIGN GROUP, and EUROMA;
....

NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual covenant contained
therein, THE PARTIES HEREBY AGREE that the JVA should be amended as follows:

In Article 1.3, D.M. CONSUNJI, INC. shall be included as strategic partner, being one of the Philippine
registered companies selected by BASECON, PNR and the Lead Group on the basis of its qualifications for the
implementation of the Project.

Article 4.1 should read as follows:

"NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the Parties to this
JVA in accordance with the following equity proportion/participation:

SRG.............................................. up to 10%
DMCI..................................................... 20%
BASECON/PNR............................. up to 30%
Others..................................................... 40%

In Article 4.4, the Filipino corporations whose total shares in NORTHRAIL's capital stock, which should not be
less than sixty percent (60%) at any given time, shall include D.M. CONSUNJI, INC.93 (Underscoring
supplied)

On February 8, 1996, the same date of the execution of the amended Joint Venture Agreement, the same
parties executed a Memorandum of Agreement94 "to set up the mechanics for raising the seed capitalization
needed by NORTHRAIL[.]"95 Pertinent provisions of the Memorandum of Agreement are reproduced as
follows:

WITNESSETH THAT

WHEREAS, the Manila - Clark Rapid Railway System Project, hereinafter referred to as the Project, was
identified as one of the major infrastructure projects to accelerate the development of Central Luzon,
particularly the former U.S. bases at Clark and Subic;
....

WHEREAS, the North Luzon Railways Corporation (NORTHRAIL) was organized and incorporated to
implement the development, construction, operation and maintenance of the railway system in Northern
Luzon;

WHEREAS, NORTHRAIL is wholly owned and controlled by BASECON;

83
WHEREAS, the privatization of NORTHRAIL is necessary in order to accelerate the implementation of the
Project by tapping the financial resources and expertise of the private sector;
....

WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10 June 1995, namely BASECON, PNR,
SPANISH RAILWAY GROUP and EUROMA, agreed to invite other private investors to help in the financing and
implementation of the Project, and to raise the required equity in order to accelerate the privatization of
NORTHRAIL;

WHEREAS, DMCI and other private investors. . . have manifested their desire to be strategic partners in
implementing the Project;

WHEREAS, DMCI and other private investors have the financial capability to implement the Project;

WHEREAS, Phase I of the Project covers the Manila - Clark section of the North Luzon railway network as
defined by the JVA of 10 June 1995 . . .[;]
. . . .chanRoblesvirtualLawlibrary

ARTICLE I
PURPOSE

1.1 Purpose. This Agreement is entered into by the Parties in order to set up the mechanics for raising the
seed capitalization needed by NORTHRAIL to accelerate the implementation of the Project.
. . . .chanRoblesvirtualLawlibrary

ARTICLE II
TERMS OF AGREEMENT

....

2.1 The Parties agree to put up the necessary seed capitalization needed by NORTHRAIL to fast-track the
implementation of the Rapid Rail Transit System Project according to the following schedule:

BCDA/PNR...................... PHP 300 Million

DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....

2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and others are committed to be converted to equity
when NORTHRAIL is privatized.96chanroblesvirtuallawlibrary

There is no rule that a contract should be contained in a single document.97 A whole contract may be
contained in several documents that are consistent with one other.98chanroblesvirtuallawlibrary

Moreover, at any time during the lifetime of an agreement, circumstances may arise that may cause the
parties to change or add to the terms they previously agreed upon. Thus, amendments or supplements to the
agreement may be executed by contracting parties to address the circumstances or issues that arise while a
contract subsists.

When an agreement is amended, some provisions are changed. Certain parts or provisions may be added,
removed, or corrected. These changes may cause effects that are inconsistent with the wordings of the
contract before the changes were applied. In that case, the old provisions shall be deemed to have lost their
force and effect, while the changes shall be deemed to have taken effect. Provisions that are not affected by
the changes usually remain effective.

When a contract is supplemented, new provisions that are not inconsistent with the old provisions are added.
The nature, scope, and terms and conditions are expanded. In that case, the old and the new provisions form
part of the contract.

A reading of all the documents of agreement shows that they were executed by the same parties. Initially, the
Joint Venture Agreement was executed only by BCD A, PNR, and the foreign corporations. When the Joint
Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee, D.M. Consunji, Inc.
and/or its nominee were deemed to have been also a party to the original Joint Venture Agreement executed
by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its nominee became bound to the
terms of both the Joint Venture Agreement and its amendment.

Moreover, each document was executed to achieve the single purpose of implementing the railroad project,
such that documents of agreement succeeding the original Joint Venture Agreement merely amended or
supplemented the provisions of the original Joint Venture Agreement.

84
The first agreement — the Joint Venture Agreement — defined the project, its purposes, the parties, the
parties' equity participation, and their responsibilities. The second agreement — the amended Joint Venture
Agreement —- only changed the equity participation of the parties and included D.M. Consunji, Inc. and/or
its nominee as party to the railroad project. The third agreement — the Memorandum of Agreement — raised
the seed capitalization of Northrail from P100 million as indicated in the first agreement to P600 million, in
order to accelerate the implementation of the same project defined in the first agreement.

The Memorandum of Agreement is an implementation of the Joint Venture Agreement and the amended Joint
Venture Agreement. It could not exist without referring to the provisions of the original and amended Joint
Venture Agreements. It assumes a prior knowledge of its terms. Thus, it referred to "North Luzon railway
network as defined by the JVA of 10 June 1995[.]"99chanroblesvirtuallawlibrary

In other words, each document of agreement represents a step toward the implementation of the project, such
that the three agreements must be read together for a complete understanding of the parties' whole
agreement. The Joint Venture Agreement, the amended Joint Venture Agreement, and the Memorandum of
Agreement should be treated as one contract because they all form part of a whole agreement.

Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable only to
the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of or a
continuation of the Joint Venture Agreement. The arbitration clause should extend to all the agreements and
its parties since it is still consistent with all the terms and conditions of the amendments and
supplements.chanRoblesvirtualLawlibrary

II

BCDA and Northrail argued that they did not consent to D.M. Consunji, Inc.'s assignment of rights to DMCI-
PDI. Therefore, DMCI-PDI did not validly become a party to any of the agreement. Section 17.1 of the Joint
Venture Agreement provides that rights under the agreement may not be assigned, transferred, or conveyed
without the consent of the other party.100 Thus:

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or except
as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and the
Agreement.101chanroblesvirtuallawlibrary

However, Section 17.2 of the Joint Venture Agreement provides that the agreement shall be binding on
nominees:

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective
successors and permitted assignees and designees or nominees whenever applicable.102 (Emphasis supplied)

The principal parties to the agreement after its amendment include D.M. Consunji, Inc. and/or its nominee:

AMENDMENT TO THE JOINT VENTURE AGREEMENT

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and
executed at _____________ , Metro Manila, on this 8th day of February 1996 by and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . .

with

PHILIPPINE NATIONAL RAILWAYS . . .chanRoblesvirtualLawlibrary

and

....

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant to
the laws of the Republic of the Philippines . . .103 (Emphasis supplied)chanRoblesvirtualLawlibrary

MEMORANDUM OF AGREEMENT

This Agreement made and executed at Pasig, Metro Manila, Philippines on this 8[th] day of February 1996 by
and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . .chanRoblesvirtualLawlibrary

with

85
PHILIPPINE NATIONAL RAILWAYS ...chanRoblesvirtualLawlibrary

and

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant to
the laws of the Republic of the Philippines . . .104 (Emphasis supplied)

Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, 1997, D.M. Consunji, Inc. designated DMCI-
PDI as its nominee for the agreements it entered into in relation to the project:

[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating PDI as its nominee in both agreements and such other
agreements that may be signed by the parties in furtherance of or in connection with the PROJECT. By this
nomination, all the rights, obligations, warranties and commitments of DMCI under the JVA and MOA shall
henceforth be assumed performed and delivered by PDI.105 (Emphasis supplied)

Thus, lack of consent to the assignment is irrelevant because there was no assignment or transfer of rights to
DMCI-PDI. DMCI-PDI was D.M. Consunji, Inc.'s nominee.

Section 17.2 of the Joint Venture Agreement clearly shows an intent to treat assignment and nomination
differently.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective
successors and permitted assignees and designees or nominees whenever applicable.106 (Emphasis supplied)

Assignment involves the transfer of rights after the perfection of a contract. Nomination pertains to the act of
naming the party with whom it has a relationship of trust or agency.

In Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic,107 this court defined "nominee" as
follows:

In its most common signification, the term "nominee'' refers to one who is designated to act for another
usually in a limited way; a person in whose name a stock or bond certificate is registered but who is not the
actual owner thereof is considered a nominee." Corpus Juris Secundum describes a nominee as one:

". . . designated to act for another as his representative in a rather limited sense. It has no connotation,
however, other than that of acting for another, in representation of another or as the grantee of another. In its
commonly accepted meaning the term connoted the delegation of authority to the nominee in a representative
or nominal capacity only, and does not connote the transfer or assignment to the nominee of any property in,
or ownership of, the rights of the person nominating him."108 (Citations omitted)

Contrary to BCDA and Northrail's position, therefore, the agreement's prohibition against transfers,
conveyance, and assignment of rights without the consent of the other party does not apply to nomination.

DMCI-PDI is a party to all the agreements, including the arbitration agreement. It may, thus, invoke the
arbitration clause against all the parties.chanRoblesvirtualLawlibrary

III

Northrail, although not a signatory to the contracts, is also bound by the arbitration agreement.

In Lanuza v. BF Corporation,109 we recognized that there are instances when non-signatories to a contract
may be compelled to submit to arbitration.110 Among those instances is when a non-signatory is allowed to
invoke rights or obligations based on the contract.111chanroblesvirtuallawlibrary

The subject of BCDA and D.M. Consunji, Inc.'s agreement was the construction and operation of a railroad
system. Northrail was established pursuant to this agreement and its terms, and for the same purpose, thus:

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1. To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to
develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds related
to the railroad system[.]112chanrobleslaw

86
Northrail's capitalization and the composition of its subscribers are also subject to the provisions of the
original and amended Joint Venture Agreements, and the subsequent Memorandum of Agreement. It was
pursuant to the terms of these agreements that Northrail demanded from D.M. Consunji, Inc. the infusion of
its share in subscription.

Therefore, Northrail cannot deny understanding that its existence, purpose, rights, and obligations are tied to
the agreements. When Northrail demanded for the amount of D.M. Consunji, Inc.'s subscription based on the
agreements and later accepted the latter's funds, it proved that it was bound by the agreements' terms. It is
also deemed to have accepted the term that such funds shall be used for its privatization. It cannot choose to
demand the enforcement of some of its provisions if it is in its favor, and then later by whim, deny being
bound by its terms.

Hence, when BCDA and Northrail decided not to proceed with Northrail's privatization and the transfer of
subscriptions to D.M. Consunji, Inc., any obligation to return its supposed subscription attached not only to
BCDA as party to the agreement but primarily to Northrail as beneficiary that impliedly accepted the terms of
the agreement and received D.M. Consunji, Inc.'s funds.

There is, therefore, merit to DMCI-PDI's argument that if the Civil Code113 gives third party beneficiaries to a
contract the right to demand the contract's fulfillment in its favor, the reverse should also be true.114 A
beneficiary who communicated his or her acceptance to the terms of the agreement before its revocation may
be compelled to abide by the terms of an agreement, including the arbitration clause. In this case, Northrail is
deemed to have communicated its acceptance of the terms of the agreements when it accepted D.M. Consunji,
Inc.'s funds.

Finally, judicial efficiency and economy require a policy to avoid multiplicity of suits. As we said in Lanuza:

Moreover, in Heirs ofAugusto Salas, this court affirmed its policy against multiplicity of suits and unnecessary
delay. This court said that "to split the proceeding into arbitration for some parties and trial for other parties
would "result in multiplicity of suits, duplicitous procedure and unnecessary delay." This court also intimated
that the interest of justice would be best observed if it adjudicated rights in a single proceeding. While the
facts of that case prompted this court to direct the trial court to proceed to determine the issues of that case,
it did not prohibit courts from allowing the case to proceed to arbitration, when circumstances
warrant.115chanrobleslaw

WHEREFORE, the petitions are DENIED. The February 9, 2006 Regional Trial Court Decision and the June 9,
2006 Regional Trial Court Order are AFFIRMED.

SO ORDERED.cralawlawlibrary

87
G.R. No. 179732, September 13, 2017

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Petitioner, v. CMC/MONARK/PACIFIC/HI-TRI JOINT

VENTURE, Respondent.

DECISION

LEONEN, J.:

As the administrative agency tasked with resolving issues pertaining to the construction industry, the
Construction Industry Arbitration Commission enjoys a wide latitude in recognition of its technical expertise
and experience. Its factual findings are, thus, accorded respect and even finality, particularly when they are
affirmed by an appellate court.

This is a Petition for Review on Certiorari1 assailing the Court of Appeals Decision2 dated September 20,
2007 in CA-G.R. SP Nos. 88953 and 88911, which affirmed the March 1, 2005 Award of the Construction
Industry Arbitration Commission (CIAC).

On April 29, 1999, Republic of the Philippines, through the Department of Public Works and Highways
(DPWH), and CMC/Monark/Pacific/Hi-Tri J.V. (the Joint Venture) executed "Contract Agreement for the
Construction of Contract Package 6MI-9, Pagadian-Buug Section, Zamboanga del Sur, Sixth Road Project,
Road Improvement Component Loan No. 1473-PHI"3 (Contract) for a total contract amount of
P713,330,885.28.4

Parts I (General Conditions with forms of tender + agreement) and II (Conditions of Particular Application +
Guidelines for Preparation of Part II Clauses) of the "Conditions of Contract for Works of Civil Engineering
Construction of the Federation International Des Ingenieurs - Conseils" (Conditions of Contract) formed. part
of the Contract.5 DPWH hired BCEOM French Engineering Consultants to oversee the project.6

On October 23, 2002, or while the project was ongoing, the Joint Venture's truck and equipment were set on
fire. On March 11, 2003, a bomb exploded at Joint Venture's hatching plant located at Brgy. West Boyogan,
Kumalarang, Zamboanga del Sur. According to reports, the bombing incident was caused by members of the
Moro Islamic Liberation Front.7

The Joint Venture made several written demands for extension and payment of the foreign component of the
Contract. There were efforts between the parties to settle the unpaid Payment Certificates amounting to
P26,737,029.49. Thus, only the foreign component of US$358,227.95 was up for negotiations subject to
further reduction of the amount on account of payments subsequently received by the Joint Venture from
DPWH.8

In a letter dated September 18, 2003, BCEOM French Engineering Consultants recommended that DPWH
promptly pay the outstanding monies due the Joint Venture.9 The letter also stated that the actual volume of
the Joint Venture's accomplishment was "2,732m2 of hardrock and 4,444m3 of rippable rock," making the
project 80% complete when it was halted.10

On March 3, 2004, the Joint Venture filed a Complaint11 against DPWH before CIAC. Joint Venture' claims,
which amounted to P77,206,047.88, were as follows:
88
CLAIMANT'S CLAIM

Foreign component of the project of

(US$358,227.95 @Php34.90)
Php12,502,155.46

Interest as of December 3, 4003

(Computation for the damages & losses incurred:

Php10,297,090.42 + (US$118,[email protected])
Php14,418,603.47

Equipment and financial loses

5,080,000.00

Additional costs in the contract price under Clause 69.4

20,311,072.66

Adjustment in the contract price under Presidential Decree No. 1594

(9,313,402.91 in pesos and 266,859.68 in dollar)

18,626,805.81

Effect of the bomping incident

6,267,410.48

TOTAL CLAIMS
Php77,206,047.8812

Meanwhile, on July 8, 2004, the Joint Venture sent a "Notice of Mutual Termination of Contract",13 to DPWH
requesting for a mutual termination of the contract subject of the arbitration case. This is due to its
diminished financial capability due to DPWH's late payments, changes in the project involving payment terms,
peace and order problems, and previous agreement by the parties.

On July 16, 2004, then DPWH Acting Secretary Florante Soriquez accepted the Joint Venture's request for
mutual termination of the contract.14

After hearing and submission of the parties' respective memoranda,15 CIAC promulgated an Award16 on
March 1, 2005, directing DPWH to pay the Joint Venture its money claims plus legal interest. CIAC, however,
denied the Joint Venture's claim for price adjustment due to the delay in the issuance of a Notice to Proceed
under Presidential Decree No. 1594 or the "Policies, Guidelines, Rules, and Regulations for Government
Infrastructure Contracts."17 The dispositive portion of the Award read:
WHEREFORE, premises considered and in view of the resolution of the issues presented, an Award is hereby
rendered ordering the Respondent DPWH to pay the Claimant the following:

1. Foreign Component of US$358,227.95 plus legal interest of US$18,313.79;

2. Equipment and Plant Losses of P5,080,000, plus legal interest of P464,298.08;

3. Additional Costs resulting from the Bombing of P6,267,410.48 plus legal interest of P320,410.63, and

4. Additional Costs in the contract price under Clause 69.4 of P20,311,072.66 plus legal interest of
[P]1,038,368.78.

89
The claim of Claimant for adjustment under [Presidential Decree No.] 1594 of P18,626,805.81 is hereby
denied.

Pursuant to the case of Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78, the foregoing monetary
awards shall earn interest at the rate of 12% per annum from the date the Award becomes final and executor
until its satisfaction.

