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G.R. No. 146717 November 22, 2004 TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents. D E C I S I O N Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and its supranational character. Petitioner has appealed from the Decision 1 of the Court of Appeals in CA-G.R. SP No. 61901 entitled "Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated on 31 January 2001. 2 On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract 3 whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project. 4 The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself. 5 Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract. 6 To secure performance of petitioner's obligation on or before the target completion date, or such time for completion as may be determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank) 7 and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC) 8 each in the amount of US$8,988,907.00. 9 In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition. The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999. 10 This was followed by another Request for Arbitration, this time filed by petitioner before the International Chamber of Commerce (ICC) 11 on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract, 12 petitioner—in two separate letters 13 both dated 10 August 2000—advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages. As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.2 14 of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them. 15 LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of liquidated damages for the delay. 16 On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati. 17 Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati. After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000. 18 The RTC, in its Order 19 dated 24 November 2000, denied petitioner's application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the 1

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G.R. No. 146717 November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner, vs.LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents.

D E C I S I O N

Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and its supranational character.

Petitioner has appealed from the Decision1 of the Court of Appeals in CA-G.R. SP No. 61901 entitled "Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated on 31 January 2001.2

On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract3 whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project.4

The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself. 5

Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract.6

To secure performance of petitioner's obligation on or before the target completion date, or such time for completion as may be determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)7 and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)8 each in the amount of US$8,988,907.00.9

In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition.

The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999.10

This was followed by another Request for Arbitration, this time filed by petitioner before the International Chamber of Commerce (ICC)11 on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date.

Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract,12 petitioner—in two separate letters13 both dated 10 August 2000—advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages.

As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.214 of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them.15

LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28 June 2000 until

actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of liquidated damages for the delay.16

On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati.17 Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.

After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000.18

The RTC, in its Order19 dated 24 November 2000, denied petitioner's application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims.

Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction.20 Petitioner submitted to the appellate court that LHC's call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated damages.

Refuting petitioner's contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for liquidated damages. It averred that the Securities are independent of the main contract between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the certificates or the declarant's capacity or entitlement to so certify.

In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in any manner disposing of the Securities.

However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.

On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial court's decision that LHC could call on the Securities pursuant to the first principle in credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit, it was of no moment that he had not complied with the underlying contract. Further, the appellate court held that even assuming that the trial court's denial of petitioner's application for a writ of preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari, unlike error of jurisdiction.

Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution:

WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARY'S CALL THEREON IS WRONGFUL OR FRAUDULENT.

WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONER'S AND LHC'S DISPUTES BY THE APPROPRIATE TRIBUNAL.

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WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHC'S CALL THEREON IS WRONGFUL.

WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT:

A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC.

B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.21

Petitioner contends that the courts below improperly relied on the "independence principle" on letters of credit when this case falls squarely within the "fraud exception rule." Respondent LHC deliberately misrepresented the supposed existence of delay despite its knowledge that the issue was still pending arbitration, petitioner continues.

Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent local courts.

On 25 August 2003, petitioner filed a Supplement to the Petition22 and Supplemental Memorandum,23 alleging that in the course of the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through the use of different modes of discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred delays— notwithstanding its knowledge and admission that delays were excused under the Turnkey Contract—to be able to draw against the Securities. Reiterating that fraud constitutes an exception to the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon.

In its Manifestation dated 8 September 2003,24 LHC contends that the supplemental pleadings filed by petitioner present erroneous and misleading information which would change petitioner's theory on appeal.

In yet another Manifestation dated 12 April 2004,25 petitioner alleges that on 18 February 2004, the ICC handed down its Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for liquidated damages.

LHC filed a Counter-Manifestation dated 29 June 2004,26 stating that petitioner's Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled "Transfield Philippines Inc. v. Luzon Hydro Corporation," in which the parties made claims and counterclaims arising from petitioner's performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled "Transfield Philippines, Inc. v. Luzon Hydro Corporation" before Branch 56 of the RTC of Makati, which is an action to enforce and obtain execution of the ICC's partial award mentioned in petitioner's Manifestation of 12 April 2004.

In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum, LHC stresses that the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. At any rate, LHC adds that the action to enforce the ICC's partial award is now fully within the Makati RTC's jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court.

Respondent SBC in its Memorandum, dated 10 March 200327 contends that the Court of Appeals correctly dismissed the petition for certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latter's capacity or entitlement to so certify. It adds that the

act sought to be enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose.

In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 200328 posits that its actions could not be regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHC's allegations that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of Credit No. E001126/8400 had been fully drawn, petitioner's prayer for preliminary injunction had been rendered moot and academic.

At the core of the present controversy is the applicability of the "independence principle" and "fraud exception rule" in letters of credit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as "credits," would provide a better perspective of the case.

The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the bank's customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often negotiable.29

In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.30 The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits.31

There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract.32

By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.33 A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.34

Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. The vast majority of letters of credit incorporate the UCP.35 First published in 1933, the UCP for Documentary Credits has undergone several revisions, the latest of which was in 1993.36

In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,37 this Court ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. More recently, in Bank of America, NT & SA v. Court of Appeals,38 this Court ruled that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the UCP is undeniable.

Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or

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negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank.

Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.39

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.40

Can the beneficiary invoke the independence principle?

Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense available only to respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle.

As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with.41 Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction.

Given the nature of letters of credit, petitioner's argument—that it is only the issuing bank that may invoke the independence principle on letters of credit—does not impress this Court. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary.

Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called "beneficiary."

Petitioner's argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions.

Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue:

The standby credit is an attractive commercial device for many of the same reasons that commercial credits are attractive. Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher costs than credits do and are usually triggered by a factual determination rather than by the examination of documents.

Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two commercial devices share a common purpose. Both ensure against the obligor's nonperformance. They function, however, in distinctly different ways.

Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's performance, usually by hiring someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong financial institution that will perform if the obligor does not. The beneficiary also should understand that such performance must await the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the surety's performance takes time.

The standby credit has different expectations. He reasonably expects that he will receive cash in the event of nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the applicant) over the nature of the applicant's performance takes place. The standby credit has this opposite effect of the surety contract: it reverses the financial burden of parties during litigation.

In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the obligor's performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds the money and the beneficiary bears most of the cost of delay in performance.

In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiary's presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or in breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such a credit should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary.42

While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. The situation itself emasculates petitioner's posture that LHC cannot invoke the independence principle and highlights its puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself.

Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was "ministerial" for them to honor the call for payment.43

Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the Contract read, thus:

4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit (the "Securities"), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions acceptable to the Employer. Each of the Securities must be in form and substance

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acceptable to the Employer and may be provided on an annually renewable basis.44

8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated damages ("Liquidated Damages for Delay") the amount of US$75,000 for each and every day or part of a day that shall elapse between the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated Damages for Delay for each day of the delay on the following day without need of demand from the Employer.

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due to the Contractor and/or by drawing on the Security."45

A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage, and law.46 A careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the happening of the contingency for which the Securities have been proffered. Thus, even without the use of the "independence principle," the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default.

Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call on the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral tribunals. It asserts that the "fraud exception" exists when the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it.

Citing Dolan's treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is important to fashion those limits in light of the principle's purpose, which is to serve the commercial function of the credit. If it does not serve those functions, application of the principle is not warranted, and the commonlaw principles of contract should apply.

It is worthy of note that the propriety of LHC's call on the Securities is largely intertwined with the fact of default which is the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of delay in the performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the issue of default—such issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement.47

Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities?

Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against payment.48 The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.49

In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253) days which would move the target completion date. It argued that if its claims for extension would be found meritorious by the ICC, then LHC would not be entitled to any liquidated damages.50

Generally, injunction is a preservative remedy for the protection of one's substantive right or interest; it is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion

should be exercised based upon the grounds and in the manner provided by law.51

Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right.52 It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.53 Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.54

In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities which would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract.55 Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus:

4.2.5 The Employer shall give the Contractor seven days' notice of calling upon any of the Securities, stating the nature of the default for which the claim on any of the Securities is to be made, provided that no notice will be required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.56

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due, to the Contractor and/or by drawing on the Security.57

The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default.

Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction.58 What petitioner did assert before the courts below was the fact that LHC's draws on the Securities would be premature and without basis in view of the pending disputes between them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.59 The lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHC's call upon the Securities.

Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.60 More importantly, pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code,61 petitioner could have incorporated in its Contract with LHC, a proviso that only the final determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is petitioner did not do so; hence, it would have to live with its inaction.

With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LHC's certification that default has occurred. Neither were they bound by petitioner's declaration that LHC's call thereon was wrongful. To repeat, respondent banks' undertaking was simply to pay once the required documents are presented by the beneficiary.

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At any rate, should petitioner finally prove in the pending arbitration proceedings that LHC's draws upon the Securities were wrongful due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principles of law.

Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this Court that the subject letters of credit had been fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition.

Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an accomplished or consummated act.63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled that where the period within which the former employees were prohibited from engaging in or working for an enterprise that competed with their former employer—the very purpose of the preliminary injunction —has expired, any declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar as the preliminary injunction is concerned.

In the instant case, the consummation of the act sought to be restrained had rendered the instant petition moot—for any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing controversy.65 The other issues raised by petitioner particularly with respect to its right to recover the amounts wrongfully drawn on the Securities, according to it, could properly be threshed out in a separate proceeding.

One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-Manifestation dated 29 June 200466 LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC argues that petitioner's acts constitutes forum-shopping which should be punished by the dismissal of the claim in both forums. Second, in its Comment to Petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332—wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities should be returned—petitioner resorted to forum-shopping. In both instances, however, petitioner has apparently opted not to respond to the charge.

Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely, by some other court.67 It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court might look with favor upon the other party.68 To determine whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case will amount to res judicata in another.69 Forum-shopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and direct contempt of court.70

Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge.

WHEREFORE, the instant petition is DENIED, with costs against petitioner.

Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice.

SO ORDERED.

SECOND DIVISION

G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner, vs.PHILIPPINE KINGFORD, INC., Respondent.

D E C I S I O N

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 Resolution2 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 Award3 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.

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 Agreement10

dated 15 January 2003 and an Agreement to Amend Memorandum of Agreement11 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

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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,17 respondent 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.

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

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."

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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.

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 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.46 Surely, 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

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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.

SECOND DIVISION

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner, vs.HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, respondents.

D E C I S I O N

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile methods have long been favored by this Court. The petition before us puts at issue an arbitration clause in a contract mutually agreed upon by the parties stipulating that they would submit themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped,

delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.

However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have completely complied with the terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter 6

to PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President who was then staying at a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the payments were stopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on mere imagined violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter threatening that the machineries, equipment, and facilities installed in the plant would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped were not funded but later on claimed that it stopped payment of the checks for the reason that "their value was not received" as the former allegedly breached their contract by "altering the quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to make the plant operational although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and transferring the machinery and equipment installed in the plant which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the local courts of jurisdiction over the instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9

asserting that it had the full right to dismantle and transfer the machineries and equipment because it had paid for them in full as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks for failing to completely install and make the plant operational; and that KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the plant considering that the LPG cylinder manufacturing plant never became operational.

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After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arise between the parties. KOGIES’ prayer for an injunctive writ was denied.10 The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant from dismantling the machineries and facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site: and therefore denies plaintiff’s application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES denied it had altered the quantity and lowered the quality of the machinery, equipment, and facilities it delivered to the plant. It claimed that it had performed all the undertakings under the contract and had already produced certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMC’s fault since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13

answering PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order denying its application for an injunctive writ claiming that the contract was not merely for machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery and facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that the dismantling and transfer of the machinery and facilities would result in the dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there was indeed alteration of the quantity and lowering of quality of the machineries and equipment, and whether these were properly installed. KOGIES opposed the motion positing that the queries and issues raised in the motion for inspection fell under the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims as these counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21, 1998 RTC Order granting inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration and directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant on October 28, 1998.19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition, mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries and equipment conformed to the specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding that the enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declaredthe arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention that the total contract price for USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration clause which provided for a final determination of the legal rights of the parties to the contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docket fees was not required since the Answer with counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be given the opportunity to correct any alleged error it has committed, and that since the assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

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Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory counterclaim or a cross-claim that a defending party has at the time he files his answer shall be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory pleading which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies to question the propriety of an interlocutory order of the trial court."26 The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which was not assailable in an action for certiorari since the denial of a motion to quash required the accused to plead and to continue with the trial, and whatever objections the accused had in his motion to quash can then be used as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory orders would result in the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from the appellate court as often as a trial court is perceived to have made an error in any of its interlocutory rulings. However, where the assailed interlocutory order was issued with grave abuse of discretion or patently erroneous and the remedy of appeal would not afford adequate and expeditious relief, the Court allows certiorari as a mode of redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with grave abuse of discretion, the remedy is certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the injunctive writ had already been denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order relating to the inspection of things, and the allowance of the compulsory counterclaims has not yet been resolved, the

circumstances in this case would allow an exception to the rule that before certiorari may be availed of, the petitioner must have filed a motion for reconsideration and said motion should have been first resolved by the court a quo. The reason behind the rule is "to enable the lower court, in the first instance, to pass upon and correct its mistakes without the intervention of the higher court."30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or substantial damage to KOGIES’ equipment and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on the October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration.—All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection with this Contract or for the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award rendered by the arbitration(s) shall be final and binding upon both parties concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to any law, or against morals, good customs, public order, or public policy. There has been no showing that the parties have not dealt with each other on equal footing. We find no reason why the arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled 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."37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to supplement the New Civil Code’s provisions on arbitration."39 And in LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration––along with mediation, conciliation and

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negotiation––is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.

