ADR Report Construction Arbitration

7/27/2019 ADR Report Construction Arbitration

1/10

1

CONSTRUCTION DISPUTE ARBITRATION

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 ofcomponents and equipment.

Under the Revised Rules of Procedure Governing Construction Arbitration (CIAC

Revised Rules) a 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 issues of an insurance policy in a construction

project.

Construction Arbitration Under the ADR Act of 2004

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

The ADR Act of 2004 not only affirmed the original and exclusive jurisdiction of the

Construction Industry Arbitration Commission (CIAC) over construction disputes, but also

strengthened it to 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, and even if the arbitration is commercial in character.

Moreover, the ADR Act of 2004 directs the Regional Trial Courts 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

pretrial, not just to dismiss the case, but also to refer the parties to arbitration, assisted by their

respective counsels, submit to the court a written agreement making the court the body that will

resolve the dispute.

The request for the dismissal of the action and the referral to the CIAC for arbitration

shall be made through a verified motion that shall [i] contain a statement showing that the

dispute is a construction dispute; [ii] be accompanied by proof of the existence of the arbitration

agreement unless it is already part of the records of the case; and [iii] contain a notice of hearing.

The other party may file an opposition to the motion on or before the date set for the

hearing of the motion.

An order dismissing the case and referring the dispute to arbitration by the CIAC is

immediately executor.


2/10

2

The Construction Industry Arbitration Commission (CIAC)

At the forefront of construction dispute arbitration id the CIAC created by virtue of

Executive Order (E.O) No. 1008, otherwise known as the Construction Industry Arbitration

Law.It is the quasi-judicial agency accorded with the jurisdiction to resolve disputes arising

from contracts involving construction in the Philippines.

The CIAC is an agency under the Construction Industry Authority of the Philippines

(CIAP) and is administratively attached to the Department of Trade and Industry. It consists of a

Chairman and two (2) members.

The policy and objective of the CIAC is 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.

CIAC 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.

The CIAC has following functions:

1. To formulate and adopt an arbitration program for the construction industry;2. To enunciate policies and prescribe rules and procedures for construction arbitration;3. To supervise the arbitration program, and exercise such authority related thereto as regards the

appointment, replacement or challenging of arbitrators; and

4. To direct its officers and employees to perform such functions as many be assigned to them fromtime to time.The nature and character of the CIAC:

In the first place, it is a quasi-judicial agency. A quasi-judicial agency or body has been defined

as an organ government other than a court and other than a legislature, which affects the rights of

private parties through either adjudication or rule-making. The CIACs 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.

It is a quasi-judicial agency or instrumentality.

The voluntary arbitrator or the panel of voluntary arbitrators may not be strictly considered as a

quasi-judicial agency, board or commission, still both he and the panel are comprehended within

the concept of a ;quasi-judicial instrumentality.

An instrumentality is anything used as a means or agency. Thus, the terms governmental

agency or instrumentality are synonymous in the sense that either of them is a means by


3/10

3

which a government acts, or by which a certain government act or function is performed. The

word instrumentality with respect to a state, contemplates an authority to which the state

delegates governmental power for the performance of state function.

Its first Rules of Procedure Governing Construction was promulgated in August 1988. The latest

Revised Rules of Procedure Governing Construction Arbitration was approved on 19 November2005, and took effect on 15 December 2005 fifteen (15) days after its publication. This revision

was prompted by the need to align the rules with international practice and the provisions of the

ADR Act of 2004.

Jurisdiction of the CIAC

The jurisdiction of the CIAC is conferred by E.O. No. 1008. Specifically, Section 4 thereof

provides that:

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 beach thereof. these disputes may involve government or

private contracts.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for

materials and workmanship; violation of the terms of agreement; interpretation and/or

application of contractual provisions; amounts of damages and penalties; commencement time

and delays; maintenance and defects; payment default of employer or contractor and changes in

contract cost.

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the

law. It cannot be fixed by the will of the parties to a dispute, the parties can neither expand nor

diminish a tribunals jurisdiction by stipulation or agreement. The text o f Section 4 of E.O. No.

1008 is broad enough to cover any dispute arising from, or connected with construction

contracts, whether these involve mere contractual money claims or execution of the works, the

CIACs jurisdiction cannot be limited by the parties stipulation that only disputes in connection

with or arising out of the physical construction activities (execution of the works) are arbitrable

before it.

What is required for the CIAC to acquire jurisdiction is for the parties to a constructioncontract to agree to submit their dispute to arbitration.