SO ORDERED.18
DPWH and the Joint Venture filed their respective petitions for review before the Court of Appeals.19

The Court of Appeals in its Decision20 dated September 20, 2007, sustained CIAC's Award with certain
modifications and remanded the case to CIAC for the determination of the number of days' extension that the
Joint Venture is entitled to and "the conversion rate in pesos of the awarded foreign exchange payments
stated."21

The Court of Appeals held that CIAC did not commit reversible error in not awarding the price adjustment
sought by the Joint Venture under Presidential Decree No. 1594 since it was the Asian Development Bank's
Guidelines on procurement that was applicable and not Presidential Decree No. 1594.22

The Court of Appeals also held that CIAC did not err in not awarding actual damages in the form of interest at
the rate of 24% since there was no provision for such interest payment in the Contract. However, the Court of
Appeals ruled that CIAC was correct when it awarded legal interest.23

The Court of Appeals sustained the Joint Venture's argument on the non-inclusion of a clear finding of its
entitlement to time extensions in the dispositive portion of the CIAC Award.24 The Court of Appeals held that
CIAC did not clearly dispose of the matter:
Yet, a close scrutiny of the foregoing disposition shows that it does not refer to the 133 days as per Variation
Order No. 2 since CIAC made mention that the project is already terminated and the entire volume under said
Order "will not be consumed". Whether or not the Claimant then deserves to get the full 133 calendar days is
a matter that has to be clearly resolved. On this, We hold that this Court is not prepared to engage into a
technical bout that only the expertise of the CIAC can pass upon.25
On the other hand, the Court of Appeals did not accept DPWH's argument that the case was already moot and
academic. According to the Court of Appeals, when the Joint Venture requested for the mutual termination of
the Contract on July 8, 2004, it did not waive its right to be paid the amounts due to it.26

The Court of Appeals, however, raised a concern with regard to CIAC's order for DPWH to pay its liabilities in
US dollars. It held that the parties have agreed that "all payments for works carried out after 31 May 2003
and related price escalation claims and retention releases in the contract will be in pesos only, therefore no
foreign exchange payments." This was never contested by the Joint Venture; hence, it may be presumed that
it acquiesced to the request of the DPWH.27

The dispositive portion of the Court of Appeals Decision read:

WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED with MODIFICATION to
include the award to the Claimant of time extensions per: 1) delay in payment at One Hundred Eight (108)
days, and 2) extension Twenty Nine (29) days due to peace and order situation.

Re 1) the award of time extension per Variation Order No. 2-as stated earlier elsewhere in the Decision, the
CIAC must make a vivid presentation of the number of calendar days the Claimant is entitled to, and 2) the
conversion rate in pesos of the awarded foreign exchange payments states, supra, in the assailed Decision,
these matters are hereby REMANDED to the CIAC for proper disposition. Accordingly, the rest of the
challenged Decision STANDS.

SO ORDERED.28 (Emphasis in the original)

Petitioner DPWH filed the present Petition for Review29 assailing the Court of Appeals Decision. In a
Resolution30 dated January. 28, 2008, this Court required respondent Joint Venture to file its Comment.

On March 27, 2008, respondent filed its comment/opposition.31 Petitioner thereafter filed its Reply32 on
September 3, 2008.

The issues for resolution in this case are:

First, whether or not the case has become moot and academic due to the parties' mutual termination of the
Construction Contract;

Second, whether or not the case is premature due to Joint Venture's non-compliance with the doctrine of
exhaustion of administrative remedies;

Third, whether or not the Joint Venture is entitled to the foreign component of the Project in the amount of
US$358,227.95;

90
Fourth, whether or not the Joint Venture is entitled to time extensions due to Variation Order No. 2, peace
and order problems, and delay in payment;

Fifth, whether or not the Joint Venture is entitled to a price adjustment due to the delay of the issuance of the
Notice of the Proceed;

Sixth, whether or not the Asian Development Bank Guidelines on Procurement or Presidential Decree 1594
applies with regard to once adjustments due to the delay of the issuance of the Notice to Proceed;

Seventh, whether or not the Joint Venture is entitled to its claim for equipment and financial losses due to
peace and order situation (additional costs);

Eighth, whether or not the Joint Venture is entitled to actual damages and interest on its claims; and

Finally, whether or not the Joint Venture should be paid in local currency or in U.S. dollars.

According to respondent Joint Venture, the Petition suffers from a fatal defect in its certification against non-
forum shopping. The verification and certification against non-forum shopping was signed only by petitioner's
counsel, Atty. Mary Jean D. Valderama, from the Office of the Solicitor General.33

This Court has long enforced the strict procedural requirement of verification and certification against non-
forum shopping.34 It is settled that certification against forum shopping must be executed by the party or
principal and not by counsel.35 In Anderson v. Ho,36 this Court explained that it is the party who is in the
best position to know whether he or she has filed a case before any courts.37 It is clear in this case that
counsel for petitioner, Atty. Valderama, was not clothed with authority to sign on petitioner's behalf.

In Resolution38 dated December 10, 2007, this Court noted petitioner's Manifestation that after the petition
was posted, the verification page signed by DPWH Secretary Hermogenes E. Ebdane was submitted to the
Office of the Solicitor General. In the same Resolution, this Court granted the Office of the Solicitor General's
motion to admit the attached verification and to substitute and attach it to the petition.

This Court ruled before that: "the lack of a certification against forum shopping, unlike that of verification, is
generally not cured by its submission after the filing of the petition."39 Nevertheless, exceptions40 exist, as in
the case at bar, and it is more prudent to resolve the case on its merits than dismiss it on purely technical
grounds.41

II

In the assailed Decision, the Court of Appeals held that the mutual termination of the Contract by the parties
did not render the case moot and academic.42 Accordingly, when respondent requested for the mutual
termination of the Contract, it did not waive its right to be paid the amounts due to it as shown in its letter:
In view of the above considerations, we hereby respectfully request for MUTUAL TERMINATION of our
Contract. Our availment of this remedy does not mean though that we are waiving our rights (1) to be paid for
any and all monetary benefits due and owing to us under the contract such as but not limited to payments for
works already done, materials delivered on site which are intended solely for the construction and completion
of the project, price escalation, etc., (2) and without prejudice to our outstanding claims and entitlements that
are lawfully due to us.43 (Emphasis supplied)
Petitioner argues that the Court of Appeals erred in rendering the assailed Decision, considering that the case
is already moot and academic. Petitioner insists that "the parties' mutual termination of their contract prior to
the adjudication of this case by the CIAC on March 1, 2005, rendered the proceedings before CIAC moot and
academic."44

According to petitioner, the principle of unjust enrichment does not apply in this case "because respondent
has incurred negative slippage/delay in carrying out their contractual obligations due to reasons attributable
to it. Moreover, the parties' mutual termination of the contract rendered the proceedings before the CIAC moot
because there was no more contract to be enforced."45

Petitioner's argument is untenable.

Indeed, the rule is that courts will not rule on moot cases.46 However, the moot and academic principle is
"not a magical formula that can automatically dissuade the courts in resolving a case."47 Exceptions exist
that would not prevent a court from taking cognizance of cases seemingly moot and academic.48

In Carpio v. Court of Appeals,49 this Court held that a case could not be deemed moot and academic when
there remains an unresolved justiciable controversy. In that case, this Court affirmed the Court of Appeals'
assailed resolutions, which denied petitioner's prayer for dismissal based on the argument that the Sheriff's
execution pending appeal of the trial court's decision rendered the case moot and academic. This Court held
that:

91
[I]t is obvious that there remains an unresolved justiciable controversy in the appealed case for accion
publiciana. In particular, did respondent-spouses Oria really encroach on the land of petitioner? If they did,
does he have the right to recover possession of the property? Furthermore, without preempting the disposition
of the case for accion publiciana pending before the CA, we note that if respondents built structures on the
subject land, and if they were builders in good faith, they would be entitled to appropriate rights under the
Civil Code. This Court merely points out that there are still issues that the CA needs to resolve in the
appealed case before it.

Moreover, there are also the questions of whether respondents should be made to pay back monthly rentals
for the alleged encroachment; and whether the reward of attorney's fees, which are also being questioned, was
proper. The pronouncements of the CA on these issues would certainly be of practical value to the parties.
After all, should it find that there was no encroachment, for instance, respondents would be entitled to
substantial relief. In view of all these considerations, it cannot be said that the main case has become moot
and academic.50 (Emphasis supplied.)
In this case, issues arising from the mutually terminated Contract are not moot and academic. As the Court
of Appeals found, there are actual substantial reliefs that respondent is entitled to. There is a practical use or
value to decide on the issues raised by the parties despite the mutual termination of the Contract between
them. These issues include the determination of amounts payable to respondent by virtue of the time
extensions, respondent's entitlement to price adjustments due to the delay of the issuance of the Notice to
Proceed, additional costs, actual damages, and interest on its claims. The agreement to mutually terminate
the Contract did not wipe out petitioner's obligation to pay respondent on works done before the Contract's
termination on October 27, 2004.

III

According to petitioner, the filing of the claim before CIAC was premature, since under CIAC rules, there must
be an exhaustion of administrative remedies first before government contracts are brought to it for
arbitration.51

Respondent, on the other hand, denies violating the rule on exhaustion of administrative remedies. It claims
that it sent at least 17 demand letters to petitioner, four (4) of which were sent to the DPWH Secretary
directly.52

Petitioner's argument fails to convince.

The case is not premature. The pertinent provision on available administrative remedies can be found in Sub-
Clause 67.1 of the Conditions of Contract:
Settlement of Disputes

Engineer's Decision 67.1 If a dispute of any kind whatsoever arises between the Employer and the Contractor
in connection with, or arising out of, the Contract or the execution of the Works, whether during the
execution of the Works or after their completion and whether before or after repudiation or other termination
of the Contract, including any dispute as to any opinion, instruction, determination, certificate or valuation of
the Engineer, the matter in dispute shall, in the first place, be referred in writing to the Engineer, with a copy
to the other party. Such reference shall state that it is made pursuant to this Clause. No later than the eighty-
-fourth day after the day on which he received such reference the Engineer shall give notice of his decision to
the Employer and the Contractor. Such decision shall state that it is made pursuant to this Clause.

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue
to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect
forthwith to every such decision of the Engineer unless and until the same shall be revised, as hereinafter
provided, in an amicable settlement or an arbitral award.

If either the Employer or the Contractor be dissatisfied with any decision of the Engineer, or if the Engineer
fails to give notice of his decision on or before the eighty-fourth day after the day on which he received the
reference, then either the Employer or the Contractor may, on or before the seventieth day after the day on
which he received notice of such decision, or on or before the seventieth day after the day on which the said
period of 84 days expired, as the case may be, give notice to the other party, with a copy for information to the
Engineer, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such
notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter
provided, as to such dispute and, subject to Sub-Clause 67.4, no arbitration in respect thereof may be
commenced unless such notice is given.

If the Engineer has given notice of his decision as to a matter in dispute to the Employer and the Contractor
and no notice of intention to commence arbitration as to such dispute has been given by either the Employer
or the Contractor on or before the seventieth day after the day on which the patties received notice as to such
decision from the Engineer, the said decision shall become final and binding upon the Employer and the
Contractor.53 (Emphasis supplied)
Under the doctrine of exhaustion of administrative remedies, the concerned administrative agency must be
given the opportunity to decide a matter within its jurisdiction before an action is brought before the courts,
otherwise, the action will be declared premature.54
92
In this case, CIAC found and correctly ruled that respondent had duly complied with the contractual
obligation to exhaust administrative remedies provided for under sub-clause 67.1 of the Conditions of
Contract before it brought the case before the tribunal:
The Claimant further alleged that, despite of such knowledge, no relief from the Secretary was forthcoming. It
would therefore be an exercise in futility if Claimant, after it had sent respondent the seventeen (17) demand
letters and despite the unequivocal admission by Respondent's foreign consultant in charge of the project of
respondent's liability and failure to pay (Annex C of the Complaint), will further be required to undergo
another series of presentation and exchange of documentation. Moreover, Respondent has not indicated any
practical benefit of resending the demand to the Secretary nor any prejudice for not doing so.

In this particular contract project, the procedural requirements governing the Settlement of Disputes is
specifically provided under Clause 67 of the Conditions of the Contract which Claimant has complied with
pursuant to the first paragraph of its letter dated September 10, 2004 (annex R) pertinent provisions thereof
is read, as follows:

"Pursuant to the provision of Clause 67.1 of the conditions of contracts, we are formally referring to your good
office several office several [sic] points of disagreement between the position you have taken and the position
we have argued for. These were already the subject of voluminous correspondence between your good self and
our company but no clear-cut resolution of the issues raised was ever made."

In the last paragraph of the letter on September 10, 2004 (Annex "R"), Claimant has requested Respondent for
a definitive ruling on the disputes which were enumerated therein so that Claimant could avail of the
remedies given to it by the aforesaid Clause 67.1. In spite of Claimant's request, respondent DPWH did not act
on the same.

The evidence also disclosed that as far as delayed payments are concerned, Claimant made various verbal and
written demands for payment as evidenced by Exhibits "E" to "E-16" or starting December 5, 2000. The
demands were not heeded.55
A total of 17 demand letters were sent to petitioner to no avail. To require respondent to wait for the DPWH
Secretary's response while respondent continued to suffer financially would be to condone petitioner's
avoidance of its obligations to respondent. Hence, even assuming that sub-clause 67.1 was not applicable, the
case would still fall within the exceptions to the doctrine of exhaustion of administrative remedies56 since
strict application of the doctrine will be set aside when requiring it would only be unreasonable under the
circumstances.57

IV

Petitioner avers that the Court of Appeals gravely erred in rendering the assailed decision because it
completely ignored, overlooked, or misappreciated facts of substance, which, if duly considered, would
materially affect the outcome of the case. Petitioner argues that the present case is an exception to the rule
that only questions of law may be raised in a Petition for Review under Rule 45 of the Rules of Court.58

Before delving into the issues raised, it is imperative to understand CIAC's role as the arbitral tribunal at the
center of this dispute.

CIAC was created under Executive Order No. 1008, or the "Construction Industry Arbitration Law." It was
originally under the administrative supervision of the Philippine Domestic Construction Board59 which, in
turn, was an implementing agency of the Construction Industry Authority of the Philippines.60 The
Construction Industry Authority of the Philippines is presently a part of the Department of Trade and
Industry as an attached agency.61

CIAC's specific purpose is the "early and expeditious settlement of disputes"62 in the construction industry as
a recognition of the industry's role in "the furtherance of national development goals."63

Section 4 of the Construction Industry Arbitration Law lays out CIAC's jurisdiction:
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
dispute arises before or after the completion of the contract, or after the abandonment or breach thereof.
These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties
to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines.
Republic Act No. 9184 or the "Government Procurement Reform Act," recognized CIAC's competence in
arbitrating over contractual disputes within the construction industry:

93
Section 59. Arbitration, Any and all disputes arising from the implementation of a contract covered by this Act
shall be submitted to arbitration in the Philippines according to the provisions of Republic Act No. 876,
otherwise known as the "Arbitration Law": Provided, however, That, disputes that are within the competence
of the Construction Industry Arbitration Commission to resolve shall be referred thereto. The process of
arbitration shall be incorporated as a provision in the contract that will be executed pursuant to the
provisions of this Act: Provided, That by mutual agreement, the parties may agree in writing to resort to
alternative modes of dispute resolution. (Emphasis supplied)
CIAC's authority to arbitrate construction disputes was then incorporated into the general statutory
framework on alternative dispute resolution through Republic Act No. 9285, the "Alternative Dispute
Resolution Act of 2004". Section 34 of Republic Act No. 9285 specifically referred to the Construction Industry
Arbitration Law, while Section 35 confirmed CIAC's jurisdiction:
CHAPTER 6 - ARBITRATION OF CONSTRUCTION DISPUTES

Section 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction disputes
shall be governed by Executive Order No. 1008, otherwise known as the Constitution Industry Arbitration
Law.

Section 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive
jurisdiction of the Construction Industry Arbitration Commission (the "Commission") shall include those
between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by
reference whether such parties are project owner, contractor, subcontractor, quantity surveyor, bondsman or
issuer of an insurance policy in a construction project.