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.40

Having said that the instant arbitration clause is not against public policy, we come to the question on what governs an arbitration clause specifying that in case of any dispute arising from the contract, an arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model lawto which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of our domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration41 of the United Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself to be bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 entitled 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, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

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 (United Nations Document A/40/17) and recommended for enactment by the General Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix "A".

SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be had to its international origin and to the need for uniformity in its interpretation and resort may be made to the travaux preparatories and the report of the Secretary General of the United Nations Commission on International Trade Law dated March 25, 1985 entitled, "International Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264."

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 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.42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:

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 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.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are not immediately enforceable or cannot be implemented immediately. Sec. 3543 of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

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

The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made in party to the New York Convention.

x x x x

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York Convention.––The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a court of a foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same manner as final and executory decisions of courts of law of the Philippines

x x x x

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an arbitration agreement or for vacations, setting aside, correction or modification of an arbitral award, and any application with a court for arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of business; or (iv) in the National Judicial Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and enforcement of an arbitral award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot be served notice at such address, at such party’s last known address. The notice shall be sent al least fifteen (15) days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not immediately executory in the sense that they may still be judicially reviewed ,

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upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:

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

The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been made, the Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security.

x x x x

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 procedures and 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.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or 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 and 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 appellate court to post a 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.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under Rule 45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself through the subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as the international arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not contrary to public policy; consequently, being bound to the contract of arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding cases,48 that the act of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on account of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by a party or differences arising from the contract must be brought first and resolved by arbitration, and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment and machineries delivered and installed were properly installed and operational in the plant in Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether there was substantial compliance by KOGIES in the production of the samples, given the alleged fact that PGSMC could not supply the raw materials required to produce the sample LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection of Things on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is not technically competent to ascertain the actual status of the equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of the inspection of the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.

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Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or not there was full payment for the machineries and equipment and installation is indeed a factual issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the said issue. The RTC’s determination of such factual issue constitutes grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification thereof, may be made with the arbitral or to the extent that the arbitral tribunal has no power to act or is unable to act effectivity, the request may be made with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written communication of said nomination and acceptance has been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by reasonable means to the Court or arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting from noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the order’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that even "the pendency of an arbitral proceeding does not foreclose resort to the courts for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the application of a party to a judicial authority for interim or conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights 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. In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively.50

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and preserve the equipment and machineries in the best way it can. Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and machineries either for their protection and preservation or for the better way to make good use of them which is ineluctably within the management discretion of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’s property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the award

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of which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the diligence of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

G.R. No. 196171 December 10, 2012

RCBC CAPITAL CORPORATION, Petitioners, vs.BANCO DE ORO UNIBANK, INC., Respondent.

X- - - - - - - - - - - - - - - - - - - - - - - - - -X

G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner, vs.COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.

D E C I S I O N

VILLARAMA, JR., J.:

Before the Court are two consolidated petitions separately filed by the parties in an arbitration case administered by the International Chamber of Commerce-International Court of Arbitration (ICC-ICA) pursuant to the arbitration clause in their contract.

The Case

In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, RCBC Capital Corporation (RCBC) seeks to reverse the Court of Appeals (CA) Decision1 dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside the June 24, 2009 Order 2 of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP Proc. Case No. M-6046.

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc. (BDO)assails the Resolution3 dated September 13, 2011 in CA-G.R. SP No. 120888 which denied BDO’s application for the issuance of a stay order and/or temporary restraining order (TRO)/preliminary injunction against the implementation of the Writ of Execution4 dated August 22, 2011 issued by the Makati City RTC, Branch 148 in SP Proc. Case No. M-6046.

Factual Antecedents

On May 24, 2000, RCBC entered into a Share Purchase Agreement5 (SPA) with Equitable-PCI Bank, Inc. (EPCIB), George L. Go and the individual shareholders6 of Bankard, Inc. (Bankard) for the sale to RCBC of 226,460,000 shares (Subject Shares) of Bankard, constituting 67% of the latter’s capital stock. After completing payment of the contract price (P1,786,769,400), the corresponding deeds of sale over the subject shares were executed in January 2001.

The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB and the other selling shareholdersof an overpayment of the subject shares, claiming there was an overstatement of valuation of accounts amounting to P478 million and that the sellers violated their warrantyunder Section 5(g)of the SPA.7

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA in accordance with Section 10 of the SPA which states:

Section 10.Arbitration

Should there be any dispute arising between the parties relating to this Agreement including the interpretation or performance hereof which cannot be resolved by agreement of the parties within fifteen (15) days after written notice by a party to another, such matter shall then be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in force as of the time of arbitration, by three arbitrators appointed in accordance with such rules. The venue of arbitration shall be in Makati City, Philippines and the arbitration proceedings shall be conducted in the English language. Substantive aspects of the dispute shall be settled by applying the laws of the Philippines. The decision of the arbitrators shall be final and binding upon the parties hereto and the expenses of arbitration (including without limitation the award of attorney’s fees to the prevailing party) shall be paid as the arbitrators shall determine.8

In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC charged Bankard with deviating from and contravening generally accepted accounting principles and practices, due to which the financial statements of Bankard prior to the stock purchase were far from fair and accurate, and resulted in the overpayment of P556 million. For this violation of sellers’representations and warranties under the SPA, RCBC sought its rescission, as well as payment of actual damages in the amount of P573,132,110, legal interest on the purchase price until actual restitution, moral damages and litigation and attorney’s fees, with alternative prayer for award of damages in the amount of at least P809,796,082 plus legal interest.