It cannot be subjected to a condition precedent, The mere existence of an arbitration clause in

the construction contract is considered by law as an agreement by the parties to submit existing

or future controversies between them to CICA jurisdiction or condition precedent.


4/10

4

The CIAC is given the original and exclusive jurisdiction over disputes arising from, or

connected with, contracts entered into by parties involved in construction in the Philippines. This

jurisdiction cannot be altered by stipulations restricting the nature of construction disputes,

appointing another arbitral body, or making that bodys decision final and binding.

Excluded from the CIAC, jurisdiction are disputes arising from employer-employeerelationships which are covered by the Labor Code of the Philippines. Also excluded claims for

moral damages, exemplary damages, opportunity or business losses in addition to liquidated

damages, and attorneys fees, which are non-arbitrable, unless the parties acquiesce or mutually

agree to submit these issue for arbitration and to abide by the decision of the arbitrator thereon.

Ordinary civil actions for breach of contract are within the jurisdiction of the regular courts,

complains for construction disputes, including the breach of construction contracts, must be filed

with the CIAC, provided that the parties agree to submit their dispute to arbitration.

For the CIAC to acquire jurisdiction, the parties to a dispute must be bound by an arbitrationagreement in their contract of subsequently agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC is dependent on the agreement and consent of the parties to the

construction contract, to submit their dispute to arbitration, and that, absent such consent, the

CIAC cannot validly proceed against a party for lack of jurisdiction.

There are two acts which vest the CIAC with jurisdiction over a construction dispute.

One is the presence of an arbitration clause in construction.

Second is the agreement of the parties to submit the dispute to the CIAC.

An arbitration agreement or a submission to arbitration must be in writing but it need not besigned by the parties, as long as the intent is clear that the parties agree to submit a present or

future controversy arising from a construction contract to arbitration. The agreement may even

be in the form of exchange of letters sent by post or telefax, telexes, telegrams, electronic mail

or any other mode of communication.

In the event that a party has already filed a complaint before the regular courts involving a

dispute within the jurisdiction of the CIAC, the proper procedure to enable the CIAC to decide

on the dispute is to request the stay or suspension of the judicial action as provided for under the

Arbitration Law (R.A. No. 876). Moreover, the court is directed by the ADR Act not just to

dismiss the compliant falling within the CIACs jurisdiction, but also to refer the case to theCIAC.

Rules of Procedure in the CIAC

In the proceeding before the CIAC, judicial rules of evidence are not controlling and the

technicalities of law or procedure may be disregarded in order to ascertain the facts in each and

every case by every reasonable means. The arbitral tribunal of the CIAC is mandated to act


5/10

5

according to justice and equity and merits of the case, without regard to technicalities or legal

forms and not be bound by any technical rule of evidence.

Briefly, the following are the procedural rules in the CIAC:

1.Compliant/request for arbitration. The initiatory pleading is a complaint or request forarbitration which must be filed with the Secretariat of the CIAC. The complaint or request for

arbitration must allege the existence of the arbitration agreement or subsequent submission, a

copy of which should be attached to the compliant or request.

2. Answer. Within three (3) days from such the Secretariat shall transmit to the respondent arequest for his answer attaching thereto a copy of the complaint and supporting documents.

Without prejudice to extensions of time if warranted, the respondent has fifteen (15) days from

documents. Without prejudice to extensions of time if warranted, the respondent has fifteen (15)

days from receipt of the request for arbitration or complaint within which to file his answer

thereto including therein such counterclaims as he may assert, of which the complainant shall befurnished a copy.

The respondent shall be requested to inform the CIAC of his willingness to have the dispute

resolved by arbitration, which should be clearly expressed in the answer.

The failure of the respondent to file an answer or his refusal to arbitrate shall not stay the

proceeding as long as the jurisdiction of the CIAC has been properly invoked by the filling of the

request for arbitration in accordance with the CIAC.

If, before the award, the respondent appears and offers to present his evidence, the arbitral may,

for justifiable reasons, reopen the proceedings, require the respondent to file his answer with orwithout counterclaims, allow him to present evidence, and grant him a limited right to cross

examine witnesses already presented in the proceedings.

3. Reply. The claimant may file a reply to the counterclaim within fifteen (15) days from the date ofreceipt of the answer with counterclaim.

4. Appointment and acceptance of arbitrators. A tribunal of either one (1) or three (3) arbitratorsmay be appointed to settle a dispute depending on the agreement of the parties, or the discretion

of the CIAC if there is no such agreement. Each party shall submit the names of not more than

six (6) nominees from CIAC accredited arbitrators in the order of their preference for

appointment as arbitrators.