The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes
although the arbitration is "commercial" pursuant to Section 21 of this Act.
As a general rule, findings of fact of CIAC, a quasi-judicial tribunal which has expertise on matters regarding
the construction industry, should be respected and upheld. In National Housing Authority v. First United
Constructors Corp.,64 this Court held that CIAC's factual findings, as affirmed by the Court of Appeals, will
not be overturned except as to the most compelling of reasons:
As this finding of fact by the CIAC was affirmed by the Court of Appeals, and it being apparent that the CIAC
arrived at said finding after a thorough consideration of the evidence presented by both parties, the same may
no longer be reviewed by this Court. The all too-familiar rule is that the Court will not, in a petition for review
on certiorari, entertain matters factual in nature, save for the most compelling and cogent reasons, like when
such factual findings were drawn from a vacuum or arbitrarily reached, or are grounded entirely on
speculation or conjectures, are conflicting or are premised on the supposed evidence and contradicted by the
evidence on record or when the inference made is manifestly mistaken or absurd. This conclusion is made
more compelling by the fact that the CIAC is a quasi-judicial body whose jurisdiction is confined to
construction disputes. Indeed, settled is the rule that findings of fact of administrative agencies and quasi-
judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are
generally accorded not only respect, but finality when affirmed by the Court of Appeals.65 (Emphasis
supplied)
In distinguishing between commercial arbitration, voluntary arbitration under Article 219(14) of the Labor
Code,66 and construction arbitration, Freuhauf Electronics Philippines Corporation v. Technology Electronics
Assembly and Management Pacific67 ruled that commercial arbitral tribunals are purely ad hoc bodies
operating through contractual consent, hence, they are not quasi-judicial agencies. In contrast, voluntary
arbitration under the Labor Code and construction arbitration derive their authority from statute in
recognition of the public interest inherent in their respective spheres. Furthermore, voluntary arbitration
under the Labor Code and construction arbitration exist independently of the will of the contracting parties:
Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective
Bargaining Agreements. These disputes were specifically excluded from the coverage of both the Arbitration
Law and the ADR Law.

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

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

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

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration Commission
(CIAC) - is also a government agency attached to the Department of Trade and Industry. Its jurisdiction is
likewise conferred by statute. By contrast, the subject- matter jurisdiction of commercial arbitrators is
stipulated by the.parties.68 (Emphasis supplied)
V

94
Petitioner argues that respondent is not entitled to US$358,227.95, as the foreign component of the Contract,
because it is not yet legally demandable.69 In declaring that petitioner should pay the amount as the foreign
component of the project, CIAC held that petitioner did not deny said amount in its answer and that
respondent's failure to renew its Letter of Credit does not justify petitioner's act in withholding the dollar
component of the project.70

Petitioner maintains that the delay in payment was due to the negative slippage incurred by respondent and
its failure to renew its Letter of Credit. Petitioner argues that under Clause 60.11 of the Conditions of the
Contract, Part II, an irrevocable standby letter of credit is required before petitioner can release the advance
payment.71 Petitioner states:
In this case, respondent does not deny that its LC No. OIDS-00022-00027-0 issued by the United Coconut
Planters Bank (UCPB) expired on October 15, 2003. Petitioner reminded respondent several times on the
imperative need for the renewal of its LC to avoid delay in the processing of its billing. The purpose of said LC
is to guarantee the return of the advance payment by petitioner to respondent.72
Hence, petitioner claims that respondent cannot compel the payment of the foreign component of the Contract
because it did not comply with the letter of credit requirement. Moreover, petitioner asserts that "In directing
petitioner to pay the said award to respondent without the latter posting the said letter of credit, the CIAC and
the Court of Appeals effectively amended the stipulation thereon in the contract which is legally
impermissible."73

For respondent's part, it argues that it was impossible to renew the Letter of Credit. It explained that banks
refused the renewal of the Letter of Credit since the original contract period had already expired and petitioner
did not act on respondent's requests for extension.74 In addition, evidence shows that "the main reason of the
non-payment of dollar component was due to unresolved issues, the right of way acquisition problem between
ADB and the [government], wherein ADB was forced to suspend the loan disbursement for the entire 6th Road
Improvement Project effective 01 June 2003 due to this conflict."75 Nevertheless, respondent admitted that
the mutual termination of the Contract rendered the requirement of a Letter of Credit for the release of the
$358,227.95 moot and academic.76

This Court affirms the findings of CIAC and the Court of Appeals that respondent is entitled to the foreign
component of the Contract.

CIAC found that petitioner was not justified in withholding the payment for the dollar component of the
Contract.77 Further, it found that respondent was justified and not at fault for not reviewing the Letter of
Credit. It held that:
The Arbitral Tribunal is persuaded that the main reason for the non-payment of the dollar component was
due to the unresolved issues (right of way acquisition) between the ADB and the Government of the
Philippines where the Loan Disbursement was suspended by ADB for the 61 Road Improvement Project
effective 01 June 2003 . . . The foreign Consultant even admonished Respondent DPWH and reiterated that it
should take prompt action to effect payment of outstanding monies due, and nothing was ever mentioned of
the failure to renew the Letter of Credit. (paragraph 3.2 of affidavit by Ferdinand Mariano)

Moreover, Claimant explained to the Respondent why the Letter of credit could not be renewed in its letter of
01 and 15 March 2004 (Exh. "C-16" and "C-17"). It appears that one of the bank's requirements for issuance
of the Letter of Credit was the approved time extension and the extension of the contract, but Respondent
refused to issue any document extending the contract.

On the other hand, the Respondent's justification was only based on its accounting requirement. It asserted
that the LC guaranteed the advance payment as well as the work completion. It further stated that the LC was
a requirement by the funding bank (By Subair S. Diron, paragraph 3.1.1 of Joint Affidavit by Heinz Reister,
Diron and Pandapatan)78 (Emphasis supplied)
In National Housing Authority v. First United Constructors Corp.,79 this Court held that the respondent
contractor was entitled to the payment of its claims, as the non-posting of the required Payment Guarantee
Bond was due to the inaction of petitioner National Housing Authority:
Petitioner's subsequent refusal to process and pay these claims despite FUCC's willingness to submit a surety
bond to secure the balance of the advance payment still to be recouped by NHA - as the parties had agreed
upon which bond would be submitted when the check payment for the claim is about to be released, clearly
constitutes a violation by NHA of FUCC's right to be paid these acknowledged and recognized claims. Thus,
respondent had an accrued cause of action against petitioner for these claims at the time it filed its
Complaint, the constitutive elements of which are clearly set forth therein.80 (Emphasis supplied)
In the present case, the renewal of the Letter of Credit hinged on the extension of the contract period. Despite
notice by respondent of the bank's requirement for the renewal of the Letter of Credit, petitioner chose to
ignore respondent's requests for time extensions. Therefore, petitioner cannot shift the blame to respondent
and claim that the Letter of Credit was a condition sine qua non for the payment of the dollar component of
the project.

VI

Petitioner also assails the findings of the Court of Appeals with regard to the time extensions respondent is
entitled to. Petitioner argues that both the CIAC and the Court of Appeals failed to consider the subsequent

95
payments made to respondent after the conclusion of the arbitration hearings. Thus, the tribunal's finding
that petitioner still owes respondent US$358,227.95 is factually erroneous.

Petitioner claims that "respondent failed to prove that it is entitled to the time extensions of: (1) 133 calendar
days in addition to the 144-calendar days previously agreed by the parties and (2) 108-calendar days due to
delayed payments."81

On the other hand, respondent argues that it is entitled to time extensions in addition to the 144 calendar
days granted to it under Variation Order No. 2.82 Respondent claims it is entitled to a total of 277 calendar
days based on the approved revised Project Evaluation Review Tracking- Critical Path Method (PERT-CPM)
diagram and S-Curve,83 As explained by witness Engr. Reyes, rock excavation requires special skills,
equipment, and explosives. These factors were not considered when the original contract schedule was
prepared.84

Respondent further claims that it is entitled to another time extension due to the delay in payment.
Respondent maintains that it infused more than double the 10% credit line amounting to P157,747,945.00.85
Respondent also claims that it had already mobilized working and state-of-the-art equipment.86

The DPWH Bureau of Construction evaluated respondent's request for time extension and recommended its
approval to the Secretary.87 However, the recommendation was withdrawn "on the pretext that said DPWH
guidelines for computation of time extension due to delayed payments [were] revised and modified."88

Respondent points out that petitioner, through Engr. Pierre Castelli, had acknowledged that the delayed
payment had greatly affected respondent's cash flow.89

Respondent likewise asserts that it is entitled to a time extension due to peace and order problems. Petitioner
did not object to respondent's entitlement to an extension due to the peace and order situation. Hence, the
only thing required is to determine the number of calendar days' extension respondent is entitled to based on
the circumstances.90

Chief Resident Engineer Andre Drockur of BCEOM French Engineering Consultant recommended a time
extension of 29 calendar days due to the peace and order situation. While respondent did not agree with the
consultant's recommendation, it still adopted such recommendation to expedite the computation of time
extension due to peace and order problems.91

According to CIAC, respondent was entitled to time extensions in addition to the 144-calendar day extension
agreed upon by the parties, as per Variation Order No. 2:
The Arbitral tribunal finds that the computation presented by the Claimant based form the approved revised
PERT/CPM and S-Curve is acceptable and the 277 calendar days should have been granted by the
Respondent or an additional of 133 calendar days. However, the project is now terminated. The actual
accomplishment as per letter of [Chief Resident Engineer] to DPWH dated September 18, 2003 shows that the
actual volume of accomplishment was only 2,732 m2 of hardrock an 4,444 m3 of rippable rock. Thus, the
entire volume under Change Order #2 [or Variation Order No. 2] will not be consumed as the work is no 80%
comp1ete[.]92
The Court of Appeals affirmed that respondent was entitled to a 133-day time extension in addition to the 144
calendar days under Variation Order No. 2.93 However, the Court of Appeals noted that CIAC did not specify
whether respondent was entitled to the full 133 days' extension, considering that it found that the entire
volume in Variation Order No. 2 will not be fully used up due to respondent's 80% accomplishment.94

CIAC also held that respondent was entitled to a time extension of 108 calendar days due to petitioner's
delayed payments95 and another time extension of 29 calendar days due to the peace and order situation in
the project area.96

This Court sees no reason to deviate from the findings of both CIAC and the Court of Appeals with regard to
respondent's entitlement to time extensions: 1) under Variation Order No. 2; 2) due to the delay in payment;
and 3) due to the peace and order situation, since these are supported by the evidence on record.

To reiterate, findings of fact of administrative agencies and quasi--judicial bodies are entitled to great respect
and even finality when affirmed by the appellate court,97 In this case, the Court of Appeals found that
respondent was entitled to the time extensions as evaluated by CIAC, the agency tasked to resolve issues
regarding the construction industry. Both tribunal found that respondent was entitled to the extensions due
to petitioners delayed payments, peace and order situation, and Variation Order No. 2. These findings are
clearly supported by the facts on record.

However, in light of the mutual termination of the Contract, the remand of the case to CIAC will serve no
practical purpose and is, therefore, unnecessary.

VII

According to respondent the delay in the issuance of the Notice to Proceed entitles it to a price adjustment
under Presidential Decree No. 1594. Bidding was conducted in January 1998 and respondent was declared
96
the winning bidder. The Contract was signed on April 29, 1999. However, the Notice to Proceed was issued on
May 5, 1999, or after a delay of more than 120 days from the bidding date, which entitles the bidder to an
adjustment in the contract unit price under Presidential Decree No. 1594.98

On the other hand, petitioner claims that respondent did not question the findings of the Court of Appeals
regarding price adjustment and claim for actual damages. Hence, it should not be allowed to assail the Court
of Appeals' ruling on this issue before this Court.99

Both CIAC and the Court of Appeals found that respondent was not entitled to a price adjustment:
As to the first issue raised by the Claimant, this Court finds that the CIAC committed no reversible error in
not awarding the price adjustment being sought by the Claimant under P.D. 1594, finding as flawed its claim
based on the alleged DPWH's delay in the issuance of the notice to proceed.

We quote with approval the pertinent ratiocination of the CIAC on this point, thus:
....

However, the Claimant is not entitled to a price adjustment under P.D. 1594 because it is the ADB
Guideline[s] on Procurement which should be followed, and not the provisions on P.D. 1594. In fact the bid of
the Contractor was awarded despite its being above the approved Agency Estimates (AAE), based on the ADB
guidelines, and against the provisions of P.D. 1594 (paragraph 7.2 of Joint Affidavit by Heinz Reister, Diron
and Pandapatan).

The Arbitral Tribunal finds that the Guidelines of the Asian Development Bank govern this subject Project.
Moreover, P.D. 1594 honors the treaties and international or executive agreements to which the Philippine
Government is a signatory. Loan agreements such as those entered into with international funding
institutions like ADB are considered to be within the ambit of DOJ opinion No. 46, S. 1987 and are therefore
exempt from the application of P.D. No. 1594 as amended (Paragraph 7.1.1 of Joint Affidavit by Heinz Reister,
Diron and Pandapatan).

....
If the Claimant's bid was awarded despite its being above the approved Agency Estimates based on the ADB
guidelines, and against the provisions of P.D. 1594, We cannot see the rationale on why the Claimant now
refuses to abide by the ADB guidelines on procurement. After the claimant was benefited by the approved bid
at the inception of the project, We hold that it is unjustified for the Claimant not to be bound by the ADB
guidelines under the pretext that it fails to get the supposed price adjustment.100 (Emphasis supplied)
While respondent did not appeal the Court of Appeals' ruling with regard to its entitlement to a price
adjustment under Presidential Decree No. 1594, for purposes of clarity and to finally settle the matter, this
Court affirms the findings of CIAC and the Court of Appeals.

This Court has held that a foreign loan agreement with international financial institutions, such as a
multilateral lending agency organized by governments like the Asian Development Bank, is an executive or
international agreement contemplated by our government procurement system.101

In Abaya v. Ebdane, Jr.,102 this Court upheld the applicability of the Japan Bank for International
Cooperation's Procurement Guidelines to the implementation of the projects to be undertaken pursuant to the
loan agreement between the Republic of the Philippines and Japan Bank for International Cooperation.103

While the Implementing Rules and Regulations104 of Presidential Decree No. 1594 provide the formula for
price adjustment in case of delay in the issuance of a notice to proceed, the law does not proscribe parties
from making certain contractual stipulations. In this case, the Construction Contract is clear that in case of
price adjustments, Clause 70 of the Conditions of Contract will apply:
3. That computation and payment of contract prices adjustment will be applied in accordance with Clause 70
of the Conditions of Contract;105
It is unclear from the records, however, whether the Asian Development Bank Guidelines was substantially
the same as Clause 70 of the Conditions of Contract. Nevertheless, as in the Abaya case, it should be the
guidelines that the parties have agreed upon, i.e., the Asian Development Bank Guidelines, that should
govern in case of issues arising from the contract. Respondent failed to proffer evidence on what the Asian
Development Bank Guidelines provide, if any, in the event of a delay in the issuance of a Notice to Proceed.

VIII

Petitioner argues that "CIAC and the Court of Appeals grossly erred in awarding P5,080,000.00, plus legal
interest of P464,298.08 for the alleged equipment and financial losses; and additional cost resulting from the
alleged bombing incident of P6,267,410.48, plus legal interest of P320,410.63."106

Furthermore, petitioner asserts that "the award to respondent of additional costs in the contract price under
Clause 69.4 of the General Conditions of the Contract in the amount of P20,311,072.66, plus legal interest of
P1,038,368.78 is improper."107 Petitioner maintains that the award to respondent of additional costs in the
contract price under Clause 69.4 of the General Conditions of Contract was baseless, since the Engineer had
not yet consulted with the parties to determine the amount of additional costs.108

97
In contrast, respondent claims that it is entitled to equipment and financial losses due to the peace and order
situation.109

Petitioner's arguments are untenable.

It has been sufficiently established that a peace and order problem arose at the project site:
The Arbitral Tribunal was persuaded by the fact that six (6) named persons and four (4) John Does were
accused of Destructive Arson in the Municipal Circuit Trial Court of Dumalinao Zamboanga del Sur for
feloniously setting on fire simultaneously one (1) unit of Kumatsu Payloader amounting to Php3,000,000.00
and one (1) unit Isuzu 10 Wheeler Dump Truck amounting to Php800,000.00, both belonging to the
Claimant. The accused are believed NP's with motives of hatred due to vain collection of revolutionary taxes
from Claimant (Exh. "C-5").

The burning of the Payloader and Dump Truck, subject of the criminal case (Exh. "C-5'') was corroborated in
its entirety by the testimony of Pedrito G. Palancos, operator of the burnt Payloader in his affidavit, paragraph
6.6 to 6.9, part of the records of this case.

The Chief of Police of Kumalarang, Zamboanga del Sur submitted a Special Written Report to the PNP
Provincial Director, regarding the bombing at Claimant's hatching plant in Boyugan, Kumalarang, del Sur on
11 March 2003.

The bombing incident revealed that it resulted in conflagration causing damage to the Generator Set,
Caterpillar Brand KVA 180-180 and the Conveyor, with total estimated cost of Php7,300,000.00.

Intelligence Action Agent gathered information that MILF Members, all armed with undetermined numbers,
but believed to be under Commander Susob Edris, were sighted by the barangay officials and the neighbor of
the Plant location, when the incident occurred. (Exh. "C-9").