In their Answer,10 EPCIB, Go and the other selling individual shareholders (Respondents) denied RCBC’s allegations contending that RCBC’s claim is one for overpayment or price reduction under Section 5(h) of the SPA which is already time-barred, the remedy of rescission is unavailable, and even assuming that rescission is permitted by the SPA, RCBC failed to file its claim within a reasonable time. They further asserted that RCBC is not entitled to its alternative prayer for damages, being guilty of laches and failing to set out the details of the breach as required under Section 7 of the SPA. A counterclaim for litigation expenses and costs of arbitration in the amount of US$300,000, as well as moral and exemplary damages, was likewise raised by the Respondents.

RCBC submitted a Reply11 to the aforesaid Answer.

Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan was nominated by RCBC; Justice Santiago M. Kapunan (a retired Member of this Court) was nominated by the Respondents; and Sir Ian Barker was appointed by the ICC-ICA as Chairman.

On August 13, 2004, the ICC-ICA informed the parties that they are required to pay US$350,000 as advance on costs pursuant to Article 30 (3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid its share of US$107,000, the balance remaining after deducting payments of US$2,500 and US$65,000 it made earlier. Respondents’ share of the advance on costs was thus fixed at US$175,000.

Respondents filed an Application for Separate Advances on Costs12 dated September 17, 2004 under Article 30(2) of the ICC Rules, praying that the ICC fix separate advances on the cost of the parties’ respective claims and counterclaims, instead of directing them to share equally on the advance cost of Claimant’s (RCBC) claim. Respondents deemed this advance cost allocation to be proper, pointing out that the total amount of RCBC’s claim is substantially higher – more than 40 times –the total amount of their counterclaims, and that it would be unfair to require them to share in the costs of arbitrating what is essentially a price issue that is now time-barred under the SPA.

On September 20, 2004, the ICC-ICA informed Respondents that their application for separate advances on costs was premature pending the

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execution of the Terms of Reference (TOR).13 The TOR was settled by the parties and signed by the Chairman and Members of the Arbitral Tribunal by October 11, 2004. On December 3, 2004,14 the ICC-ICA denied the application for separate advances on costs and invited anew the Respondents to pay its share in the advance on costs. However, despite reminders from the ICC-ICA, Respondents refused to pay their share in the advance cost fixed by the ICC-ICA. On December 16, 2004, the ICC-ICA informed the parties that if Respondents still failed to pay its share in the advance cost, it would apply Article 30(4) of the ICC Rules and request the Arbitration Tribunal to suspend its work and set a new time limit, and if such requested deposit remains unpaid at the expiry thereof, the counterclaims would be considered withdrawn.15

In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay the said amount in substitution of Respondents.It also granted an extension until January 17, 2005 within which to pay the balance of the advance cost (US$175,000). RCBC replied that it was not willing to shoulder the share of Respondents in the advance on costs but nevertheless requested for a clarification as to the effect of such refusal to substitute for Respondents’share.16

On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to suspend its work and granted the parties a final time-limit of 15 days to pay the balance of the advanceon costs, failing which the claims shall be considered withdrawn, without prejudice to their reintroduction at a later date in another proceeding. The parties were advised that if any of them objects to the measure, it should make a request in writing within such period.17 For the same reason of non-receipt of the balance of the advance cost, the ICC-ICA issued Procedural Order No. 3 for the adjournment of the substantive hearings and granting the Respondents a two-month extension within which to submit their brief of evidence and witnesses.

RCBC objected to the cancellation of hearings, pointing out that Respondents have been given ample time and opportunity to submit their brief of evidence and prepare for the hearings and that their request for postponement serves no other purpose but to delay the proceedings. It alleged that Respondents’ unjustified refusal to pay their share in the advance on costs warrants a ruling that they have lost standing to participate in the proceedings. It thus prayed that Respondents be declared as in default, the substantive hearings be conducted as originally scheduled, and RCBC be allowed to submit rebuttal evidence and additional witness statements.18

On December 15, 2005, the ICC-ICA notified the parties of its decision to increase the advances on costs from US$350,000 to US$450,000 subject to later readjustments, and again invited the Respondents to pay the US$100,000 increment within 30 days from notice. Respondents, however, refused to pay the increment, insisting that RCBC should bear the cost of prosecuting its own claim and that compelling the Respondents to fund such prosecution is inequitable. Respondents reiterated that it was willing to pay the advance on costs for their counterclaim.19

On December 27, 2005, the ICC-ICA advised that it was not possible to fix separate advances on costs as explained in its December 3, 2004 letter, and again invited Respondents to pay their share in the advance on costs. Respondents’ response contained in the letter dated January 6, 2006 was still the same: it was willing to pay only the separate advance on costs of their counterclaim.20 In view of Respondents’ continuing refusal to pay its equal share in the advance on costs and increment, RCBC wrote the ICC-ICA stating that the latter should compel the Respondents to pay as otherwise RCBC will be prejudiced and the inaction of the ICC-ICA and the Arbitration Tribunal will detract from the effectiveness of arbitration as a means of settling disputes. In accordance with Article 30(4) of the ICC Rules, RCBC reiterated its request to declare the Respondents as in default without any personality to participate in the proceedings not only with respect to their counterclaims but also to the claim of RCBC.21

Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:

x x x x

2. The Tribunal has no power under the ICC Rules to order the Respondents to pay the advance on costs sought by the ICC or to give the Claimant any relief against the Respondents’ refusal to pay. The ICC Rules differ from, for example, the Rules of the LCIA (Article 24.3) which enables a party paying the share of costs which the other party has refused to pay, to recover "that amount as a debt immediately due from the defaulting party."

3. The only sanction under the ICC Rules is contained within Article 30 (4). Where a request for an advance on costs has not been complied with, after consultation with the Tribunal, the Secretary-General may direct the Tribunal to suspend its work. After expiry of a time limit, all claims and counterclaims are then

considered as withdrawn. This provision cannot assist a Claimant who is anxious to litigate its claim. Such a Claimant has to pay the sums requested (including the Respondents’ share) if it wishes the arbitration to proceed.

4. It may be possible for a Claimant in the course of the arbitral hearing (or whenever costs are being considered by the Tribunal) to make submissions based on the failure of the Respondents to pay their share of the costs advance.What relief, if any, would have to be then determined by the Tribunal after having heard submissions from the Respondents.

5. I should be pleased if the Claimant will advise the Tribunal of its intention in relation to the costs advance. If the costs are not paid, the arbitration cannot proceed.22 (Italics in the original; emphasis supplied)

RCBC paid the additional US$100,000 under the second assessment to avert suspension of the Arbitration Tribunal’s proceedings.

Upon the commencement of the hearings, the Arbitration Tribunal decided that hearings will be initially confined to issues of liability (liability phase) while the substantial issues will be heard on a later date (quantum phase).