For sole arbitrators, the CIAC shall appoint among the parties nominees the common nominee

provided he is available and not disqualified. If the parties fail to submit the names of the

nominees, the CIAC shall appoint the sole arbitrator.


6/10

6

For arbitral tribunals, again the CIAC shall appoint the parties common nominees. If there is no

common nominee, the CIAC shall choose and appoint one arbitrator from the claimants

nominees and another arbitrator from the respondents nominees.

If there is once common nominee, he shall be appointed together with the two other from the list

submitted by the parties. IF there are two (2) common nominees, the CIAC shall appoint them. Ifthere are three (3) common nominees, all of them shall be appointed.

Unless there are three (3) common nominees, within fifteen (15) days from their appointment,

the two arbitrators first chosen shall select the third arbitrator. In case of failure to agree the third

member within the said period, the CIAC shall, within fifteen (15) days thereafter, appoint the

third member within the said period, the CIAC shall, within fifteen (15) days thereafter, appoint

the third member from its list of accredited arbitrator. The arbitrators thus chosen shall decide

who among them will be the chairman of the arbitral tribunal.

The arbitrators chosen must communicate to the CIAC to the CIAC their acceptance or refusalof his appointment within five (5) days from receipt thereof. If there is no communication

received within the prescribed period, a refusal to accept shall be presumed and the CIAC shall

appoint a replacement from the list of the party who nominated him or if there is none, from the

list of CIAC accredited arbitrators.

5. Challenge to arbitrators. A challenge to an arbitrator, including a motion for inhibition or arequest for disqualification or replacement which shall be treated as a challenge, shall be in the

form of a complaint under oath, stating distinctly the facts complained of, supported by

affidavits, and accompanied by such documents as may substantiate the said facts. The challenge

should be filed at any time after the challenged arbitrators appointment but before the lapse ofthe original ten (10) day period for the submission of memoranda or draft decision under Section

13.16, Rule 13, CIAC Revised Rules, without extensions.

The challenge shall be based on the following grounds:

a. Relationship by blood or marriage within the sixth degree of either party to the controversy, or tocounsels 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; ande. Other just and valid reasons affecting independence, integrity, impartiality and itnerst.

The challenged arbitrator will be given an opportunity to be heard, and subject to the

approval of the CIAC, to inhibit himself without admitting the existence of the ground of the

challenge, motion or request.


7/10

7

Upon removal or inhibition, the CIAC shall promptly appoint the replacement, on less he is

the third member, in which case, the first two members of the arbitral tribunal shall select his

replacement.

6. Preliminary conference and terms of reference. The arbitrator or arbitral tribunal shall set thecase for preliminary conference, similar to a pre-trial, not later than fifteen (15) days after theirappointment during which the following matters shall 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 issued by the parties;f. Applications for interim relief, appointment of experts and necessity of site inspection; andg. Such other matters as many aid in the just and speedy disposition of the case.

A draft copy of the document known as Terms of Reference (TOR) shall be attached to the

notice of preliminary conference. This document functions like a pre-trial order, in judicial

proceedings and controls the proceedings unless corrected for manifest errors by a motion filed

not later than the hearing date. It shall include the following:

a. The full names of the parties, and their respective counsels, if any;b. The addressed and contact numbers of the parties/counsels, to which notifications or

communications arising in the course of the 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;i. Such other particulars as may be required by the arbitral tribunal for the proper and speedy

adjudication of the case.

It shall be signed by the parties, their counsels and the arbitral tribunal after finalization.

Notwithstanding the absence of a TOR, the arbitration shall proceed on the basis of the issued

formulated by the pleadings filed by the parties.


8/10

8

7. Arbitration proceedingsa. Venue, date and time. The venue, date and time of the arbitral proceedings shall be mutually

agreed upon by the parties and the arbitral tribunal. In case of disagreement, the choice of venue

by the arbitral tribunal shall prevail.

b. Quorum. IN an arbitration with three (3) arbitrators, two (2) members of the arbitral tribunalshall comprise a quorum for the purpose of conducting a hearing.

c. Presentation of evidence. The arbitral tribunal shall at all times adopt the most expeditious forthe introduction of evidence. It shall be within its 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.

Instead of a formal bearing, the parties may agree to submit the issued for resolution after the

filling of pleadings, evidence, memorandum or draft decisions, similar to a summary judgment

under Rule 25 of the 1997 Rules of Civil Procedures.