The two incidents described above, one costing approximately Php3,800,000.00 and the other costing
approximately Php7,300,000.00, will have a total of approximately Php11,100,000.00 or Php11,347,410.48 to
be exact. This is the amount that Claimant is entitled due to the peace and order situation at the Project
site.110
This Court finds that CIAC and the Court of Appeals did not err when they found that respondent was entitled
to its claim for equipment and financial losses. The situation was an assumed risk of petitioner as employer
and is, thus, compensable under Clause 20.4 of the Conditions of Contract, which lists the Employer's risks
as:
(a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

(b) rebellion, revolution, insurrection, or military or usurped power, or civil war,

(c) ionising radiations, or contamination by radio-activity from any nuclear fuel, or from any nuclear waste
from the combustion of nuclear fuel, radio- active toxic explosive, or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof,

(d) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds,

(e) riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his
Subcontractors and arising from the conduct of the Works,

(f) loss or damage due to the use or occupation by the Employer of any Section or part of the Permanent
Works, except as may be provided for in the Contract,

(g) loss or damage to the extent that it is due to the design of the Works, other any part of the design provided
by the Contractor or for which the Contractor is responsible,

(h) any operation of the forces of nature against which an experienced contractor could not reasonably have
been expected to take precautions.111 (Emphasis supplied)
It is clear from the above provision that the assumed risks of the employer under Clause 20.4 of the
Conditions of Contract include rebellion, revolution, insurrection, or military or usurped power, or civil war.

Petitioner further insists that respondent is not yet entitled to the claim because there is no determination by
the Engineer of the costs incurred, as required under Clause 69.4 of the Conditions of Contract.112

In its Answer before CIAC, petitioner denied respondent's claims for additional costs under Clause 69.4.
Petitioner stated that its denial will be explained more specifically in its Affirmative Defenses:
6. DENIES the allegations in paragraphs 12, 13, 14, 15 and 16 of the complaint for being preposterous,
misleading and patently without legal and factual basis, the truth being that as per the Conditions of
Contract, complainant is not entitled to the payment of additional cost on slowdown or suspension of work on
the project, reimbursement for alleged equipment losses and additional time extensions to complete the
project specifically stated/discussed in the Affirmative Defenses hereof.113 (Emphasis supplied)
However, a perusal of petitioner's Affirmative Defenses reveals that no such qualification was made.
98
Under Rule 8, Section 10 of the Rules of Court, the "defendant must specify each material allegation of fact
the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters
upon which he relies to support his denial." There are three (3) modes of specific denial provided for under the
Rules:
1) by specifying each material allegation of the fact in the complaint, the truth of which the defendant does
not admit, and whenever practicable, setting forth the substance of the matters which he will rely upon to
support his denial; (2) by specifying so much of an averment in the complaint as is true and material and
denying only the remainder; (3) by stating that the defendant is without knowledge or information sufficient to
form a belief as to the truth of a material averment in the complaint, which has the effect of a denial.114
In Aquintey v. Spouses Tibong,115 this Court held that using "specifically" in a general denial does not
automatically convert that general denial to a specific one. The denial in the answer must be definite as to
what is admitted and what is denied, such that the adverse party will not have to resort to guesswork over
"what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a
belief."116

The petitioner only tackled the issue on the claim for additional costs in the Joint Affidavit of petitioner's
witnesses Heinz Reister, Subair S. Diron, and Abdulfatak A. Pandapatan:
Issue No. 9. Is claimant entitled to additional cost under Clause 69.4 of the General Conditions of Contract? If
so, how much?

Subair S. Diron and Abdulfatak A. Pandapatan testifying:

9.1
Q: Is claimant entitled to additional cost/charges under Clause 69.4 of the General Conditions of Contract?
A: Not yet, the claimant should establish that it is allowed.117
This Court finds that petitioner failed to specifically deny the claims of respondent and had, therefore,
admitted such claims. This Court agrees that respondent was able to establish its claims before the CIAC.
This Court notes that the project was in Mindanao, and mobilization of workers and equipment is not an easy
feat and not without cost. Respondent believed that the suspension would only be temporary and work could
resume at any time once petitioner settled its obligation. Petitioner must compensate respondent for the costs
it incurred without any fault on respondent's part.

IX

During the arbitration hearing before the CIAC, respondent itself admitted that there was no provision in the
Conditions of Contract for interest at the rate of 24% per annum on delayed payments.118

Respondent tries to excuse the lack of contractual stipulations by claiming that the amount of 24% interest is
payment for actual damages and not stipulated interest.119

Respondent claims that petitioner is liable for the amounts respondent owes its creditors in the total amounts
of P10,297,090.42 and USD$118,094.93. In addition, respondent avers that petitioner should pay it 6%
interest per annum computed from the receipt of the first demand letter for payment sent by respondent, as a
result of delay in the payment for work accomplished.120

The Court is not convinced.

It is fundamental that a contract is the law between the parties and, absent any showing that its provisions
are wholly or in part contrary to law, morals, good customs, public order, or public policy, it shall be enforced
to the letter by the courts.121

Respondent was not able to establish the basis of its claim that it is entitled to an award of 24% interest.
Moreover, as found by the Court of Appeals and CIAC, the parties had agreed to delete the provision on
interest on delayed payments, since the project was funded by the Asian Development Bank.122

There is also no basis to award respondent 24% interest as actual damages for the additional expenses it
incurred due to petitioner's delayed payments.

Before actual damages may be awarded, it is imperative that the claimant proves its claims first. The issue on
the amount of actual or compensatory damages is a question of fact,123 and except as provided by law or by
stipulation, one is entitled to adequate compensation only for pecuniary loss duly proven.124

In this case, respondent has not sufficiently shown how awarding it 24% interest per annum on delayed
payments corresponds to the actual damages it allegedly suffered. Respondent failed to show a causal relation
between the alleged losses and the injury it suffered from petitioner's actions.

Respondent claims that it should be paid in U.S. dollars as specified in the Contract.125 It argues that the
present case is an exception to the general rule that obligations should be paid in Philippine currency.126
99
The Court of Appeals held that the parties subsequently agreed that payments made after March 31, 2003
shall be in pesos only:

However, one aspect in the CIAC decision is shrouded with cloud. This concerns CIAC's order to DPWH to pay
its alleged liability to the Claimant in US dollars. It is worthy to note that aside from the agreement of the
parties - particularly in paragraph 5 of the contract, supra, to fix the exchange rate at P34.9 for every
US$1.00, the Claimant itself has acknowledged in its request that it was advised by the DPWH per its letter
dated 13 August 2003 that all payments for works earned out after 31 March 2003 and related price
escalation claims and retention releases in the contract will be in pesos only, therefore no foreign exchange
payments. This fact was never contested by the Claimant thereby creating a presumption that it has
acquiesced to the request of the DPWH. Thus, We cannot see Our way through on why the CIAC has still to
make a ruling on the Interest Computation of Delayed Payment at 6% Per Annum at US$45,206.14 as well as
the Foreign Component of US$358,227.95 plus legal interest at US$18.313.79 citing the exemption of
transactions where the funds involved are the proceeds of loans or investments made through bona fide
intermediaries or agents, by foreign government and banking institutions such as the Asian Development
Bank (ADB) from the coverage of Republic Act 529 otherwise known a[s] "An Act to Assure Uniform Value to
Philippine Coin and Currency". Worse, there was no mention about the subsequent notice by the DPWH to
the Claimant, supra about their subseq ent understanding on "no foreign exchange payments". This is indeed
one dubious area that nt, eds to he darified by no less than the CIAC itself.e DPWH to the Claimant, supra
about their subsequent understanding on "no foreign exchange payments". This is indeed one dubious area
that needs to be clarified by no less than the CIAC itself.127 (Emphasis supplied)

Again, considering that respondent did not appeal the Court of Appeals decision, the appellate court's ruling
on this issue is deemed final as to respondent, and there is no need to remand this issue to the CIAC. Issues
not raised on appeal are already final and cannot be disturbed.128

XI

CIAC imposed legal interest in its Award as follows:

In view of the foregoing, the Claimant is entitled to payment of legal interest of 6% per annum from the receipt
of its extrajudicial demand.

Thus, under Issue No. 3 where the Claimant was awarded US$358,227.95, the Claimant is entitled to legal
interest of 6% per annum commencing from 2 March 2004 up to this date (or 311 days) in the amount of
US$18,313.79.

Under Issue No. 8 where the Claimant was awarded P11,347,410.48, the Claimant is entitled to legal interest
of 6% per annum for the Equipment and Plant of P5,080,000.00 commencing from 1 July 2003 (or 556 days)
in, the amount of P464,298.08 and for the resulting Additional Expenses of P6,267,410.48 commencing from
2 March 2004 (or 311 days) in the amount of P320,410.63.

Under Issue No. 9 where the Claimant was awarded P20,311,072.66, the Claimant is entitled to legal interest
of 6% per annum for Additional Cost under 69.4 of the Conditions of Contract commencing from 2 March
2004 (or 311 days) in the amount of P1,038,368.78.

Under Issue No. 10 with respect to the delayed payment of billings for various amounts and on various dates,
the Claimant is entitled to legal interest of 6% per annum as detailed in Attachment 1, in the amount of
US$45,206.14 and P2,175,516.63.

However, pursuant to the Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78 (1994), a monetary
award shall earn interest at the rate of 12% per annum from the date when the award becomes final and
executory until its satisfaction.129
On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas issued Resolution No. 796, which
revised the interest rate to be imposed on the loan or forbearance of any money, goods, or credits. This was
implemented in Bangko Sentral ng Pilipinas Circular No.799130 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing
the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No.
905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per
annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 43058.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.

This Circular shall take effect on 1 July 2013.

Nacar v. Gallery Frames131 then laid down the guidelines for the imposition of legal interest:
100
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi--contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not
be disturbed and shall continue to be implemented applying the rate of interest fixed therein.132
Before Nacar and Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 dated May 16, 2013, the
rate of legal interest was pegged at 12% per annurn from finality of judgment until its satisfaction, "this
interim period being deemed to be by then an equivalent to a forbearance of credit."133

With this Court's pronouncement in Nacar, the rate of interest imposed should be modified. The monetary
awards, as computed by the CIAC, should earn legal interest at the rate of 12% per annum until June 30,
2013, after which, it shall earn legal interest at the rate of 6% per annum until full satisfaction.

The other issues raised by the parties were no longer discussed due to the mutual termination of the Contract
by parties, which rendered them moot and academic.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated September 20, 2007 in CA-G.R.
SP Nos. 88953 and 88911 is AFFIRMED with MODIFICATION as follows: (1) that the order remanding the
case to the Construction Industry Arbitration Commission for proper disposition is REVERSED for being moot
and academic; and (2) that the legal interest rate is pegged at twelve percent (12%) per annum until June 30,
2013, and then at six percent (6%) per annum until full satisfaction.

SO ORDERED.

101
[ G.R. No. 192725, August 09, 2017 ]

CE CONSTRUCTION CORPORATION, PETITIONER, VS. ARANETA CENTER INC., RESPONDENT.

DECISION

LEONEN, J.:
A tribunal confronted not only with ambiguous contractual terms but also with the total absence of an
instrument which definitively articulates the contracting parties' agreement does not act in excess of
jurisdiction when it employs aids in interpretation, such as those articulated in Articles 1370 to 1379 of the
Civil Code. In so doing, a tribunal does not conjure its own contractual terms and force them upon the
parties.

In addressing an iniquitous predicament of a contractor that actually renders services but remains
inadequately compensated, arbitral tribunals of the Construction Industry Arbitration Commission (CIAC)
enjoy a wide latitude consistent with their technical expertise and the arbitral process' inherent inclination to
afford the most exhaustive means for dispute resolution. When their awards become the subject of judicial
review, courts must defer to the factual findings borne by arbitral tribunals' technical expertise and
irreplaceable experience of presiding over the arbitral process. Exceptions may be availing but only in
instances when the integrity of the arbitral tribunal itself has been put in jeopardy. These grounds are more
exceptional than those which are regularly sanctioned in Rule 45 petitions.

This resolves a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure, praying
that the assailed April 28, 2008 Decision[2] and July 1, 2010 Amended Decision [3] of the Court of Appeals in
CA-G.R. SP No. 96834 be reversed and set aside. It likewise prays that the October 25, 2006 Decision [4] of the
CIAC Arbitral Tribunal be reinstated.

The CIAC Arbitral Tribunal October 25, 2006 Decision awarded a total sum of P217,428,155.75 in favor of
petitioner CE Construction Corporation (CECON). This sum represented adjustments in unit costs plus
interest, variance in take-out costs, change orders, time extensions, attendance fees, contractor-supplied
equipment, and costs of arbitration. This amount was net of the countervailing awards in favor of respondent
Araneta Center, Inc. (ACI), for defective and incomplete works, permits, licenses and other advances.[5]

The assailed Court of Appeals April 28, 2008 Decision modified the CIAC Arbitral Tribunal October 25, 2006
Decision by awarding a net amount of P82,758,358.80 in favor of CECON. [6] The Court of Appeals July 1,
2010 Amended Decision adjusted this amount to P93,896,335.71.[7]

Petitioner CECON was a construction contractor, which, for more than 25 years, had been doing business
with respondent ACI, the developer of Araneta Center, Cubao, Quezon City. [8]

In June 2002, ACI sent invitations to different construction companies, including CECON, for them to bid on
a project identified as "Package #4 Structure/Mechanical, Electrical, and Plumbing/Finishes (excluding Part A
Substructure)," a part of its redevelopment plan for Araneta Center Complex. [9] The project would eventually
be the Gateway Mall. As described by ACI, "[t]he Project involved the design, coordination, construction and
completion of all architectural and structural portions of Part B of the Works[;] and the construction of the
architectural and structural portions of Part A of the Works known as Package 4 of the Araneta Center
Redevelopment Project."[10]

As part of its invitation to prospective contractors, ACI furnished bidders with Tender Documents, consisting
of:

Volume I: Tender Invitation, Project Description, Instructions to Tenderers, Form of Tender, Dayworks,
Preliminaries and General Requirements, and Conditions of Contract;

Volume II: Technical Specifications for the Architectural, Structural, Mechanical, Plumbing, Fire Protection
and Electrical Works; and

Addenda Nos. 1, 2, 3, and 4 relating to modifications to portions of the Tender Documents. [11]

The Tender Documents described the project's contract sum to be a "lump sum" or "lump sum fixed price"
and restricted cost adjustments, as follows:

102
6 TYPE OF CONTRACT

This is a Lump Sum Contract and the price is a fixed price not subject to measurement or recalculation
should the actual quantities of work and materials differ from any estimate available at the time of
contracting, except in regard to Cost-Bearing Changes which may be ordered by the Owner which shall
6.1
be valued under the terms of the Contract in accordance with the Schedule of Rates, and with regard to
the Value Engineering Proposals under Clause 27. The Contract Sum shall not be adjusted for changes
in the cost of labour, materials or other matters.[12]

TENDER AND CONTRACT

Fixed Price Contract

1. The Contract Sum payable to the Contactor is a Lump Sum Fixed Price and will not be subject to
adjustment, save only where expressly provided for within the Contract Documents and the Form of
Agreement.

2. The Contract Sum shall not be subject to any adjustment "in respect of rise and fall in the cost of
materials[,] labor, plant, equipment, exchange rates or any other matters affecting the cost of
execution of Contract, save only where expressly provided for within the Contract Documents or the
Form of Agreement.

