Construction

Dispute
Arbitration
Group 12

Members:
Dacuma, Carlito
Rayoso, Sunshine
Siuagan, Maria Kristina
Sy Juco, Michelle
Tababa, Ronee
Ysulan, Jenalyn Marfa

ALTERNATIVE DISPUTE RESOLUTION

Arellano University – School of Law
2nd Semester, A.Y. 2015 – 2016
Schedule: Mondays, 7:30 PM – 9:30 PM
Professor: Atty. David Ballesteros
CONSTRUCTION DISPUTE

Construction refers 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.”1

Construction dispute 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.”2

CONSTRUCTION ARBITRATION UNDER THE ADR ACT OF 2004

(Sections 34 to 39, ADR Act of 2004; Rules 17.1 to 17.8, Special ADR Rules)

§ The original and exclusive jurisdiction of the Construction Industry Arbitration Commission (CIAC) over
construction disputes was affirmed and strengthened under ADR Act of 2004.

General Rule (GR): The ADR Act of 2004 mandates Regional Trial Courts (RTCs) before which is presented a
construction dispute for resolution, upon becoming aware that the parties had entered into an arbitration
agreement, motu propio or upon motion made not later than the pre-trial, not just to dismiss the case, but also to
refer the parties to arbitration by the CIAC.

Exception (EXP): All the parties to the arbitration, assisted by their respective counsels, submit to the court
a written agreement making the court the body that will resolve the dispute.3

NOTE:
§ An order dismissing the case and referring the dispute to arbitration by the CIAC is immediately
executory.4

CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC)

Creation
§ A quasi-judicial agency accorded with the jurisdiction to resolve dispute arising from contracts involving
construction in the Philippines by virtue of Executive Order No. 1008, otherwise known as the
“Construction Industry Arbitration Law”.
§ CIAC is under the Construction Industry Authority of the Philippines (CIAP) and is administratively
attached to the Department of Trade and Industry (DTI).

Membership
§ Composed of a Chairman and two (2) members

Policy and Objective

§ To “provide a fair and expeditious settlement of construction disputes through a non-judicial process
which ensures harmonious and friendly relations between or among the parties.”5

Functions
§ To formulate and adopt an arbitration program for the construction industry;
§ To enunciate policies and prescribe rules and procedures for construction arbitration;

                                                                                                                       
1 Fort Bonifacio Development Corporation v. Sorongon, 587 SCRA 613 [2009], p. 621, citing Fort Bonifacio Development Corporation v.
Domingo, G.R. No. 180765, 27 February 2009, 580 SCRA 398, and Gammon Philippines, Inc. v. Metro Rail Transit Development
Corporation, 481 SCRA 209 [2006], pp. 218-219; see also Romago, Inc. v. Siemens Building Technologies, Inc., 602 SCRA 656 [2009], p. 670
2 Section 2.2, CIAC Revised Rules; based on Section 35, ADR Act.
3 Section 39, ADR Act; Rule 17.1, Special ADR Rules.
4 Rule 17.6, Special ADR Rules.
5 Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda Construction and Development Corporation, 511 SCRA 335 [2006], p. 357

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 § To supervise the arbitration program, and exercise such authority related thereto as regards the
appointment, replacement or challenging or arbitrators; and
§ To direct its officers and employees to perform such functions as may be assigned to them from time to
time.

JURISDICTION OF CIAC

Under Executive Order No. 1008, the CIAC “shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the
Philippines, 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. x x x”6

§ “may include but is not limited to violation of specification for materials and workmanship; violation of
the terms of agreement; interpretation and/or application of contractual provisions; amount of damages
and penalties,; commencement time and delays; maintenance and defects; payment default of employer
or contractor and changes in contract cost”.7

Submission to CIAC’s Jurisdiction

A. CIAC’S JURISDICTION VIS A VIS THE REGULAR COURTS

Executive Order No. 1008, being a special law, takes precedence over Batas Pambansa Blg. 129, which
confers jurisdiction over certain civil actions, including those of breach of contract, upon the Municipal or
Metropolitan Trial Courts and Regional Trial Courts. Consequently, complaints for construction dispute,
including breaches of construction contracts, must be lodged with the CIAC, provided that the parties
agree to submit the same to arbitration.

B. ACQUISITION OF JURISDICTION

Section 4.1 of the CIAC Revised Rules of Procedure Governing Construction Arbitration provides that
“[a]n arbitration clause in a construction contract or a submission to arbitration of a construction dispute
shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such contract or
submission.” (Emphasis supplied.)

In the absence of any arbitration agreement or consent (expressed or implied subsequent to the accrual of
the cause of action), the jurisdiction over the construction dispute will remain with the regular courts.

Failure or Refusal to Arbitrate - Effects

A. AS TO CIAC’S JURISDICTION

Once the CIAC acquires jurisdiction over a construction dispute, the failure or even the refusal of any of
the parties to take part or appear in the arbitration proceedings will neither halt the proceedings nor
prevent the rendering of the arbitral award, pursuant to Section 4.2 of the CIAC Rules.