Meanwhile, EPCIB’s corporate name was officially changed to Banco De Oro (BDO)-EPCIB after its merger with BDO was duly approved by the Securities and Exchange Commission. As such, BDO assumed all the obligations and liabilities of EPCIB under the SPA.

On September 27, 2007, the Arbitration Tribunal rendered a Partial Award23

(First Partial Award) in ICC-ICA Case No. 13290/MS/JB/JEM,as follows:

15 AWARD AND DIRECTIONS

15.1 The Tribunal makes the following declarations by way of Partial Award:

(a) The Claimant’s claim is not time-barred under the provisions of this SPA.

(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from pursuing its claim.

(c) As detailed in the Partial Award, the Claimant has established the following breaches by the Respondents of clause 5(g) of the SPA:

i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on and recognition of Late Payment Fees;

ii) reported receivables were higher than their realisable values by reason of the ‘bucketing’ method, thus overstating Bankard’s assets; and

iii) the relevant Bankard statements were inadequate and misleading in that their disclosures caused readers to be misinformed about Bankard’s accounting policies on revenue and receivables.

(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.

(e) The Claimant is not entitled to rescission of the SPA.

(f) All other issues, including any issue relating to costs, will be dealt with in a further or final award.

15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial Award to deal with the determination of quantum and in particular, whether there should be an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the Tribunal in this regard.

15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable to agree with

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the majority’s conclusion on the claim of estoppel brought by the Respondents.24 (Emphasis supplied)

On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046)amotion to confirm the First Partial Award, while Respondents filed a motion to vacate the same.

ICC-ICA by letter25 dated October 12, 2007 increased the advance on costs from US$450,000 to US$580,000. Under this third assessment, RCBC paid US$130,000 as its share on the increment. Respondents declined to pay its adjudged total share of US$290,000 on account of its filing in the RTC of a motion to vacate the First Partial Award.26 The ICC-ICA then invited RCBC to substitute for Respondents in paying the balance of US$130,000 by December 21, 2007.27 RCBC complied with the request, making its total payments in the amount of US$580,000.28

While RCBC paid Respondents’ share in the increment (US$130,000), it reiterated its plea that Respondents be declared as in default and the counterclaimsdeemed as withdrawn.29

Chairman Barker’s letter dated December 18, 2007 states in part:

x x x x

8. Contrary to the Complainant’s view, the Tribunal has no jurisdiction to declare that the Respondents have no right to participate in the proceedings concerning the claim. Article 30(4) of the ICC Rules applies only to any counterclaim of the Respondents.

9. The Tribunal interprets the Claimant’s latest letter as an application by the Claimant to the Tribunal for the issue of a partial award against the Respondents in respect of their failure to pay their share of the ICC’s requests for advance on costs.

10. I should be grateful if the Claimant would confirm that this is the situation. If so, the Claimant should propose a timetable for which written submissions should be made by both parties. This is an application which can be considered by the Tribunal on written submissions.30 (Emphasis supplied)

RCBC, in a letter dated December 26, 2007, confirmed the Arbitration Tribunal’s interpretation that it was applying for a partial award against Respondents’ failure to pay their share in the advance on costs.31

Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued an order in SP Proc. Case No. M-6046 confirming the First Partial Award and denying Respondents’ separate motions to vacate and to suspend and inhibit Barker and Kaplan. Respondents’ motion for reconsideration was likewise denied. Respondents directly filed with this Court a petition for review on certiorari under Rule 45, docketed as G.R. No. 182248 and entitled Equitable PCI Banking Corporation v. RCBC Capital Corporation.32 In our Decision dated December 18, 2008, we denied the petition and affirmed the RTC’s ruling confirming the First Partial Award.

On January 18, 2008, the Arbitration Tribunal set a timetable for the filing of submission by the parties on whether it should issue a Second Partial Award in respect of the Respondents’ refusal to pay an advance on costs to the ICC-ICA.

In compliance, RCBC filed on February 7, 2008an Application for Reimbursement of Advance on Costs Paid, praying for the issuance of a partial award directing the Respondents to reimburse its payment in the amount of US$290,000 representing Respondents’ share in the Advance on Costs and to consider Respondents’ counterclaim for actual damages in the amount of US$300,000, and moral and exemplary damages as withdrawn for their failure to pay their equal share in the advance on costs. RCBC invoked the plain terms of Article 30 (2) and (3) to stress the liability of Respondents to share equally in paying the advance on costs where the Arbitration Tribunal has fixed the same.33

Respondents, on the other hand, filed their Opposition34 to the said application alleging that the Arbitration Tribunal has lost its objectivity in an unnecessary litigation over the payment of Respondents’ share in the advance costs. They pointed out that RCBC’s letter merely asked that Respondents be declared as in default for their failure to pay advance costs but the Arbitration Tribunal, while denying the request offered an alternative to RCBC: a Partial Award for Respondents’ share in the advance costs even if it was clear from the language of RCBC’s December 11, 2007 letter that it had no intention of litigating for the advance costs. Chairman Barker, after ruling earlier that it cannot grant RCBC’s request to declare the Respondents as having no right to participate in the proceedings concerning the claim,

interpreted RCBC’s letter as an application for the Arbitration Tribunal to issue a partial award in respect of such refusal of Respondents to pay their share in the advance on costs, and subsequently directed the parties to make submissions on the matter.Aside from violating their right to due process and to be heard by an impartial tribunal, Respondents also argued that in issuing the award for advance cost, the ArbitrationTribunal decided an issue beyond the terms of the TOR.

Respondents also emphasized that the parties agreed on a two-part arbitration: the first part of the Tribunal’s proceedings would determine Respondents’ liability, if any, for alleged violation of Section 5(g) and (h) of the SPA; and the second part of the proceedings would determine the amounts owed by one party to another as a consequence of a finding of liability or lack thereof. An award for "reimbursement of advances for costs" clearly falls outside the scope of either proceedings. Neither can the Tribunal justify such proceedings under Article 23 of the ICC Rules (Conservatory and Interim Measures) because that provision does not contemplate an award for the reimbursement of advance on costs in arbitration cases. Respondents further asserted that since the advances on costs have been paid by the Claimant (RCBC), the main claim and counterclaim may both be heard by the Arbitration Tribunal.

In his letter dated March 13, 2008, Chairman Barker advised the parties, as follows:

1. The Tribunal acknowledges the Respondents’ response to the Claimant’s application for a Partial Award, based on the Respondents’ failure to pay their share of the costs, as requested by the ICC.