3. The Contract Sum shall further not be subject to any change in subsequent legislation, which causes
additional or reduced costs to the Contractor.[13]

The bidders' proposals for the project were submitted on August 30, 2002. These were based on "design and
construct" bidding.[14]

CECON submitted its bid, indicating a tender amount of P1,449,089,174.00. This amount was inclusive of
"both the act of designing the building and executing its construction." Its bid and tender were based on
schematic drawings, i.e., conceptual designs and suppositions culled from ACI's Tender Documents. CECON's
proposal "specifically stated that its bid was valid for only ninety (90) days, or only until 29 November 2002."
This tender proposed a total of 400 days, or until January 10, 2004, for the implementation and completion of
the project.[15]

CECON offered the lowest tender amount. However, ACI did not award the project to any bidder, even as the
validity of CECON's proposal lapsed on November 29, 2002. ACI only subsequently informed CECON that the
contract was being awarded to it. ACI elected to inform CECON verbally and not in writing.[16]

In a phone call on December 7, 2002, ACI instructed CECON to proceed with excavation works on the project.
ACI, however, was unable to deliver to CECON the entire project site. Only half, identified as the Malvar-to-
Roxas portion, was immediately available. The other half, identified as the Roxas to-Coliseum portion, was
delivered only about five (5) months later.[17]

As the details of the project had yet to be finalized, ACI and CECON pursued further negotiations. ACI and
CECON subsequently agreed to include in the project the construction of an office tower atop the portion
identified as Part A of the project. This escalated CECON's project cost to P1,582,810,525.00. [18]

After further negotiations, the project cost was again adjusted to P1,613,615,244.00. Still later, CECON
extended to ACI a P73,615,244.00 discount, thereby"reducing its offered project cost to P1,540,000.00. [19]

Despite these developments, ACI still failed to formally award the project to CECON. The parties had yet to
execute a formal contract. This prompted CECON to write a letter to ACI, dated December 27,
2002,[20] emphasizing that the project cost quoted to ACI was "based upon the prices prevailing at December
26, 2002" price levels.[21]

By January 2003 and with the project yet to be formally awarded, the prices of steel products had increased
by 5% and of cement by P5.00 per bag. On January 8, 2003, CECON again wrote ACI notifying it of these
increasing costs and specifically stating that further delays may affect the contract sum.[22]

Still without a formal award, CECON again wrote to ACI on January 21, 2003 [23] indicating cost and time
adjustments to its original proposal. Specifically, it referred to an 11.52% increase for the cost of steel
products, totalling P24,921,418.00 for the project; a P5.00 increase per bag of cement, totalling
P3,698,540.00 for the project; and costs incurred because of changes to the project's structural framing,
totalling P26,011,460.00. The contract sum, therefore, needed to be increased to P1,594,631,418.00. CECON
also specifically stated that its tender relating to these adjusted prices were valid only until January 31, 2003,
as further price changes may be forthcoming. CECON emphasized that its steel supplier had actually already
advised it of a forthcoming 10% increase in steel prices by the first week of February 2003. CECON further
impressed upon ACI the need to adjust the 400 days allotted for the completion of the project. [24]

103
On February 4, 2003, ACI delivered to CECON the initial tranche of its down payment for the project. By then,
prices of steel had been noted to have increased by 24% from December 2002 prices. This increase was
validated by ACI.[25]

Subsequently, ACI informed CECON that it was taking upon itself the design component of the project,
removing from CECON's scope of work the task of coming up with designs. [26]

On June 2, 2003, ACI finally wrote a letter [27] to CECON indicating its acceptance of CECON's August 30,
2002 tender for an adjusted contract sum of P1,540,000.00 only:

Araneta Center, Inc. (ACI) hereby accepts the C-E Construction Corporation (CEC) tender dated August 30,
2002, submitted to ACI in the adjusted sum of One Billion Five Hundred Forty Million Pesos Only
(P1,540,000,000.00), which sum includes all additionally quoted and accepted items within this acceptance
letter and attachments, Appendix A, consisting of one (1) page, and Appendix B, consisting of seven (7) pages
plus attachments, which sum of One Billion Five Hundred Forty Million Pesos Only (P1,540,000,000.00) is
inclusive of any Government Customs Duty and Taxes including Value Added Tax (VAT) and Expanded Value
Added Tax (EVAD, and which sum is hereinafter referred to as the Contract Sum. [28]
Item 4, Appendix B of this acceptance letter explicitly recognized that "all design except support to excavation
sites, is now by ACI."[29] It thereby confirmed that the parties were not bound by a design-and-construct
agreement, as initially contemplated in ACI's June 2002 invitation, but by a construct-only agreement. The
letter stated that "[CECON] acknowledge[s] that a binding contract is now existing." [30] However, consistent
with ACI's admitted changes, it also expressed ACI's corresponding undertaking: "This notwithstanding,
formal contract documents embodying these positions will shortly be prepared and forwarded to you for
execution."[31]

Despite ACI's undertaking, no formal contract documents were delivered to CECON or otherwise executed
between ACI and CECON.[32]

As it assumed the design aspect of the project, ACI issued to CECON the construction drawings for the
project. Unlike schematics, these drawings specified "the kind of work to be done and the kind of material to
be used."[33] CECON laments, however, that "ACI issued the construction drawings in piece-meal fashion at
times of its own choosing."[34] From the commencement of CECON's engagement until its turnover of the
project to ACI, ACI issued some 1,675 construction drawings. CECON emphasized that many of these
drawings were partial and frequently pertained to revisions of prior items of work. [35] Of these drawings, more
than 600 were issued by ACI well after the intended completion date of January 10, 2004: Drawing No. 1040
was issued on January 12, 2004, and the latest, Drawing No. 1675, was issued on November 26, 2004. [36]

Apart from shifting its arrangement with CECON from design-and-construct to construct only, ACI introduced
other changes to its arrangements with CECON. CECON underscored two (2) of the most notable of these
changes which impelled it to seek legal relief.

First, on January 30, 2003, ACI issued Change Order No. 11, [37] which shifted the portion identified as Part B
of the project from reinforced concrete framing to structural steel framing. Deleting the cost for reinforced
concrete framing meant removing P380,560,300.00 from the contract sum. Nevertheless, replacing reinforced
concrete framing with structural steel framing "entailed substitute cost of Php217,585,000, an additional
Php44,281,100 for the additional steel frames due to revisions, and another Php1,950,000 for the additional
pylon."[38]

Second, instead of leaving it to CECON, ACI opted to purchase on its own certain pieces of equipment-
elevators, escalators, chillers, generator sets, indoor substations, cooling towers, pumps, and tanks-which
were to be installed in the project. This entailed "take-out costs"; that is, the value of these pieces of
equipment needed to be removed from the total amount due to CECON. ACI considered a sum totalling
P251,443,749.00 to have been removed from the contract sum due to CECON. This amount of
P251,443,749.00 was broken down, as follows:

(a) For elevators/escalators, PhP106,000,000;

(b) For Chillers, PhP41,152,900;
(c) For Generator Sets, PhP53,040,000;
(d) For Indoor Substation, PhP23,024,150;
(e) For Cooling Towers, PhP5,472,809; and
(f) For Pumps and Tanks, PhP22,753,890. [39]
CECON avers that in removing the sum of P251,443,749.00, ACI "simply deleted the amount in the cost
breakdown corresponding to each of the items taken out in the contract documents." [40] ACI thereby
disregarded that the corresponding stipulated costs pertained not only to the acquisition cost of these pieces
of equipment but also to so-called "builder's works" and other costs relating to their preparation for and
installation in the project. Finding it unjust to be performing auxiliary services practically for free, CECON
proposed a reduction in the take-out costs claimed by ACI. It instead claimed P26,892,019.00 by way of
compensation for the work that it rendered.[41]

With many changes to the project and ACI's delays in delivering drawings and specifications, CECON
104
increasingly found itself unable to complete the project on January 10, 2004. It noted that it had to file a total
of 15 Requests for Time Extension from June 10, 2003 to December 15, 2003, all of which ACI failed to timely
act on.[42]

Exasperated, CECON served notice upon ACI that it would avail of arbitration. On January 29, 2004, it filed
with the CIAC its Request for Adjudication.[43] It prayed that a total sum of P183,910,176.92 representing
adjusted project costs be awarded in its favor. [44]

On March 31, 2004, CECON and ACI filed before the CIAC a Joint Manifestation [45] indicating that some
issues between them had already been settled. Proceedings before the CIAC were then suspended to enable
CECON and ACI to arrive at an amicable settlement. [46]On October 14, 2004, ACI filed a motion before the
CIAC noting that it has validated P85,000,000.00 of the total amount claimed by CECON. It prayed for more
time to arrive at a settlement.[47]

In the meantime, CECON completed the project and turned over Gateway Mall to ACI. [48] It had its blessing on
November 26, 2004.[49]

As negotiations seemed futile, on December 29, 2004, CECON filed with the CIAC a Motion to Proceed with
arbitration proceedings. ACI filed an Opposition. [50]

After its Opposition was denied, ACI filed its Answer dated January 26, 2005. [51] It attributed liability for
delays to CECON and sought to recover counterclaims totalling P180,752 297.84. This amount covered
liquidated damages for CECON's supposed delays, the cost of defective works which had to be rectified, the
cost of procuring permits and licenses, and ACI's other advances. [52]

On February 8, 2005, ACI filed a Manifestation and Motion seeking the CIAC's clearance for the parties to
enter into mediation. Mediation was then instituted with Atty. Sedfrey Ordonez acting as mediator. [53]

After mediation failed, an arbitral tribunal was constituted through a March 16, 2005 Order of the CIAC. It
was to be composed of Dr. Ernesto S. De Castro, who acted as Chairperson with Engr. Reynaldo T. Viray and
Atty. James S. Villafranca as members.[54]

ACI filed a Motion for Reconsideration of the CIAC March 16, 2005 Order. This was denied in the Order dated
March 30, 2005.[55]

In the Order dated April 1, 2005, the CIAC Arbitral Tribunal set the preliminary conference on April 13,
2005.[56]

At the preliminary conference, CECON indicated that, the total sum it was entitled to recover from ACI needed
to be adjusted to P324,113,410.08. The CIAC Arbitral Tribunal, thus, directed CECON to file an Amended
Request for Adjudication/Amended Complaint. [57]

Following the filing of CECON's Amended Request for Adjudication/Amended Complaint and the ensuing
responsive pleadings, another preliminary conference was set on May 13, 2005. The initial hearing of the case
was then set on June 10, 2005.[58]

At the initial hearing, the CIAC Arbitral Tribunal resolved to exclude the amount of P20,483,505.12 from
CECON's claims as these pertained to unpaid accomplishments that did not relate to the issue of cost
adjustments attributed to ACI, as originally pleaded by CECON. [59]

Following the conduct of hearings, the submission of the parties' memoranda and offers of exhibits, the CIAC
Arbitral Tribunal rendered its Decision on October 25, 2006. It awarded a total of P229,223,318.69 to
CECON, inclusive of the costs of arbitration. It completely denied ACI's claims for liquidated damages, but
awarded to ACI a total of P11,795,162.93 on account of defective and rectification works, as well as permits,
licenses, and other advances.[60] Thus, the net amount due to CECON was determined to be P217,428,155.75.

The CIAC Arbitral Tribunal noted that while ACI's initial invitation to bidders was for a lump-sum design-and-
construct arrangement, the way that events actually unfolded clearly indicated a shift to an arrangement
where the designs were contingent upon ACI itself. Considering that the premise for CECON's August 30,
2002 lump-sum offer of P1,540,000.00 was no longer availing, CECON was no longer bound by its
representations in respect of that lump-sum amount. It may then claim cost adjustments totalling
P16,429,630.74, as well as values accruing to the various change orders issued by ACI, totalling
P159,827,046.94.[61]

The CIAC Arbitral Tribunal found ACI liable for the delays. This entitled CECON to extended overhead costs
and the ensuing extension cost of its Contractor's All Risk Insurance. For these costs, the CIAC Arbitral
Tribunal awarded CECON the total amount of P16,289,623.08. As it was ACI that was liable for the delays,
the CIAC Arbitral Tribunal ruled that ACI was not entitled to liquidated damages. [62]

The CIAC Arbitral Tribunal ruled that CECON was entitled to a differential in take out costs representing
builder's works and related costs with respect to the equipment purchased by ACI. This differential cost was
105
in the amount of P15,332,091.47.[63] The CIAC Arbitral Tribunal further noted that while ACI initially opted to
purchase by itself pumps, tanks, and cooling towers and removed these from CECON's scope of work, it
subsequently elected to still obtain these through CECON. Considering that the corresponding amount
deducted as take-out costs did not encompass the overhead costs and profits under day work, which should
have accrued to CECON because of these equipment, the CIAC Arbitral Tribunal ruled that CECON was
entitled to 18% day work rate or a total of P21,267,908.00. [64]

The CIAC Arbitral Tribunal also found that, apart from adjusted costs incurred on account of ACI's own
activities, it also became necessary for CECON, as main contractor, to continue extending auxiliary services to
the project's subcontractors because of the delays. Thus, the CIAC Arbitral Tribunal awarded CECON
attendance fees-the main contractor's mark-up for auxiliary services extended to subcontractors - totalling
P14,335,674.88. This amount was lower than the original amount prayed for by CECON (i.e.,
P19,544,667.81)[65] as the CIAC Arbitral Tribunal ruled that CECON may not claim attendance fees pertaining
to subcontractors which directly dealt with ACI. [66]

Considering that CECON's predicament was borne by ACI's fault, the CIAC Arbitral Tribunal saw it fit to
award to CECON the costs of arbitration totalling P1,083,802.58. [67]

While mainly ruling in CECON's favor, the CIAC Arbitral Tribunal found CECON liable for discolored and
mismatched tiles. It noted that CECON had engaged the services of a subcontractor for the installation of
tiles, for which it claimed attendance fees. Thus, it awarded P7,980,000.00 to ACI. [68] In addition, it found
CECON liable to ACI for amounts paid in advance for permits and licenses for the additional office tower,
electrical consumption, and garbage collection. Thus, it awarded another P3,815,162.93 to ACI. [69]

The dispositive portion of the CIAC Arbitral Tribunal Decision read:

WHEREFORE, Respondent is hereby ordered to pay the Claimant the amount of PESOS TWO HUNDRED
SEVENTEEN MILLION, FOUR HUNDRED TWENTY-EIGHT THOUSAND, ONE HUNDRED FIFTY[-]FIVE PESOS
AND SEVENTY[-]FIVE CENTAVOS (Php217,428,155.75) within thirty (30) days upon promulgation of the
award. Interest 6% per annum shall be imposed on the award for any balance remaining from the
promulgation of the award up to the time the award becomes final and executory. Thereafter, interest of 12%
per annum shall be imposed on any balance of the award until fully paid.

SO ORDERED.[70]
On December 4, 2006, ACI filed before the Court of Appeals a Petition for Review[71] under Rule 43 of the 1997
Rules of Civil Procedure.

In the meantime, on December 28, 2006, the CIAC Arbitral Tribunal issued an Order [72] acknowledging
arithmetical errors in its October 25, 2006 Decision, Thus, it modified its October 25, 2006 Decision,
indicating that the net amount due to CECON was P231,357,136.72, rather than P217,428,155.75. [73]

In its assailed April28, 2008 Decision, [74] the Court of Appeals reduced the award in favor of CECON to
P114,324,605.00 and increased the award to ACI to P31,566,246.20. [75]

The Court of Appeals held as inviolable the lump-sum fixed price arrangement between ACI and CECON. It
faulted the CIAC Arbitral Tribunal for acting in excess of jurisdiction as it supposedly took it upon itself to
unilaterally modify the arrangement between ACI and CECON. [76]

Thus, the Court of Appeals deleted the CIAC Arbitral Tribunal's award representing cost adjustments.
However, the Court of Appeals also noted that in ACI's and CECON's March 30, 2004 Joint Ma11ifestation
before CIAC, ACI conceded that P10,266,628.00 worth of cost adjustments was due to CECON and undertook
to pay CECON that amount. The Court of Appeals, hence, maintained a P10,266,628.00 award of cost
adjustment in favor of CECON.[77]

On the cost increases borne by Change Order No. 11-the shift from reinforced concrete to structural steel
framing-and by transitions from schematic diagrams to construction drawings, the Court of Appeals
dismissed the CIAC Arbitral Tribunals award to CECON as arising from "pity" and unwarranted by the lump-
sum, fixed-price arrangement.[78]

The Court of Appeals held ACI liable to CECON for the sum of P12,672,488.36 for miscellaneous change
orders, which it construed to be "separate contracts that have been entered into at the time [ACI] required
them."[79] It likewise held ACI liable for P1,132,946.17 representing the balance of 12 other partially paid
change orders.[80]

The Court of Appeals noted that CECON was not entitled to time extensions because the arrangement
between ACI and CECON had never been altered. Consequently, it was not entitled to acceleration co ts,
additional overhead, ru1d reimbursement for extending the Contractor's All Risk Insurance. [81] Conversely,
the Court of Appeals held CECON liable for delays thereby entitling ACI to liquidated damages corresponding
to 10% of the supposed contract sum of P1,540,000,000.00, or P15,400,000.00. [82]

Also on account of the supposed lump-sum arrangement, the Court of Appeals held that CECON was not
106
entitled to attendance fees on contract amounts increased by change order works. [83] It also stated that the
rate for attendance fees, overhead, and profit for subcontractors' works remained subject to the original
contract documents based on ACI's original invitation to bidders and had never been altered. [84]

Regarding attendance fees, the Court of Appeals proffered that the work attributed to subcontractors was
merely work done by CECON itself, thereby negating the need for attendance fees.[85]

Concerning take-out costs, the Court of Appeals stated that CECON was in no position to propose its own
take-out costs as the tender documents issued along with ACI's invitation to bidders stated that take-out
costs must be based exclusively on the rates provided in the Contract Cost Breakdown. Nevertheless, as ACI
had previously undertaken to pay the variance in takeout costs amounting to P3,811,289.70, the Court of
Appeals concluded that an award for take-out costs in that amount was proper.[86]

On the CIAC Arbitral Tribunal's award for overhead costs and profits under day work, the Court of Appeals
held that it was improper to grant this award based on stipulations on day works pertaining "only to
'materials' and not to equipment."[87]

Finally, the Court of Appeals held that CECON was not entitled to costs of litigation considering that "no
premium is to be placed on the right to litigate" [88] and since ACI could not be faulted for delays.

The dispositive portion of the assailed Court of Appeals April 28, 2008 Decision read:

WHEREFORE, based on all the foregoing, the Decision of the Arbitral Tribunal is modified as follows:

a. AWARD TO CECON

NO. ISSUE Pesos (PHP)

1 Cost Adjustment 10,266,628.00
2 Take Out Cost of Equipment 3,811,289.70
3 Change Orders 99,119,200.09
a. Approved Change Orders 1,132,946.17
b. [Schematic Drawings] to [Construction
80,108,761.60
Drawings]
c. Miscellaneous Change Orders 12,672,488.30
d. Change Order No. 11 5,205,004.02
[4] Equipment Supplied by Owner 1,127,486.50
Total 114,324,605.00 (sic)
b. AWARD TO ARANETA

NO. ISSUE Pesos (PHP)

[5] Liquidated Damages 15,400,000.00
[6] Defective and Incomplete Works 3,000,000.00
Bookmarking Granite Tiles 6,980,000.00
[7] Permits, Licenses and Other Advances 6,186,246.23
Total 31,566,246.20 (sic)
In addition, CECON is directed to submit all required. close-out documents within thirty (30) days from
receipt of this Decision.