The arbitral tribunal shall require the simultaneous submission of affidavits of witnesses in lieu

of their direct testimonies attaching thereto supporting documents. The arbitral tribunal may ask

clarificatory questions of the witnesses at any stage of the proceedings.

After the presentation and offer of evidence by the parties, the parties may be directed by the

arbitral tribunal to make a brief oral summation.

d. Draft decision or final memorandum. If any or both parties so desire, they may submit not laterten (10) calendar days from the termination of the hearing, their draft decision or final

memorandum of arguments.

e. Closing of the hearings. After the submission of the draft decision or the final memorandum, theproceedings shall be deemed closed unless the arbitral tribunal motu propio or upon the request

of any party at any time before the award is rendered, and on good cause shown, reopen the

hearing, in which case, the effective date of the closing of the hearing shall be the date of closing

of the reopened hearing.

8. Award. The award shall be rendered promptly by the arbitral tribunal within thirty (30) days from

the time the case is submitted for resolution but not more than six (6) months from the date of

signing of the TOR, or in the absence of a TOR, not more than six (6) months from the date of thelast preliminary conference called for the purpose of finalizing or signing the TOR. There shall be

extension of this period unless approved by the CIAC.

The award shall be in writing and signed by the arbitral tribunal or a majority of its members. It

shall contain the issues involved, a brief statement and discussion of the facts, and the authority

relied upon for the resolution or disposition of the case.


9/10

9

A dissent from the decision of the majority or a portion thereof shall be in writing specifying the

portion dissented from with a statement, of the reasons therefore, and shall be signed by the

dissenting member.

The final arbitral award shall become executor upon the lapse of fifteen (15) days from receipt

thereof by the parties, unless a timely motion for correction is filed by any party within the saidfifteen (15) day period. A motion for reconsideration and new trial are prohibited pleadings.

As a rule, the jurisdiction of the arbitral tribunal is terminated upon the finality of the decision,

order or award except in the following instances.

a. When a timely motion for correction has been filed, in which case jurisdiction will continue untilthe resolution of the motion and the finality of the corrected award, and

b. Notwithstanding the finality of the award, the arbitral tribunal retains jurisdiction to exerciseexecutor powers, which include the determination of the sufficiency of the bond (stay or

execution, approval of the surety or bonding company, satisfaction of the award, quashall of the

execution, issuance of alais writs, assessment of properties levied, appointment of quantity

surveyor or assessor, examination of, and issuance of subpoena ad testifcandum and subpoena

duces tecum to banks, debtors of the judgement debtor and any person holding properties or

assets of the judgment debtor.

9. Execution of the award. The arbitral tribunal, or the remaining members thereof, or, if there are

none, the CIAC itself, shall, motu propio or upon motion of the prevailing party, issued a writ of

execution of a final and executor decision, order or award requiring any sheriff or proper officer to

execute said decision, order or final award.

If the decision, order or final award is appealed, 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 eh petitioner in an amount equal to the award, conditioned upon the performance

of the judgment of the appellate court in case it upholds the award in whole or in part.

Judicial Review of CIAC Decisions

A petition for review from a final award of the CIAC may be taken by any of the a parties to

the Court of Appeals within fifteen (15) days from receipt thereof in accordance with Rule 43 of

the 1997 Rules of Civil Procedures. This petition is based on errors of fact, law or mixed fact and

law.

The petition shall not stay the execution of the final award unless the Court of Appeals issue

a temporary restraining order and/or a writ of preliminary injunction.

Generally, in the absence of any showing of grave abuse of discretion, courts must sustain

the factual findings of the CIAC arbitrator this being in accordance with the established principle


10/10

10

that the determination of certain questions of the fact falling within the peculiar technical

expertise of an administrative agency, must be accorded great respect, if not finality by the

courts. The court will not interfere in matters which are addressed to the sound discretion of

government agencies entrusted with the regulation of activities coming under the special

technical knowledge and training of such agencies.

However, as exceptions to the foregoing rule, factual findings of construction arbitrators may be

reviewed by the Supreme Court when the petitioner proves affirmatively that:

(1)The award was produced by corruption, fraud or other undue means; (2) there was evidentpartiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of

misconduct in refusing to hear 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 thematter submitted to them was not made.

Other recognized exceptions are as follows: (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

In respect of the costs of arbitrations, Sec. 5, Article XV of the Rules of Procedure Governing

Construction Arbitration states:

Decision as to Cost of Arbitrationin 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 results of suit.---- Unless otherwise provided in these

rules, costs shall be allowed to the prevailing party as a matter of course, but he 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.

Documents

ADR Report Construction Arbitration