2. The Tribunal notes that neither party has referred to an article by Mat[t]hew Secomb on this very subject which appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003). To assist both sides and to ensure that the Tribunal does not consider material on which the parties have not been given an opportunity to address, I attach a copy of this article, which also contains reference to other scholarly works on the subject.

3. The Tribunal will give each party seven days within which to submit further written comments as a consequence of being alerted to the above authorities.35(Additional emphasis supplied)

The parties complied by submitting their respective comments.

RCBC refuted Respondents’ allegation of partiality on the part of Chairman Barker and reiterated the prayer in its application for reimbursement of advance on costs paid to the ICC-ICA. RCBC contended that based on Mr. Secomb’s article, whether the "contractual" or "provisional measures" approach is applied, the Arbitration Tribunal is vested with jurisdiction and authority to render an award with respect to said reimbursement of advance cost paid by the non-defaulting party.36

Respondents, on the other hand, maintained that RCBC’s application for reimbursement of advance cost has no basis under the ICC Rules. They contended that no manifest injustice can be inferred from an act of a party paying for the share of the defaulting party as this scenario is allowed by the ICC Rules. Neither can a partial award for advance cost be justified under the "contractual approach" since the matter of costs for arbitration is between the ICC and the parties, not the Arbitration Tribunal and the parties. An arbitration tribunal can issue decisions on costs only for those costs not fixed by the ICC.37

Respondents reiterated their position that Article 30(3) envisions a situation whereby a party would refuse to pay its share on the advance on costs and provides a remedy therefor – the other party "shall be free to pay the whole of the advance on costs." Such party’s reimbursement for payments of the defaulting party’s share depends on the final arbitral award where the party liable for costs would be determined. This is the only remedy provided by the ICC Rules.38

On May 28, 2008, the Arbitration Tribunal rendered the Second Partial Award,39 as follows:

7 AWARD

7.1 Having read and considered the submissions of both parties, the Tribunal AWARDS, DECLARES AND ORDERS as follows:

(a) The Respondents are forthwith to pay to the Claimant the sum of US$290,000.

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(b) The Respondents’ counterclaim is to be considered as withdrawn.

(c) All other questions, including interest and costs, will be dealt with in a subsequent award.40

The above partial award was received by RCBC and Respondents on June 12, 2008.

On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial Award 41 in the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046). On July 10, 2008, RCBC filed in the same court a Motion to Confirm Second Partial Award.42

EPCIB raised the following grounds for vacating the Second Partial Award: (a) the award is void ab initio having been rendered by the arbitrators who exceeded their power or acted without it; and (b) the award was procured by undue means or issued with evident partiality or attended by misbehavior on the part of the Tribunal which resulted in a material prejudice to the rights of the Respondents. EPCIB argued that there is no express agreement either in the SPA or the ICC Rules for such right of reimbursement. There is likewise no implied agreement because from the ICC Rules, the only inference is that the parties agreed to await the dispositions on costs liability in the Final Award, not before.

On the ruling of the Arbitration Tribunal that Respondents’ application for costs are not counterclaims, EPCIB asserted that this is contrary to Philippine law as it is basic in our jurisdiction that counterclaims for litigation expenses, moral and exemplary damages are proper counterclaims, which rule should be recognized in view of Section 10 of the SPA which provides that "substantive aspects of the dispute shall be settled by applying the laws of the Philippines." Finally, EPCIB takes issue with Chairman Barker’s interpretation of RCBC’s December 11, 2007 letter as an application for a partial award for reimbursement of the substituted payments. Such conduct of Chairman Barker is prejudicial and proves his evident partiality in favor of RCBC.

RCBC filed its Opposition,43 asserting that the Arbitration Tribunal had jurisdiction to consider Respondents’ counterclaim as withdrawn, the same having been abandoned by not presenting any computation or substantiation by evidence, their only computation relates only to attorney’s fees which are simply cost of litigation properly brought at the conclusion of the arbitration. It also pointed out that the Arbitration Tribunal was empowered by the parties’ arbitral clause to determine the manner of payment of expenses of arbitration, and that the Second Partial Award was based on authorities and treatiseson the mandatory and contractual nature of the obligation to pay advances on costs.

In its Reply,44 EPCIB contended that RCBC had the option to agree to its proposal for separate advances on costs but decided against it; RCBC’s act of paying the balance of the advance cost in substitution of EPCIB was for the purpose of having EPCIB defaulted and the latter’s counterclaim withdrawn. Having agreed to finance the arbitration until its completion, RCBC is not entitled to immediate reimbursement of the amount it paid in substitution of EPCIB under an interim award, as its right to a partial or total reimbursement will have to be determined under the final award. EPCIB asserted that the matter of reimbursement of advance cost paid cannot be said to have properly arisen during arbitration. EPCIB reiterated that Chairman Barker’s interpretation of RCBC’s December 11, 2007 letter as an application for interim award for reimbursement is tantamount to a promise that the award will be issued in due course.

After a further exchange of pleadings, and other motions seeking relief from the court in connection with the arbitration proceedings (quantum phase), the Makati City RTC, Branch 148 issued the Order45 dated June 24, 2009 confirming the Second Partial Award and denying EPCIB’s motion to vacate the same. Said court held that since the parties agreed to submit any dispute under the SPA to arbitration and to be bound by the ICC Rules, they are also bound to pay in equal shares the advance on costs as provided in Article 30 (2) and (3). It noted that RCBC was forced to pay the share of EPCIB in substitution of the latter to prevent a suspension of the arbitration proceedings, while EPCIB’s non-payment seems more like a scheme to delay such proceedings. On the Arbitration Tribunal’s ruling on EPCIB’s counterclaim, no error was committed in considering it withdrawn for failure of EPCIB to quantify and substantiate it with supporting evidence. As to EPCIB’s claim for attorney’s fees, the RTC agreed that these should be brought only at the close of arbitration.

EPCIB moved to reconsider the June 24, 2009 Order and for the voluntary inhibition of the Presiding Judge (Judge Oscar B. Pimentel) on the ground that EPCIB’s new counsel represented another client in another case before him in which said counsel assailed his conduct and had likewise sought his inhibition. Both motions were denied in the Joint Order46 dated March 23, 2010.