The parties shall bear their own costs of arbitration and litigation.

SO ORDERED.[89]
Acting on CECON's Motion for Reconsideration, the Court of Appeals issued its Amended Decision on July 1,
2010.[90] This Amended Decision increased the award for miscellaneous change orders to P27,601,469.32;
reinstated awards for undervalued works in supplying and installing G.I. sheets worth P1,209,782.50 [91] and
for the drilling of holes and application of epoxy worth P4,543,456.00; [92] and deleted the award for takeout
costs.[93]

The dispositive portion of the assailed Court of Appeals July 1, 2010 Amended Decision read:

WHEREFORE, Our Decision dated 28 April 2008 is hereby modified as follows:

I - AWARD:

a. AWARD TO CE CONSTRUCTION, INC.

NO. ISSUE PESOS (PhP)

1 Additional costs spent on rebars. 10,266,628.00
Increase in the costs of cement and formworks falling under cost-
2 5,205,004.02
bearing change.
Representing undervaluation of respondent's works in the supply and
3 1,209,782.50
installation of G.I. sheets.
107
4 Representing Miscellaneous Change Orders. 27,601,469.32
5 Drilling of Holes 4,543,450.00
6 [Schematic Drawings] to [Construction Drawings] 80,108,761.60
[7] Installation of equipment supplied by owner. 1,127,486.50
TOTAL 130,062,581.94
b. AWARD TO ARANETA CENTER, INC.

1 Liquidated Damage (sic) 20,000,000.00

2 Defective and Incomplete Works 3,000,000.00
3 Bookmarking Granite Tiles 6,980,000.00
4 Permits, Licenses and other Advances 6,186,246.23
TOTAL 36,166,246.23
II - COMPUTATION:

AWARD TO CE CONSTRUCTION, INC. 130,062,581.94

LESS
AWARD TO ARANETA CENTER, INC. 36,166,246.23
BALANCE PAYABLE BY ARANETA TO CECON 93,896,335.71

SO ORDERED.[94]
Aggrieved at the Court of Appeals' ruling, CECON tiled the present Petition insisting on the propriety of the
CIAC Arbitral Tribunal's conclusions and findings.[95] It prays that the assailed Court of Appeals decisions be
reversed and that the CIAC Arbitral Tribunal October 25, 2006 Decision, as modified by its December 28,
2006 Order, be reinstated.[96]

ACI counters that the Court of Appeals July 1, 2010 Amended Decision must be upheld. [97]

ACI insists on the inviolability of its supposed agreement with CECON, as embodied in the contract
documents delivered to contractors alongside the original offer to bid. It cites specific provisions of these
documents such as valuation rules and required notices for extensions and changes, reckoning of losses and
expenses, the ensuing liquidated damages for defects, cost-bearing changes and provisional sums, [98] which
define parameters for permissible changes and for reckoning corresponding costs and liabilities. However, it
did not attach any of these documents to its Comment or Memorandum. It also cites statutory provisions-
Articles 1715[99] and 1724[100]of the Civil Code-on CECON's liabilities and the primacy of stipulated contract
prices.[101]

By the inviolability their agreement, ACI insists on the supposed immutability of the stipulated contract sum
and on the impropriety of the CIAC Arbitral Tribunal in writing its own terms for ACI and CECON to
follow.[102] It faults the CIAC Arbitral Tribunal for erroneously reckoning the sums due to CECON, particularly
in relying on factual considerations that run afoul of contractual stipulations and on bases such as industry
practices and standards, which supposedly should not have even been considered as the parties have already
adduced their respective evidence.[103] It insists upon CECON's fault for delays and defects, making it liable for
liquidated damages.[104]

Though nominally modifying the CIAC Arbitral Tribunal October 25, 2006 Decision, the Court of Appeals
actually reversed it on the pivotal matter of the characterization of the contract between CECON and ACI.
Upon its characterization of the contract as one for a lump-sum fixed price, the Court of Appeals deleted
much of the CIAC Arbitral Tribunal's monetary awards to CECON and awarded liquidated damages to ACI.

On initial impression, what demands resolution is the issue of whether or not the Court of Appeals erred in
characterizing the contractual arrangement between petitioner CE Construction Corporation and respondent
Araneta Center, Inc. as immutably one for a lump-sum fixed price.

However, this is not merely a matter of applying and deriving conclusions from cut and dried contractual
provisions. More accurately, what is on issue is whether or not the Court of Appeals correctly held that the
CIAC Arbitral Tribunal acted beyond its jurisdiction in holding that the price of P1,540,000,000.00 did not
bind the parties as an immutable lump-sum. Subsumed in this issue is the matter of whether or not the
Court of Appeals correctly ruled that CECON was rightfully entitled to time extensions and that intervening
circumstances had made ACI liable for cost adjustments, increases borne by change orders, additional
overhead costs, extended contractor's all risk insurance coverage, increased attendance fees vis-a-vis
subcontractors, and arbitration costs which it awarded to CECON.

This Court limits itself to the legal question of the CIAC Arbitral Tribunal's competence. Unless any of the
exceptional circumstances that warrant revisiting the factual matter of the accuracy of the particulars of every
item awarded to the parties is availing, this Court shall not embark on its own audit of the amounts owing to
each.

This Court begins by demarcating the jurisdictional and technical competence of the CIAC and of its arbitral
108
tribunals.

I.A

The Construction Industry Arbitration Commission was a creation of Executive Order No. 1008, otherwise
known as the Construction Industry Arbitration Law.[105] At inception, it was under the administrative
supervision of the Philippine Domestic Construction Board [106] which, in turn, was an implementing agency of
the Construction Industry Authority of the Philippines (CIAP).[107] The CIAP is presently attached to the
Department of Trade and Industry. [108]

The CIAC was created with the specific purpose of an "early and expeditious settlement of
disputes"[109] cognizant of the exceptional role of construction to "the furtherance of national development
goals."[110]

Section 4 of the Construction Industry Arbitration Law spells out the jurisdiction of the CIAC:

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
dispute arises before or after the completion of the contract, or after the abandonment or breach thereof.
These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties
to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines.
Though created by the act of a Chief Executive who then exercised legislative powers concurrently with the
Batasang Pambansa, the creation, continuing existence, and competence of the CIAC have since been
validated by acts of Congress,

Republic Act No. 9184 or the Government Procurement Reform Act, enacted on January 10, 2003, explicitly
recognized and confirmed the competence of the CIAC:

Section 59. Arbitration. - Any and all disputes arising from the implementation of a contract covered by this
Act shall be submitted to arbitration in the Philippines according to the provisions of Republic Act No. 876,
otherwise known as the "Arbitration Law": Provided, however, That, disputes that are within the competence of
the Construction Industry Arbitration Commission to resolve shall be referred thereto. The process of arbitration
shall be incorporated as a provision in the contract that will be executed pursuant to the provisions of this
Act: Provided, That by mutual agreement, the patties may agree in writing to resort to alternative modes of
dispute resolution. (Emphasis supplied)
Arbitration of construction disputes through the CIAC was formally incorporated into the general statutory
framework on alternative dispute resolution through Republic Act No. 9285, the Alternative Dispute
Resolution Act of 2004 (ADR Law). Chapter 6, Section 34 of ADR Law made specific reference to the
Construction Industry Arbitration Law, while Section 35 confirmed the CIAC's jurisdiction:

CHAPTER 6
ARBITRATION OF CONSTRUCTION DISPUTES

Section 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction disputes
shall be governed by Executive Order No. 1008, otherwise known as the Construction Industry Arbitration
Law.

Section 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive
jurisdiction of the Construction Industry Arbitration Commission (the "Commission") shall include those
between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by
reference whether such parties are project owner, contractor, subcontractor, fabricator, project manager,
design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy in a
construction project.

The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes
although the arbitration is "commercial" pursuant to Section 21 of this Act.
I.B

The CIAC does not only serve the interest of speedy dispute resolution, it also facilitates authoritative dispute
resolution. Its authority proceeds not only from juridical legitimacy but equally from technical expertise. The
creation of a special adjudicatory body for construction disputes presupposes distinctive and nuanced
competence on matters that are conceded to be outside the innate expertise of regular courts and
adjudicatory bodies concerned with other specialized fields. The CIAC has the state's confidence concerning
109
the entire technical expanse of construction, defined in jurisprudence as "referring to 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." [111]

Jurisprudence has characterized the CIAC as a quasi-judicial, administrative agency equipped with technical
proficiency that enables it to efficiently and promptly resolve conflicts;

[The CIAC] is a quasi-judicial agency. A quasi-judicial agency or body has been defined as an organ of
government other than a court and other than a legislature, which affects the rights of private parties through
either adjudication or rule-making. The very definition of an administrative agency includes its being vested
with quasi-judicial powers. The ever increasing variety of powers and functions given to administrative
agencies recognizes the need for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot possibly be handled by regular
courts. The CIAC's primary function is that of a quasi-judicial agency, which is to adjudicate claims and/or
determine rights in accordance with procedures set forth in E.O. No. 1008. [112]
The most recent jurisprudence maintains that the CIAC is a quasi-judicial body. This Court's November 23,
2016 Decision in Fruehauf Electronics v. Technology Electronics Assembly and Management
Pacific[113] distinguished construction arbitration, as well as voluntary arbitration pursuant to Article 219(14)
of the Labor Code,[114] from commercial arbitration. It ruled that commercial arbitral tribunals are not quasi-
judicial agencies, as they are purely ad hoc bodies operating through contractual consent and as they intend
to serve private, proprietary interests.[115] In contrast, voluntary arbitration under the Labor Code and
construction arbitration operate through the statutorily vested jurisdiction of government instrumentalities
that exist independently of the will of contracting parties and to which these parties submit. They proceed
from the public interest imbuing their respective spheres:

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

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

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

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

Notably, the other arbitration body listed in Rule 43 the Construction Industry Arbitration Commission (CIAC) - is
also a government agency attached to the Department of Trade and Industry. Its jurisdiction is likewise
conferred by statute. By contrast, the subject matter urisdiction of commercial arbitrators is stipulated by the
parties.[116] (Emphasis supplied, citations omitted)
Consistent with the primacy of technical mastery, Section 14 of the Construction Industry Arbitration Law on
the qualification of arbitrators provides:

Section 14. Arbitrators. - A sole arbitrator or three arbitrators may settle a dispute.

....

Arbitrators shall be men of distinction in whom the business sector and the government can have confidence.
They shall not be permanently employed with the CIAC. Instead, thy shall render services only when called to
arbitrate. For each dispute they settle, they shall be given fees.
Section 8.1 of the Revised Rules of Procedure Governing Construction Arbitration establishes that the
foremost qualification of arbitrators shall be technical proficiency. It explicitly enables not only lawyers but
also "engineers, architects, construction managers, engineering consultants, and businessmen familiar with
the construction industry" to serve as arbitrators:

Section 8.1 General Qualification of Arbitrators. - The Arbitrators shall be men of distinction in whom the
business sector and the government can have confidence. They shall be technically qualified to resolve any
construction dispute expeditiously and equitably. The Arbitrators shall come from different professions. They
may include engineers, architects, construction managers, engineering consultants, and businessmen
familiar with the construction industry and lawyers who are experienced in construction disputes. (Emphasis
supplied)
Of the 87 CIAC accredited arbitrators as of January 2017, only 33 are lawyers. The majority are experts from
construction-related professions or engaged in related fields.[117]

Apart from arbitrators, technical experts aid the CIAC in dispute resolution. Section 15 of the Construction
110
Industry Arbitration Law provides:

Section 15. Appointment of Experts. - The services of technical or legal experts may be utilized in the
settlement of disputes if requested by any of the parties or by the Arbitral Tribunal. If the request for an
expert is done by either or by both of the parties, it is necessary that the appointment of the expert be
confirmed by the Arbitral Tribunal.

Whenever the parties request for the services of an expert, they shall equally shoulder the expert's fees and
expenses, half of which shall be deposited with the Secretariat before the expert renders service. When only
one party makes the request, it shall deposit the whole amount required.
II

Consistent with CIAC's technical expertise is the primacy and deference accorded to its decisions. There is
only a very narrow room for assailing its rulings.

Section 19 of the Construction Industry Arbitration Law establishes that CIAC arbitral awards may not be
assailed, except on pure questions of law:

Section 19. Finality of Awards. - The arbitral award shall be binding upon the parties. It shall be final and
inappealable except on questions of law which shall be appealable to the Supreme Court.
Rule 43 of the 1997 Rules of Civil Procedure standardizes appeals from quasi-judicial agencies.[118] Rule 43,
Section 1 explicitly lists CIAC as among the quasi judicial agencies covered by Rule 43.[119] Section 3 indicates
that appeals through Petitions for Review under Rule 43 are to "be taken to the Court of Appeals ... whether
the affoeal involves questions of fact, of law, or mixed questions of fact and law." [120]

This is not to say that factual findings of CIAC arbitral tribunals may now be assailed before the Court of
Appeals. Section 3's statement "whether the appeal involves questions of fact, of law, or mixed questions of
fact and law" merely recognizes variances in the disparate modes of appeal that Rule 43 standardizes: there
were those that enabled questions of fact; there were those that enabled questions of law, and there were
those that enabled mixed questions fact and law. Rule 43 emphasizes that though there may have been
variances, all appeals under its scope are to be brought before the Court of Appeals. However, in keeping with
the Construction Industry Arbitration Law, any appeal from CIAC arbitral tribunals must remain limited to
questions of law.

Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.[121] explained the wisdom underlying the limitation
of appeals to pure questions of law:

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

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are
chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award
issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide
a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay,
expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes
through the entire hierarchy of courts. [The Construction Industry Arbitration Law] created an arbitration
facility to which the construction industry in the Philippines can have recourse. The [Construction Industry
Arbitration Law] was enacted to encourage the early and expeditious settlement of disputes in the
construction industry, a public policy the implementation of which is necessa and important for the
realization of national development goals.[122]
Consistent with this restrictive approach, this Court is duty-bound to be extremely watchful and to ensure
that an appeal does not become an ingenious means for und rmining the integrity of arbitration or for
conveniently setting aside the conclusions arbitral processes make. An appeal is not an artifice for the parties
to undermine the process they voluntarily elected to engage in. To prevent this Court from being a party to
such perversion, this Court's primordial inclination must be to uphold the factual finqings of arbitral
tribunals:

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other
area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or
defeat that objective tbr their private purposes. The Court will not review the factual findings of an arbitral
tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The
parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence
in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts
previously presented and argued before the Arbitral Tribunal, save only where a very clear showing is made
that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to
one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. Prototypical
examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party
111
of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud
or the corruption of arbitrators. Any other, more relaxed, rule would result in setting at naught the basic
objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution. [123] (Emphasis
supplied, citations omitted)
Thus, even as exceptions to the highly restrictive nature of appeals may be contemplated, these exceptions
are only on the nanowest of grounds. Factual findings of CIAC arbitral tribunals may be revisited not merely
because arbitral tribunals may have erred, not even on the already exceptional grounds traditionally available
in Rule 45 Petitions.[124] Rather, factual findings may be reviewed only in cases where the CIAC arbitral
tribunals conducted their affairs in a haphazard, immodest manner that the most basic integrity of the
arbitral process was imperiled. In Spouses David v. Construction Industry and Arbitration Commission:[125]

We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal, except when the petitioner proves affirmatively that: (1) the award was
procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the
arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; (4) one
or more of the arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and
willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of
any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject matter submitted to them was not
made.[126] (Citation omitted)
Guided by the primacy of CIAC's technical competence, in exercising this Court's limited power of judicial
review, this Court proceeds to rule on whether or not the Court of Appeals erred in its assailed decisions.

III

Properly discerning the issues in this case reveals that what is involved is not a mere matter of contractual
interpretation but a question of the CIAC Arbitral Tribunal's exercise of its powers.

III.A

F.F. Cruz v. HR Construction[127] distinguished questions of law, properly cognizable in appeals from CIAC
arbitral awards, from questions of fact:

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of
law, the same must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of tbe issue must rest solely on what the law provides on the given set
of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed
is one of fact.[128]
It further explained that an inquiry into the true intention of the contracting parties is a legal, rather than a
factual, issue:

On the surface, the instant petition appears to merely raise factual questions as it mainly puts in issue the
appropriate amount that is due to HRCC. However, a more thorough analysis of the issues raised by FFCCl
would show that it actually asserts questions of law.

FFCCI primarily seeks from this Court a determination of whether [the] amount claimed by HRCC in its
progress billing may be enforced against it in the absence of a joint measurement of the former's completed
works. Otherwise stated, the main question advanced by FFCCI is this: in the absence of the joint
measurement agreed upon in the Subcontract Agreement, how will the completed works of HRCC be verified
and the amolfnt due thereon be computed?

The determination of the foregoing question entails an interpretation of the terms of the Subcontract
Agreement vis-a-vis the respective rights of the parties herein. On this point, it should be stressed that where
an interpretation of the true agreement between the parties is involved in an appeal, the appeal is in effect an
inquiry of the law between the parties, its interpretation necessarily involves a question of law.