§ “where the jurisdiction of the CIAC is properly invoked by the filing of a Request for Arbitration in
accordance with these Rules, the failure despite due notice which amounts to a refusal
of the Respondent to arbitrate, shall not stay the proceedings notwithstanding the
absence or lack of participation of the Respondent… Arbitration proceedings shall continue, and
the award shall be made after receiving the evidence of the Claimant.”8 (Emphasis supplied)

                                                                                                                       
6 Section 4, Executive Order No. 1008.
7 See also Sections 2.1 and 2.1.1 of the CIAC Revised Rules.
8 Section 4.2, Executive Order. No. 1008.

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 B. AS TO THE PARTY WHO REFUSED (OR FAILED) TO PARTICIPATE

Any one of the parties, who failed or refused to participate in the arbitration proceedings, does not lose
completely his right to take part in the proceedings. Under Section 4.2.1 of the CIAC rules, “[i]n the event
that, before the award, the Respondent who had not earlier questioned the jurisdiction of the
Tribunal, appears and offers to present his evidence, the Arbitral Tribunal may, for reasons that
justifies the failure to appear, reopen the proceedings, require him to file his answer with or without
counterclaims, pay the fees, where required under these Rules, and allow him to present his evidence,
with limited right to cross examine witnesses already presented in the discretion of the Tribunal…”

Exclusions from CIAC’s Jurisdiction

§ Disputes arising from employer-employee relationships – For the same shall continue to be covered by
the Labor Code of the Philippines, as provided inSec. 4 of Executive Order No. 1008; and

§ Claims for moral damages, exemplary damages, opportunity, or business losses in addition to liquidated
damages, and attorney’s fees. This is so because such claims are considered non-arbitrable, unless the
parties acquiesce or mutually agree to submit these issues for arbitration and to abide by the decision of
the arbitrator thereon.9

RULES OF PROCEDURE IN THE CIAC

1. Complaint / request for arbitration

§ Must be filed with the Secretariat of the CIAC

§ Must allege the existence of the arbitration agreement or subsequent submission
§ Copy of arbitration agreement or subsequent submission attached to the complaint/request
o absence of arbitration agreement or subsequent submission shall result to dismissal
of complaint without prejudice to its refiling

2. Answer

§ Respondent has 15 days from receipt of the request for arbitration to file his answer, including its
counterclaims as the respondent may assert
§ Respondent shall clearly express his willingness to have the dispute resolved by arbitration
o Absence of which shall result to dismissal of complaint without prejudice to its refilling
upon subsequent submission
§ When jurisdiction of the CIAC has been properly invoked by the filing of the request for arbitration in
accordance with the CIAC Revised Rules, or there is an arbitration agreement or submission agreement
providing for arbitration by the CIAC: failure to file an answer to refusal to arbitrate shall not
stay the proceedings
o In such a case CIAC shall appoint the arbitrators and continue with the proceedings
§ If before the award, the respondent appears and offers to present his evidence, the arbitral tribunal may,
for justifiable reasons, reopen the proceedings, require the respondent to file his answer with or without
counterclaims, allow him to present his evidence and grant him a limited right to cross examine witnesses
already presented in the proceedings.

3. Reply

§ 15 days from date of receipt of the answer with counterclaim

4. Appointment and acceptance of arbitrators

                                                                                                                       
9 Gammon Philippines, Inc. vs. Metro Rail Transit Development Corporation, 481 SCRA 209 (2006)

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 § One (1) or three (3) may be appointed depending on the agreement of the parties, or discretion of CIAC
if there is no such agreement
§ Each party shall submit six (6) nominees from CIAC-accredited arbitrators
§ Sole arbitrators: CIAC appoint the common nominee of the parties, or, CIAC shall appoint if parties fail
to submit names of nominees
§ Arbitral tribunal: CIAC appoint the parties’ common nominees. If no common nominees, CIAC shall
choose and appoint one from each of the claimant and respondent’s nominees. The two shall select the
third arbitrator
§ Arbitrators must communicate their acceptance or refusal of appointment within five (5) days from
receipt thereof

5. Challenge to arbitrators

§ Shall be in a form of complaint under oath

Grounds:
a. Relationship by blood or marriage within the sixth degree of either party to the controversy, or to counsels
within the fourth degree, computed according to the rules of civil law;
b. Financial, fiduciary or other interest in the controversy;
c. Partiality or bias;
d. Incompetence, or professional misconduct; and
e. Other just and valid reasons affecting independence, integrity, impartiality and interest.

6. Preliminary conference and terms of reference

§ Must be conducted not later than 15 days after appointment of arbitrators

Matters to be considered:
a. Possibility of amicable settlement;
b. Necessity or desirability of amendment to pleadings;
c. Obtaining stipulations or admission of facts and/or documents to avoid unnecessary proof;
d. Limitation of the number of witnesses;
e. Suggested formulation of issues by the parties;
f. Application for interim relief, appointment of experts and necessity of site inspection; and
g. Such other matters as may aid in the just and speedy disposition of the case.