On April 14, 2010, EPCIB filed in the CA a petition for review 47 with application for TRO and/or writ of preliminary injunction (CA-G.R. SP No. 113525) in accordance with Rule 19, Section 4 of the Special Rules of Court on Alternative Dispute Resolution48 (Special ADR Rules). EPCIB assailed the Makati City RTC, Branch 148 in denying its motion to vacate the Second Partial Award despite (a) said award having been rendered in excess of jurisdiction or power, and contrary to public policy; (b) the fact that it was issued with evident partiality and serious misconduct; (c) the award deals with a dispute not contemplated within the terms of submission to arbitration or beyond the scope of such submission, which therefore ought to be vacated pursuant to Article 34 of the UNCITRAL Model Law; and (d) the Presiding Judge having exhibited bias and prejudice against BDO and its counsel as confirmed by his pronouncements in the Joint Order dated March 23, 2010 in which, instead of recusing himself, he imputed malice and unethical conduct in the entry of appearance of Belo Gozon Elma Asuncion and Lucila Law Offices in SP Proc. Case No. M-6046, which warrants his voluntary inhibition.

Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final Award,49 as follows:

15 AWARD

15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards, declares and adjudges as follows:

(a) the Respondents are to pay damages to the Claimant for breach of the sale and purchase agreement for Bankard shares in the sum of P348,736,920.29.

(b) The Respondents are to pay to the Claimant the sum of US$880,000 in respect of the costs of the arbitration as fixed by the ICC Court.

(c) The Respondents are to pay to the Claimant the sum of US$582,936.56 for the fees and expenses of Mr. Best.

(d) The Respondents are to pay to the Claimant their expenses of the arbitration as follows:

(i) Experts’ fees P7,082,788.55

(ii) Costs of without prejudice meeting P22,571.45

(iii) Costs of arbitration hearings P553,420.66

(iv) Costs of transcription service P483,597.26Total P8,144,377.62

(e) The Respondents are to pay to the Claimant the sum of P7,000,000 for party-and-party legal costs.

(f) The Counterclaims of the Respondents are all dismissed.

(g) All claims of the Claimant are dismissed, other than those referred to above.

15.2 Justice Kapunan does not agree with the majority of the members of the Tribunal and has issued a dissenting opinion. He has refused to sign this Award.50

On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate Final Award Ad Cautelam,51 docketed as SP Proc. Case No. M-6995, which was raffled to Branch 65.

On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046) a Motion to Confirm Final Award.52 BDO filed its Opposition With Motion to Dismiss53 on grounds that a Petition to Vacate Final Award Ad Cautelamhad already been filed in SP Proc. Case No. M-6995. BDO also pointed out that RCBC did not file the required petition but instead filed a mere motion which did not go through the process of raffling to a proper branch of the RTC of Makati City and the payment of the required docket/filing fees. Even assuming that Branch 148 has jurisdiction over RCBC’s motion to confirm final award, BDO asserted that RCBC had filed before the Arbitration Tribunal an Application for Correction and Interpretation of Award under Article 29 of the ICC Rules, which is irreconcilable with its Motion to Confirm Final Award before said court. Hence, the Motion to Confirm Award was filed precipitately.

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On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case No. M-6995 (Branch 65) praying for the dismissal of BDO’s Petition to Vacate Final Award or the transfer of the same to Branch 148 for consolidation with SP Proc. Case No. M-6046. RCBC contended that BDO’s filing of its petition with another court is a blatant violation of the Special ADR Rules and is merely a subterfuge to commit forum-shopping. BDO filed its Opposition to the Omnibus Motion.54

On October 28, 2010, Branch 65 issued a Resolution55 denying RCBC’s omnibus motion and directing the service of the petition to RCBC for the latter’s filing of a comment thereon. RCBC’s motion for reconsideration was likewise denied in the said court’s Order dated December 15, 2010. RCBC then filed its Opposition to the Petition to Vacate Final Award Ad Cautelam.

Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-6046) issued an Order56 confirming the Final Award "subject to the correction/interpretation thereof by the Arbitral Tribunal pursuant to the ICC Rules and the UNCITRAL Model Law," and denying BDO’s Opposition with Motion to Dismiss.

On December 30, 2010, George L. Go, in his personal capacity and as attorney-in-fact of the other listed shareholders of Bankard, Inc. in the SPA (Individual Shareholders), filed a petition in the CA, CA-G.R. SP No. 117451, seeking to set aside the above-cited November 10, 2010 Order and to enjoin Branch 148 from further proceeding in SP Proc. Case No. M-6046. By Decision57 dated June 15, 2011, the CA dismissed the said petition. Their motion for reconsideration of the said decision was likewise denied by the CA in its Resolution58 dated December 14, 2011.

On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No. 113525, the dispositive portion of which states:

WHEREFORE, premises considered, the following are hereby REVERSED and SET ASIDE:

1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-6046 by the Regional Trial Court of Makati City, Branch 148, insofar as it denied the Motion to Vacate Second Partial Award dated July 8, 2008 and granted the Motion to Confirm Second Partial Award dated July 10, 2008;

2. the Joint Order dated March 23, 2010 issued in SP Proc. Case No. M-6046 by the Regional Trial Court of Makati City, Branch 148, insofar as it denied the Motion For Reconsideration dated July 28, 2009 relative to the motions concerning the Second Partial Award immediately mentioned above; and

3. the Second Partial Award dated May 28, 2008 issued in International Chamber of Commerce Court of Arbitration Reference No. 13290/MS/JB/JEM.

SO ORDERED.59

RCBC filed a motion for reconsideration but the CA denied the same in its Resolution60 dated March 16, 2011. On April 6, 2011, it filed a petition for review on certiorari in this Court (G.R. No. 196171).

On February 25, 2011, Branch 65 rendered a Decision61 in SP Proc. Case No. M-6995, as follows:

WHEREFORE, premises considered, the Final Award dated June 16, 2010 in ICC Ref. No. 13290/MS/JB/JEM is hereby VACATED with cost against the respondent.

SO ORDERED.62

In SP Proc. Case No. M-6046, Branch 148 issued an Order63 dated August 8, 2011 resolving the following motions: (1) Motion for Reconsideration filed by BDO, Go and Individual Shareholders of the November 10, 2010 Order confirming the Final Award; (2) RCBC’s Omnibus Motion to expunge the motion for reconsideration filed by Go and Individual Shareholders, and for execution of the Final Award; (3) Motion for Execution filed by RCBC against BDO; (4) BDO’s Motion for Leave to File Supplement to the Motion for Reconsideration; and (5) Motion for Inhibition filed by Go and Individual Shareholders. Said Order decreed:

WHEREFORE, premises considered, it is hereby ORDERED, to wit:

1. Banco De Oro’s Motion for Reconsideration, Motion for Leave to File Supplement to Motion for Reconsideration, and Motion to Inhibit are DENIED for lack of merit.