Moreover, we are not called upon to examine the probative value of the evidence presented before the CIAC.
Rather, what is actually sought from this Court is an interpretation of the terms of the Subcontract Agreement as
it relates to the dispute between the parties.[129] (Emphasis supplied)
Though similarly concerned with "an interpretation of the true agreement between the parties," [130] this case is
not entirely congruent with F.F. Cruz.

In F.F. Cruz, the parties' agreement had been clearly set out in writing. There was a definitive instrument
which needed only to be consulted to ascertain the parties' intent:

In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the primordial
consideration should be the terms of the Subcontract Agreement. It is basic that if the tem1s of a contract are
112
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.[131]
Thus, this Court concluded:

Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to pay the monthly
progress billings of HRCC within 30 days from receipt of the same. Additionally, the monthly progress billings
of HRCC should indicate the extent of the works completed by it, the same beinff essential to the valuation of
the amount that FFCCI would pay to HRCC.[132]
III.B

In this case, there is no established contract that simply required interpretation and application.

The assailed Court of Appeals April 28, 2008 Decision implies that all that had to be done to resolve the
present controversy was to apply the supposedly clear and unmistakable terms of the contract between ACI
and CECON. It even echoes the words of F.F. Cruz:

It is a legal principle of long standing that when the language of the contract is explicit, leaving no doubt as to
the intention of the parties, the courts may not read into it any other intention that would contradict its plain
import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract
justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did
not make themselves or the imposition upon one party to a contract or obligation not assumed simply or
merely to avoid seeming hardships. Their true meaning must be enforced, as it is to be presumed that the
contracting parties know their scope and effects.

....

The Contract Documents expressly characterize the construction contract between [ACI] and CECON as
"lump-sum" and "fixed price" in nature. As a consequence, the Contract Documents expressly prohibit any
adjustment of the contract sum due to any changes or fluctuations in the cost of labor, materials or other
matters.[133] (Citations omitted)
Upon its characterization of the contract as one for the lump-sum, fixed price of P1,540,000,000.00, the
Court of Appeals faulted the CIAC Arbitral Tribunal for acting in excess of jurisdiction as it supposedly
countermanded the parties' agreement, or worse, conjured its own tenns for the parties' compliance. [134]

It was the Court of Appeals, not the CIAC Arbitral Tribunal, that committed serious error.

To rule that the CIAC Arbitral Tribunal modified the parties' agreement because it was indisputably one for a
lump-sum, fixed price of P1,540,000,000.00 is begging the question. The Court of Appeals used a conclusion
as a premise to support itself. It erroneously jumped to a conclusion only to plead this conclusion in support
of points that should have made up its anterior framework, points that would have been the ones to lead to a
conclusion. It then used this abortive conclusion to injudiciously dispose of the case.

The Court of Appeals took the parties' contractual relation as a revealed and preordained starting point. Then,
it dismissed every prior or subsequent detail that contradicted this assumption. It thereby conveniently
terminated the discussion before it even began.

III.C

There was never a meeting of minds on the price of P1,540,000,000.00. Thus, that stipulation could not have
been the basis of any obligation.

The only thing that ACI has in its favor is its initial delivery of tender documents to prospective bidders.
Everything that transpired after this delivery militates against ACI's position.

Before proceeding to a consideration of the circumstances that negate a meeting of minds, this Court
emphasizes that ACI would have this Court sustain claims premised on supposed inviolable documents. Yet,
it did not annex copies of these documents either to its Comment or to its Memorandwn.

ACI leaves this Court compelled to rely purely on their packaged presentation and in a bind, unable to verify
even the accuracy of the syntax of its citations. This Court cannot approve of this predicament. To cursorily
acquiesce to ACI's overtures without due diligence and substantiation is being overly solicitous, even
manifestly partisan.

ACI and its counsel must have fully known the importance of equipping this Court with a reliable means of
confirmation, especially in a case so steeped in the sway of circumstances. ACI's omission can only work
against its cause.

By delivering tender documents to bidders, ACI made an offer. By these documents, it specitled its terms and
defined the parameters within which bidders could operate. These tender documents, therefore, guided the
bidders in formulating their own offers to ACI, or, even more fundamentally, helped them make up their
113
minds if they were even willing to consider undertaking the proposed project. In responding and submitting
their bids, contractors, including CECON, did not peremptorily become subservient to ACI's terms. Rather,
they made their own representations as to their own willingness and ability. They adduced their own counter
offers, although these were already tailored to work within ACI's parameters.

These exchanges were in keeping with Article 1326 of the Civil Code:

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the contrary appears.
The mere occurrence of these exchanges of offers fails to satisfy the Civil Code's requirement of absolute and
unqualified acceptance:

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer
was made. (Emphasis supplied)
Subsequent events do not only show that there was no meeting of minds on CECON's initial offered contract
sum of P1,449,089,174.00 as stated in its August 30, 2002 bid. They also show that there was never any
meeting of minds on the contract sum at all.

In accordance with Article 1321 of the Civil Code, [135] an offeror may fix the time of acceptance. Thus,
CECON's August 30, 2002 offer of P1,449,089,174.00 "specifically stated that its bid was valid for only ninety
(90) days, or only until 29 November 2002." [136] November 29, 2002 lapsed and ACI failed to manifest its
acceptance of CECON's offered contract sum.

It was only sometime after November 29, 2002 that ACI verbally informed CECON that the contract was being
awarded to it. Through a telephone call on December 7, 2002, ACI informed CECON that it may commence
excavation works. However, there is no indication that an agreement was reached on the contract sum in any
of these conversations. ACI, CECON, the CIAC Arbitral Tribunal, and the Court of Appeals all concede that
negotiations persisted.

Still without settling on a contract sum, even the object of the contract was subjected to multiple
modifications. Absent a concurrence of consent and object, no contract was perfected. [137]

An office tower atop Part A was included in CECON's scope of works and the contract sum increased to
P1,582,810,525.00. Price fluctuations were conceded after this and the project cost was again adjusted to
P1,613,615,244.00. Thereafter, CECON agreed to extend a discount and reduced its offered project cost to
P1,540,000,000.00.[138]

After all these, ACI demurred on the tenns of its own tender documents and changed the project from one
encompassing both design and construction to one that was limited to construction.

Though not pertaining to the object of the contract itself but only to one (1) of its many facets, ACI also
removed from CECON's scope of works the acquisition of elevators, escalators, chillers, generator sets, indoor
substations, cooling towers, pumps, and tanks. However, much later, ACI reneged on its own and opted to
still obtain pumps, tanks, and cooling towers through CECON.

It is ACI's contention that the offered project cost of P1,540,000,000.00 is what binds the parties because its
June 2, 2003 letter indicated acceptance of this offered amount.

This is plain error.

CECON was never remiss in impressing upon ACI that the P1,540,000,000.00 offer was not perpetually
availing. WithoutACI's timely acceptance, on December 27, 2002, CECON wrote to ACI emphasizing that the
quoted sum of P1,540,000,000.00 was "based [only] upon the prices prevailing at December 26, 2002"
levels.[139] On January 8, 2003, CECON notified ACI of further increases in costs and specifically stated that
"[f]urther delay in the acceptance of the revised offer and release of the down payment may affect the revised
lump sum amount."[140] Finally, on January 21, 2003, CECON wrote again to ACI, [141] stating that the contract
sum had to be increased to P1,594,631,418.00. CECON also specifically stated, consistent with Article 1321
of the Civil Code, that its tender of this adjusted price was valid only until January 31, 2003, as further price
changes may be forthcoming. CECON also impressed upon ACI that the 400 days allotted for the completion
of the project had to be adjusted.[142]

When ACI indicated acceptance, CECON's P1,540,000,000.00 offer had been superseded. Even CECON's
subsequent offer of P1,594,631,418.00 had, by then, lapsed by more than four (4) months. Apparently totally
misinformed, ACI's acceptance letter did not even realize or remotely reference CECON's most recent
P1,594,631,418.00 stipulation but insisted on the passe offer of P1,540,000,000.00 from the past year.

114
ACI's supposed acceptance was not an effective, unqualified acceptance, as contemplated by Article 1319 of
the Civil Code. At most, it was a counter-offer to revert to P1,540,000,000.00.

ACI's June 2, 2003 letter stated an undertaking: "This notwithstanding, formal contract documents
embodying these positions will shortly be prepared and forwarded to you for execution." [143] Through this
letter, ACI not only undertook to deliver documents, it also admitted that the final, definitive terms between
the parties had yet to be articulated in writing.

ACI's delivery CECON's review, and both parties' final act of formalizing their respective consent and affixing
their respective signatures would have established a clear point in which the contract between ACI and
CECON has been perfected. These points, i.e. ACI's delivery, CECON's review, and parties' formalization, too,
would have validated the Court of Appeals' assertion that all that remained to be done was to apply
unequivocal contractual provisions.

ACI would fail on its own undertaking.

III.D

Without properly executed contract documents, what would have been a straightforward exercise, akin to the
experience in F.F. Cruz, became a drawn-out fact-finding affair. The situation that ACI engendered made it
necessary for the CIAC Arbitral Tribunal to unravel the terms binding ACI to CECON from sources other than
definitive documents.

It is these actions of the CIAC Arbitral Tribunal that raise an issue, purely as a matter of law, now the subject
of this Court's review; that is, faced with the lacunae confronting it, whether or not the CIAC Arbitral Tribunal
acted within its jurisdiction.

IV

The CIAC Arbitral Tribunal did not act in excess of its jurisdiction. Contrary to the Court of Appeals' and ACI's
assertions, it did not draw up its own tenns and force these terms upon ACI and CECON.

IV.A

The CIAC Arbitral Tribunal was not confronted with a barefaced controversy for which a fom1ulaic resolution
sufficed. More pressingly, it was confronted with a state of affairs where CECON rendered services to ACI,
with neither definitive governing instrwnents nor a confirmed, fixed remuneration for its services. Thus, did
the CIAC Arbitral Tribunal go about the task of asce1taining the sum properly due to CECON.

This task was well within its jurisdiction. This determination entailed the full range of subjects expressly
stipulated by Section 4 of the Construction Industry Arbitration Law to be within the CIAC's subject matter
jurisdiction.

Section 4. Jurisdiction. - ....

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.
CECON raised the principal issue of the payment due to it on account, not only of fluctuating project costs
but more so because of ACI's inability to timely act on many contingencies, despite proper notice and
communication from and by CECON. Theretbre, at the heart of the controversy was the "interpretation and/or
application of contractual time and delays." ACI's counter-arguments, too, directly appealed to CIAC's subject
matter jurisdiction. ACI countered by asserting that sanctioning CECON's claims was tantamount to violating
the tem1s of their agreement. It further claimed liability on CECON's part for "maintenance and defects," and
for "violation of specifications for materials and workmanship."

ACI and CECON voluntarily submitted themselves to the CIAC Arbitral Tribunal's jurisdiction. The contending
parties' own volition is at the inception of every construction arbitration proceeding. [144] Common sense
dictates that by the parties' voluntary submission, they acknowledge that an arbitral tribunal constituted
under the CIAC has full competence to rule on the dispute presented to it. They concede this not only with
respect to the literal issues recited in their terms of reference, as ACI suggests,[145] but also with respect to
their necessary incidents. Accordingly, in delineating the authority of arbitrators, the CIAC Rules of Procedure
speak not only of the literally recited issues but also of "related matters":

SECTION 21.3 Extent of power of arbitrator - The Arbitral Tribunal shall decide only such issues and related
matters as are submitted to them for adjudication. They have no power to add, to subtract from, modify, or
amend any of the terms of the contract or any supplementary agreement thereto, or any rule, regulation or
policy promulgated by the CIAC.
115
To otherwise be puritanical about cognizable issues would be to cripple CIAC arbitral tribunals. It would
potentially be to condone the parties' efforts at tying the hands of tribunals through circuitous, trivial recitals
that fail to address the complete extent of their claims and which are ultimately ineffectual in dispensing an
exhaustive and dependable resolution. Construction arbitration is not a game of guile which may be left to
ingenious textual or technical acrobatics, but an endeavor to ascertain the tluth and to dispense justice "by
every and all reasonable means without regard to technicalities of law or proc.edure." [146]

IV.B

Two (2) guiding principles steered the CIAC Arbitral Tribunal in going about its task. First was the basic
matter of fairness. Second was effective dispute resolution or the overarching principle of arbitration as a
mechanism relieved of the encumbrances of litigation. In Section 1.1 of the CIAC Rules of Procedure:

SECTION 1.1 Statement of policy and objectives - It is the policy and objective of these Rules to provide a fair
and expeditious resolution of construction disputes as an altemative to judicial proceedings, which may
restore the disrupted harmonious and friendly relationships between or among the parties. (Emphasis
supplied)
CECON's predicament demanded compensation. The precise extent may yet to have been settled; yet, as the
exigencies that prompted CECON to request for arbitration unraveled, it became clear that it was not for the
CIAC Arbitral Tribunal to turn a blind eye to CECON's just entitlement to compensation.

Jurisprudence has settled that even in cases where parties enter into contracts which do not strictly confmm
to standard formalities or to the typifying provisions of nominate contracts, when one renders services to
another, the latter must compensate the fonner for the reasonable value of the services rendered. This
amount shall be fixed by a court. This is a matter so basic, this Court has once characterized it as one that
"springs from the fountain of good conscience":

As early as 1903, in Perez v. Pomar, this Court mled that where one has rendered services to another, and
these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it
is but just that he should pay a reasonable remuneration therefore because "it is a well known principle of
law, that no one should be permitted to enrich himself to the damage of another." Similary in 1914, this Court
declared that in this jurisdiction, even in the absence of statute, ". . . under the general principle that one
person may not enrich himself at the expense of another, a judgment creditor would not be permitted to
retain the purchase price of land sold as the property of the judgment debtor after it has been made to appear
that the judgment debtor had no title to the land and that the purchaser had failed to secure title thereto . . ."
The foregoing equitable principle which springs from the fountain of good conscience are applicable to the
case at bar.[147]
Consistent with the Construction Industry Arbitration Law's declared policy, [148] the CIAC Arbitral Tribunal
was specifically charged with "ascertain[ing] the facts in each case by every and all reasonable means." [149] In
discharging its task, it was permitted to even transcend technical rules on admissibility of evidence. [150]

IV.C

The reality of a vacuum where there were no definite contractual terms, coupled with the demands of a "fair
and expeditious resolution" of a dispute centered on contractual interpretation, called into operation Article
1371 of the Civil Code:

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. (Emphasis supplled)
Article 1379 of the Civil Code invokes principles from the Revised Rules on Evidence. By invoking these
principles, Article 1379 makes them properly applicable in every instance of contractual interpretation, even
those where the need for interpretation arises outside of court proceedings:

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts.
As with Article 1371, therefore, the following principles from the Revised Rules on Evidence equally governed
the CIAC Arbitral Tribunal's affairs:

4. Interpretation of Documents

Section 12. Interpretation according to intention; general and particular provisions. - In the construction of an
instrument, the intention of the parties is to be pursued; and when a general and a particular provision are
inconsistent, the latter is paramount to the former. So a particular intent will control a general one that is
inconsistent with it.

Section 13. Interpretation according to circumstances. - For the proper construction of an instrument, the
circumstances under which it was made, including the situation of the subject thereof and of the parties to it,
may be shown, so that the judge may be placed in the position of those whose language he is to interpret.

116
Within its competence and in keeping with basic principles on contractual interpretation, the CIAC Arbitral
Tribunal ascertained the trqe and just terms governing ACI and CECON. Thus, the CIAC Arbitral Tribunal did
not conjure its own contractual creature out of nothing. In keeping with this, the CIAC Arbitral Tribtmal
found it proper to sustain CECON's position. There having been no meeting of minds on the contract sum, the
amount due to CECON became susceptible to reasonable adjustment, subject to proof of legitimate costs that
CECON can adduce.

Unravelling the CIAC Arbitral Tribunal's competence and establishing how it acted consistent with law
resolves the principal legal issue before us. From this threshold, the inquiry transitions to the matter of
whether or not the conclusions made by the CIAC Arbitral Tribunal were warranted.

They were. Far from being capricious, the CIAC Arbitral Tribunal's conclusions find solid basis in law and
evidence.

V.A

The tender documents may have characterized the contract sum as fixed and lump-sum, but the premises for
this arrangement have undoubtedly been repudiated by intervening circumstances.

When CECON made its offer of P1,540,000,000.00, it proceeded from several premises. First, ACI would
timely respond to the representations made in its bid. Second, CECON could act on the basis of prices
prevailing then. Third, the subject matter of the contract was the entire expanse of design and construction
covering all elements disclosed in the tender documents, nothing more and nothing less. Fourth, the basic
specifications for designing and building the Gateway Mall, as stated in the tender documents, would remain
consistent. Lastly, ACI would timely deliver on its concomitant obligations.