Draft copy of Terms of Reference (TOR) shall be attached to the notice of preliminary conference, and shall be
signed by the parties, their counsels and the arbitral tribunal after the finalization. It shall include the following:
a. The full names of the parties, and their respective counsels, if any;
b. The addresses and contact numbers of the parties/counsels, to which notifications or communications
arising in the course of arbitration may be validly made;
c. A summary of the parties’ respective claims;
d. Full statement of admitted facts and documents;
e. The issues to be resolved in question form;
f. The arbitrators’ full names;
g. The place where the arbitration proceedings shall be held;
h. The breakdown, schedule of payments, and sharing of arbitration fees; and
i. Such other particulars as may be required by the arbitral tribunal for the proper and speedy adjudication
of the case.

Notwithstanding absence of TOR, arbitration shall proceed based on the issues formulated by the pleadings filed
by the parties

7. Arbitration proceedings

Venue, date and time: Mutually agreed upon by the parties and the arbitral tribunal. In case of disagreement,
the choice of venue by the arbitral tribunal shall prevail

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Quorum: Two (2) members of arbitral tribunal shall comprise quorum

Presentation of evidence: The arbitral tribunal shall at all times adopt the most expeditious procedure for the
introduction of evidence. It shall be the arbitral tribunal’s discretion to determine the order of presentation of
evidence. Generally, the party who seeks to enforce a right or establish a claim shall be required to present his
evidence first.

Draft decision or final memorandum: Parties may submit not later than 10 calendar days from the
termination of the hearing.

Closing of the hearings: Proceedings shall be deemed closed after submission of the draft decision or final
memorandum, unless, any party request to reopen the hearing before the award is rendered and on good cause
shown. Effective date of hearing shall be the date of closing of the reopened hearing.

8. Award

§ Rendered within 30 days from the time the case is submitted for resolution but not more than six
(6) months from the date of the last preliminary conference called for the purpose of finalizing or
signing the TOR
§ Award shall be in writing and signed by the arbitral tribunal or a majority of its members
§ Dissent from the decision of the majority shall be in writing and signed by the dissenting member
§ Final arbitral award shall become executor upon the lapse of 15 days from receipt by the parties, unless
a timely motion for correction is filed by any party within the 15-day period
§ Jurisdiction of the arbitral tribunal is terminated upon finality of the decision

EXP:
a. Timely motion for correction has been filed
b. Notwithstanding the finality of award, the arbitral tribunal retains jurisdiction to exercise executor
powers

9. Execution of the award

§ Arbitral tribunal, or remaining members thereof, or the CIAC in case of none, shall, motu propio upon
motion of the prevailing party, issue a writ of execution of a final and executory decision, order or
award requiring any sheriff or proper officer to execute the said decision, order or final award.

§ If the decision, order or final award is repealed, the execution may be stayed upon approval by the arbitral
tribunal, or the remaining members thereof, with the concurrence of the CIAC, of a bond posted by the
petitioner in an amount equal to the award, conditioned upon the performance of the judgment of the
appellate court in case it upheld the award in whole or in part.

JUDICIAL REVIEW OF CIAC DECISIONS

Petition for Review

Final (CA)
Award within 15 days
(CIAC) (Rule 43, 1997 Rules
of Civil Procedure)

Based on errors of:

1. FACT
2. LAW
3. MIXED FACT AND LAW
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GR: The petition shall not stay the execution of the final award.
EXP: Issuance by the Court of Appeals (CA) of a Temporary Restraining Order and/or a writ of Preliminary
Injunction.

GR: Court must sustain the factual findings of the CIAC Arbitrator (in the absence of any showing of grave abuse
of discretion)
EXP:
Factual findings may be reviewed by the Supreme Court 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 hear the evidence pertinent and material to the
controversy;
4. One 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 definitive
award upon the subject matter submitted to them was not made.

Other Recognized Exceptions:

1. When there is a very clear showing of grave abuse of discretion resulting in lack or excess of jurisdiction as
when a party was deprived of a fair opportunity to present its position before the Arbitral Tribunal or when an
award is obtained through fraud or the corruption of arbitrators;
2. When the findings of the Court of Appeals are contrary to those of the CIAC; and
3. When a party is deprived of administrative due process.

COSTS OF ARBITRATION

Sec. 5, Article XV of the Rules of Procedure Governing Construction Arbitration states:

Decision as to Cost of Arbitration. – In the case of non-monetary claims or where the parties agreed
that the sharing of fees shall be determined by the Arbitrator(s), the award shall, in addition to dealing
with the merits of the case, fix the cost of arbitration, and/or decide which of the parties shall bear the
cost(s) or in what proportion the cost(s) shall be borne by each.

Rule 142 of the Revised Rules of Court of the Philippines governing the imposition of costs likewise provides the
following:

Section 1. Costs ordinarily follow the result of suit. – Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as a matter of course, but the court shall have the power for
special reasons, to adjudge that either party shall pay the cost of an action, or that the same shall be
divided, as may be equitable.”

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