Contrary to CECON's reasonable expectations, ACI failed to timely act either on CECON's bid or on those of
its competitors. Negotiations persisted for the better part of two (2) calendar years, during which the quoted
contract sum had to be revised at least five (5) times. The object of the contract and CECON's scope of work
widely varied. There were radical changes like the addition of an entire office tower to the project and the
change in the project's structural framing. There was also the undoing of CECON's freedom to design, thereby
rendering it entirely dependent on configurations that ACI was to unilaterally resolve, It turned out that ACI
took its time in delivering construction drawings to CECON, with almost 38% of construction drawings being
delivered after the intended completion date. There were many other less expansive changes to the project,
such as ACI's fickleness on which equipment it would acquire by itself. ACI even failed to immediately deliver
the project site to CECON so that CECON may commence excavation, the most basic task in setting up a
structure's foundation. ACI also failed to produce definite instruments articulating its agreement with
CECON, the final contract documents.

With the withering of the premises upon which a lump-sum, fixed price arrangement would have been
founded, such an arrangement must have certainly been negated:

[T]he contract is fixed and lump sum when it was tendered and contracted as a design and constmct package.
The contract scope and character significantly changed when the design was taken over by the Respondent.
At the time of the negotiation and agreement of the amount of Php1.54 billion, there were no final plans for
the change to structural steel, and all the [mechanical, electrical and plumbing] drawings were all schematics.

[I]t is apparent to the Tribunal that the quantity and materials at the time of the P1.54B agreement are
significantly different from the original plans to the finally implemented plans. The price increases in the steel
products and cement were established to have already increased by 11.52% and by P5.00 per bag respectively
by January 21, 2003. The Tribunal finds agreement with the Claimant that it is fairer to award the price
increase.

....

It should also be mentioned that Respondent had changed the scope and character of the agreement. First,
there were major changes in the plans and specifications. Originally, the contract was for design and
construct. The design was deleted from the scope of the Claimant. It was changed to a straight construction
contract. As a straight construction contract, there were no final plans to speak of at the time of the
instructions to change. Then there was a verbal change to structural steel frame. No plans were available
upon this instruction to change. Next, the [mechanical, electrical and plumbing] plans were all schematics. It
is therefore expected that changes of plans are forthcoming, and that changes in costs would follow ...

....

It has been established that the original tender, request for proposal and award is for a design and construct
contract. The contract documents are therefore associated for said system of construction. When Respondent
117
decided to change and take over the design, such as the change from concrete to structural steel framing,
"take-out" equipment from the contract and modify the [mechanical, electrical and plumbing w]orks, the
original scope of work had been drastically changed. To tie down the Claimant to the tmit prices for the
proposal for a different scope of work would be grossly unfair. This Tribunal will hold that unit price
adjustment could be allowed but only for change orders that were not in the original scope of work, such as
the change order from concrete to structural framing, the [mechanical, electrical and plumbing w]orks,
[schematic drawings to construction drawings] and the Miscellaneous Change Order Works. [151]
V.B

Contrary to ACI's oft-repeated argument,[152] the CIAC Arbitral Tribunal correctly found that ACI had gained
no solace in statutory provisions on the immutability of prices stipulated between a contractor and a
landowner. Article 1724 of the Civil Code reads:

Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in
conformity with plans and specifications agreed upon with the land-owner, can neither withdraw from the
contract nor demand an increase in the price on account of the higher cost of labor or materials, save when
there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by both parties.
Article 1724 demands two (2) requisites in order that a price may become immutable: first, there must be an
actual, stipulated price; and second, plans and specifications must have definitely been agreed upon.

Neither requisite avails in this case. Yet again, ACI is begging the question. It is precisely the crux of the
controversy that no price has been set. Article 1724 does not work to entrench a disputed price and make it
sacrosanct. Moreover, it was ACI which thn1st itself upon a situation where no plans and specifications were
immediately agreed upon and from which no deviation could be made. It was ACI, not CECON, which made,
revised, and deviated from designs and specifications.

V.C

The CIAC Arbitral Tribunal also merely held ACI to account for its voluntarily admitted adjustments. The
CIAC Rules of Procedure pennit deviations from technical rules on evidence, including those on admissions.
Still, common sense dictates that the principle that "[t]he act, declaration or omission of a party as to a
relevant fact may be given in evidence against him" [153] must equally hold true in administrative or quasi-
judicial proceedings as they do in court actions. Certainly, each must be held to account for his or her own
voluntary declarations. It would have been plainly absurd to disregard ACI's reneging on its own admissions:

Respondent has agreed to the price increase in structural steel and after some negotiation paid the agreed
amount. Respondent also agreed to the price increase in the reinforcing bars and instructed the Claimant to
bill it accordingly. To the Tribunal, such action is an acknowledgment of the price increase. Respondent can
make the case that said agreement is conditional, i.e., the Complaint must be withdrawn. To the Tribunal, the
conditionality falls both ways. The Claimant has as much interest to agree to a negotiated price increase so
that it can collect payments for the claims. The conditionalities do not change the basis for the quantity and
the amotmt. The process of the negotiation has arrived at the price difference and quantities. The Tribunal
finds the process in arriving at the Joint Manifestation, a fair determination of the unit price increase. This
holding will render the discussions on Exhibit JJJJ, and the demand of the burden of proof of the Respondent
superfluous.[154]
This absurdity is so patent that the Court of Appeals was still compelled to uphold awards premised on ACI's
admissions, even as it reversed the CIAC Arbitral Tribunal decision on the primordial issue of the
characterization of the contractual arrangement between CECON and ACI:

As stated, the contract between [ACI] and CECON has not been amended or revised. The Arbitral Tribunal
had no power to amend the contract to provide that there be allowed price and/or cost adjustment removing
the express stipulation that the Project is for a lump sum or fixed price consideration. Accordingly, this Court
removes the award for additional costs spent by CECON on cement and formworks due to price increases or
removing the award for these items in the total amount of PhP5,598,338.20. Since CECON is not entitled to
its claim for price increase, it is likewise not entitled to the award of the interest rate of 6% per annum.

With regard however to the additional costs for the rebars due to price increases. this Court finds that CECON
is entitled to the amount of PhP10,266,628.00 representing the additional costs spent by CECON for rebars
due to price increases, notwithstanding the Arbitral Tribunal's excess of jurisdiction in amending the contract
between the parties because [ACI] and CECON had in fact agreed that CECON was entitled to such an
amount and that [ACI] would pay the same. This agreement was made in the parties' Joint Manifestation of
Compliance dated March 30, 2004 which they filed with th Arbitral Tribunal ("Joint Manifestation"). [155]
No extraordinary technical or legal proficiency is required to see that it would be the height of absurdity and
injustice to insist on the payment of an amount the consideration of which has been reduced to a distant
memory. ACI's invocation of Article 1724 is useless as the premises for its application are absent. ACI's
position is an invitation for this Court to lend its imprimatur to unjust enrichment enabled by the gradual
118
wilting of what should have been a reliable contractual relation. Basic decency impels this Court to not give in
to ACI's advances and instead sustain the CIAC Arbitral Tribunal's conclusion that the amount due to
CECON has become susceptible to reasonable adjustment.

VI

The Arbitral Tribunal's award must be reinstated.

VI.A

With the undoing of the foundation for the Court of Appeal's fallacious, circular reasoning, its monetary
awards must also necessarily give way to the reinstatement of the CIAC Arbitral Tribunal's awards.

The inevitable changes borne by ACI's own trifling actions justify, as a consequence, compensation for cost
adjustments and the ensuing change orders, additional overhead costs for the period of extension, extended
coverage for contractor's all-risk insurance, and attendance fees for auxiliary services to subcontractors
whose functions were also necessarily prolonged. ACI's frivolity on the acquisition of elevators, escalators,
chillers, generator sets, indoor substations, cooling towers, pumps, and tanlcs also vindicates compensation
for the works that remained under CECON's account. ACI's authorship of the causes of delay supports time
extensions favoring CECON and, conversely, discredits liquidated damages benefitting ACI.

This Court upholds the Arbitral Tribunal's awards on each of the items due to CECON, as well as on its
findings relating to CECON's countervailing liabilities.

In fulfilling its task, the CIAC Arbitral Tribunal was equipped with its technical competence, adhered to the
rigors demanded by the CIAC Rules of Procedure, and was endowed with the experience of exclusively
presiding over 19 months of arbitral proceedings, examining object and documentary evidence, and probing
witnesses.

VI.B

Within the CIAC Arbitral Tribunal's technical competence was its reference to prevailing industry practices, a
much-bewailed point by ACI.[156] This reference was made not only desirable but even necessary by the
absence of definitive governing instruments. Moreover, this reference was made feasible by the CIAC Arbitral
Tribunars inherent expertise in the construction industry.

This reference was not only borne by practical contingencies and buttressed by recognized proficiency, it was
also sanctioned by the statutory framework of contractual interpretation within which the CIAC Arbitral
Tribunal operated. Thus, the following principles governed the interpretation of the change orders, requests,
and other communications, which had effectively been surrogates of a single definite instrument executed by
the parties.

From the Civil Code:

Article 1375. Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract.

Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities
of a contract, and shall fill the omission of stipulations which are ordinarily established.
From the Revised Rules on Evidence, the following have been made applicable even outside regular litigation
by Article 1379 of the Civil Code:

Section 14. Peculiar signification of terms. - The terms of a writing are presumed to have been used in their
primary and general acceptation, but evidence is admissible to show that they have a local, technical, or
otherwise peculiar signification, and were so used and understood in the particular instance, in which case
the agreement must be construed accordingly.

....

Section 19. Interpretation according to usage. - An instrument may be construed according to usage, in order
to determine its true character.[157] (Emphasis supplied)
Equally availing is the following principle. This is especially tlue of the remuneration due to CECON,
considering that stipulations for remuneration are devised for the benefit of the person rendering the service:

Section 17. Of two constn.1ctions, which preferred. - When the terms of an agreement have been intended in
a different sense by the different parties to it, that sense is to prevail against either party in which he
supposed the other understood it, and when different constructions of a provision are otherwise equally
proper, that is to be taken which is the most favorable to the party in whose favor the provision was made. [158]
119
VI.C

In appraising the CIAC Arbitral Tribunal's awards, it is not the province of the present Rule 45 Petition to
supplant this Court's wisdom for the inherent technical competence of and the insights drawn by the CIAC
Arbitral Tribunal throughout the protracted proceedings before it. The CIAC Arbitral Tribunal perused each of
the parties' voluminous pieces of evidence.[159] Its members personally heard, observed, tested, and
propounded questions to each of the witnesses. Having been constituted solely and precisely for the purpose
of resolving the dispute between ACI and CECON for 19 months, the CIAC Arbitral Tribunal devoted itself to
no other task than resolving that controversy. This Court has the benefit neither of the CIAC Arbitral
Tribunal's technical competence nor of its irreplaceable experience of hearing the case, scrutinizing every
piece of evidence, and probing the witnesses.

True, the inhibition that impels this Court admits of exceptions enabling it to embark on its own factual
inquiry. Yet, none of these exceptions, which are all anchored on considerations of the CIAC Arbitral
Tribunal's integrity and not merely on mistake, doubt, or conflict, is availing.

This Court finds no basis for casting aspersions on the integrity of the CIAC Arbitral TribunaL There does not
appear to have been an undisclosed disqualification for any of its three (3) members or proof of any prejudicial
misdemeanor. There is nothing to sustain an allegation that the parties' voluntarily selected arbitrators were
conupt, fraudulent, manifestly partial, or otherwise abusive. From all indications, it appears that the CIAC
Arbitral Tribunal extended every possible opportunity for each of the parties to not only plead their case but
also to arrive at a mutually beneficial settlement. This Court has ruled, precisely, that the arbitrators acted in
keeping with their lawful competencies. This enabled them to come up with an otherwise definite and reliable
award on the controversy before it.

Inventive, hair-splitting recitals of the supposed imperfections in the CIAC Arbitral Tribunal's execution of its
tasks will not compel this Court to supplant itself as a fact-finding, technical expert.

ACI's refutations on each of the specific items claimed by CECON and its counterclaims of sums call for the
point by point appraisal of work, progress, defects and rectifications, and delays and their causes. They are,
in truth, invitations for this Court to engage in its own audit of works and corresponding financial
consequences. In the alternative, its refutations insist on the application of rates, schedules, and other
stipulations in the same tender documents, copies of which ACI never adduced and the efficacy of which this
Court has previously discussed to be, at best, doubtful.

This Court now rectifies the error made by the Court of Appeals. By this rectification, this Court does not
open the doors to an inordinate and overzealous display of this Court's authority as a final arbiter.

Without a showing of any of the exceptional circumstances justifying factual review, it is neither this Court's
business nor in this Court's competence to pontificate on technical matters. These include things such as
fluctuations in prices of materials from 2002 to 2004, the architectural and engineering consequences - with
their ensuing financial effects - of shifting from reinforced concrete to structural steel, the feasibility of
rectification works for defective installations and fixtures, the viability of a given schedule of rates as against
another, the audit of changes for every schematic drawing as revised by construction drawings, the proper
mechanism for examining discolored and mismatched tiles, the minutiae of installing G.I. sheets and sealing
cracks with epoxy sealants, or even unpaid sums for garbage collection.

The CIAC Arbitral Tribunal acted in keeping with the law, its competence, and the adduced evidence; thus,
this Court upholds and reinstates the CIAC Arbitral Tribunal's monetary awards.

VII

It does not escape this Court's attention that this controversy has dragged on for more than 13 years since
CECON initially sought to avail of arbitration.

The CIAC Arbitral Tribunal noted that ACI consumed a total of 840 days filing several motions and
manifestations, including at least eight (8) posturings at pursuing settlement.[160] It added, however, that ACI
repeatedly failed to respond to CECON's claims during meetings thereby constraining CECON to file motions
to proceed after repeatedly being dangled hope of an early resolution. [161] It appeared that ACI was more
interested in buying time than in effecting a consummate voluntary settlement.

The CIAC Arbitral Tribunal October 25, 2006 Decision should have long brought this matter to an end. This
Court does not fault ACI for availing of remedies. Yet, this Court also notes that even in proceedings outside of
the CIAC Arbitral Tribunal, ACI seems to not have been sufficiently conscientious of time.

In this Court alone, ACI sought extensions to file its Comment no less than five (5) times. [162] It sought several
other extensions in the filing of its Memorandum. [163]

It also does not escape this Court's attention that while ACI's arguments have perennially pleaded the
supposed primacy and itnmutability of stipulations originally articulated in the tender documents, it never
120
bothered to annex any of these documents either to its Comment or to its Memorandum. Without these and
other supporting materials, this Court is left in the uneasy predicament of merely relying on ACI's self-stated
assertions and without means of verifying even the syntax of its citations.

While presumptions of good faith may be indulged, the repercussions of ACI's vacillation cannot be denied.

Even if this Court were to ignore the delays borne by ACI's procedural posturing, this Court is compelled to
hearken to ACI's original faults. These are, after all, what begot these proceedings. These are the same
original faults which so exasperated CECON; it was left with no recourse but to seek the intervention of CIAC.

These faults began as soon as bidders responded to ACI's invitation. In CECON's case, its communicated time
for the validity of its offer lapsed without confinnation from ACI. ACI only verbally responded and only after
CECON's communicated timeframe. It told CECON to commence excavation works but failed to completely
deliver the project site until five (5) months later. It engaged in protracted negotiations, never confirming
acceptance until the tenth month, after bidders had submitted their offers. By then, ACI's supposed
acceptance could not even identify CECON's most recent quoted price. It undertook to process and deliver
formal documents, yet this controversy already reached this Court and not a single page of those documents
has seen the light of day. It has repeatedly added and taken from CECONs scope of works but vigorously
opposed adjustments that should have at least been given reasonable consideration, only to admit and
partially stipulate on thern. In taking upon itself the task of designing, it took its time in delivering as many
as 1,675 construction drawings to CECON, more than 600 of which were not delivered until well after the
project's intended completion date.

This Court commenced its discussion by underscoring that arbitration primarily serves the need of
expeditious dispute resolution. This interest takes on an even greater urgency in the context of construction
projects and the national interest so intimately tied with them. ACI's actions have so bogged down its
contractor. Nearing 13 years after the Gateway Mall's completion, its contractor has yet to be fully and
properly compensated. Not only have ACI's actions begotten this dispute, they have hyper-extended
arbitration proceedings and dragged courts into the controversy. The delays have virtually bastardized the
hopes at expeditious and effective dispute resolution which are supposedly the hallmarks of arbitration
proceedings.

For these, in addition to sustaining each of the awards due to CECON arising from the facets of the project,
this Court also sustains the CIAC Arbitral Tribunal's award to CECON of arbitration costs. Further, this Court
imposes upon respondent Araneta Corporation, Inc. the burden of bearing the costs of what have mutated
into a full-fledged litigation before this Court and the Court of Appeals.

WHEREFORE, the Petition is GRANTED. The assailed April 28, 2008 Decision and July 1, 2010 Amended
Decision of the Court of Appeals in CA-G.R. SP No. 96834 are REVERSED and SET ASIDE. The Construction
Industry Arbitration Commission Arbitral Tribunal October 25, 2006 Decision in CIAC Case No. 01-2004
is REINSTATED.

Legal interest at the rate of six percent (6%) per annum is imposed on the award from the finality of this
Decision until its full satisfaction.

Costs against respondent.

SO ORDERED.

121