2. RCBC Capital’s Motion to Expunge, Motion to Execute against Mr. George L. Go and the Bankard Shareholders, and the Motion to Execute against Banco De Oro are hereby GRANTED.

3. The damages awarded to RCBC Capital Corporation in the amount of PhP348,736,920.29 is subject to an interest of 6% per annum reckoned from the date of RCBC Capital’s extra-judicial demand or from May 5, 2003 until the confirmation of the Final Award. Likewise, this compounded amount is subject to 12% interest per annum from the date of the confirmation of the Final Award until its satisfaction. The costs of the arbitration amounting to US$880,000.00, the fees and expenses of Mr. Best amounting to US$582,936.56, the Claimant’s expenses of the arbitration amounting to PhP8,144,377.62, and the party-and-party legal costs amounting to PhP7,000,000.00 all ruled in favor of RCBC Capital Corporation in the Final Award of the Arbitral Tribunal dated June 16, 2010 are subject to 12% legal interest per annum, also reckoned from the date of the confirmation of the Final Award until its satisfaction.

4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 in relation to Rule 39 of the Rules of Court, since the Final Award have been confirmed, the same shall be enforced in the same manner as final and executory decisions of the Regional Trial Court, let a writ of execution be issued commanding the Sheriff to enforce this instant Order confirming this Court’s Order dated November 10, 2010 that judicially confirmed the June 16, 2010 Final Award.

SO ORDERED.64

Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a Writ of Execution.65 On August 22, 2011, after approving the execution bond, Branch 148 issued a Writ of Execution for the implementation of the said court’s "Order dated August 8, 2011 confirming the November 10, 2010 Order that judicially confirmed the June 16, 2010 Final Award x x x."66

BDO then filed in the CA, a "Petition for Review (With Application for a Stay Order or Temporary Restraining Order and/or Writ of Preliminary Injunction," docketed as CA-G.R. SP No. 120888. BDO sought to reverse and set aside the Orders dated November 10, 2010 and August 8, 2011, and any writ of execution issued pursuant thereto, as well as the Final Award dated June 16, 2010 issued by the Arbitration Tribunal.

In its Urgent Omnibus Motion67 to resolve the application for a stay order and/or TRO/writ of preliminary injunction, and to quash the Writ of Execution dated August 22, 2011 and lift the Notices of Garnishment dated August 22, 2011, BDO argued that the assailed orders of execution (Writ of Execution and Notice of Garnishment) were issued with indecent haste and despite the non-compliance with the procedures in Special ADR Rules of the November 10, 2010 Order confirming the Final Award. BDO was not given sufficient time to respond to the demand for payment or to elect the method of satisfaction of the judgment debt or the property to be levied upon. In any case, with the posting of a bond by BDO, Branch 148 has no jurisdiction to implement the appealed orders as it would pre-empt the CA from exercising its review under Rule 19 of the Special ADR Rules after BDO had perfected its appeal. BDO stressed that the bond posted by RCBC was for a measly sum of P3,000,000.00 to cause execution pending appeal of a monetary award that may reach P631,429,345.29. RCBC also failed to adduce evidence of "good cause" or "good reason" to justify discretionary execution under Section 2(a), Rule 39 of the Rules of Court.

BDO further contended that the writ of execution should be quashed for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction as Branch 148 modified the Final Award at the time of execution by imposing the payment of interests though none was provided therein nor in the Order confirming the same.

During the pendency of CA-G.R. SP No. 120888, Branch 148 continued with execution proceedings and on motion by RCBC designated/deputized additional sheriffs to replace Sheriff Flora who was supposedly physically indisposed.68 These court personnel went to the offices/branches of BDO attempting to serve notices of garnishment and to levy the furniture, fixtures and equipment.

On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and For Leave to Post Counter-Bond69 before Branch 148 praying for the lifting of the levy of BDO Private Bank, Inc. (BPBI) shares and the cancellation of the execution sale thereof scheduled on September 15, 2011, which was set for hearing on September 14, 2011. BDO claimed that the levy was invalid because it was served by the RTC Sheriffs not to the authorized representatives of BPBI, as provided under Section 9(b), Rule 39 in relation to Section 7, Rule 57 of the Rules of Court stating that a notice of levy on shares of stock must be served to the president or managing agent of the company

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which issued the shares. However, BDO was advised by court staff that Judge Sarabia was on leave and the case could not be set for hearing.

In its Opposition to BDO’s application for injunctive relief, RCBC prayed for its outright denial as BDO’s petition raises questions of fact and/or law which call for the CA to substitute its judgment with that of the Arbitration Tribunal, in patent violation of applicable rules of procedure governing domestic arbitration and beyond the appellate court’s jurisdiction. RCBC asserted that BDO’s application has become moot and academic as the writ of execution was already implemented and/or enforced. It also contended that BDO has no clear and unmistakable right to warrant injunctive relief because the issue of jurisdiction was already ruled upon in CA-G.R. SP No. 117451 which dismissed the petition filed by Go and the Individual Shareholders of Bankard questioning the authority of Branch 148 over RCBC’s motion to confirm the Final Award despite the earlier filing by BDO in another branch of the RTC (Branch 65) of a petition to vacate the said award.

On September 13, 2011, BDO, to avert the sale of the BPBI shares scheduled on September 15, 2011 and prevent further disruption in the operations of BDO and BPBI, paid under protest by tendering a Manager’s Check in the amount of P637,941,185.55, which was accepted by RCBC as full and complete satisfaction of the writ of execution. BDO manifested before Branch 148 that such payment was made without prejudice to its appeal before the CA.70

On even date, the CA denied BDO’s application for a stay order and/or TRO/preliminary injunction for non-compliance with Rule 19.25 of the Special ADR Rules. The CA ruled that BDO failed to show the existence of a clear right to be protected and that the acts sought to be enjoined violated any right. Neither was BDO able to demonstrate that the injury to be suffered by it is irreparable or not susceptible to mathematical computation.

BDO did not file a motion for reconsideration and directly filed with this Court a petition for certiorari with urgent application for writ of preliminary mandatory injunction (G.R. No. 199238).

The Petitions

In G.R. No. 196171, RCBC set forth the following grounds for the reversal of the CA Decision dated December 23, 2010:

I.

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR IN VACATING THE SECOND PARTIAL AWARD ON THE BASIS OF CHAIRMAN BARKER’S ALLEGED PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF BIAS CONSIDERING THAT THE ALLEGATIONS CONTAINED IN BDO/EPCIB’S PETITION FALL SHORT OF THE JURISPRUDENTIAL REQUIREMENT THAT THE SAME BE SUPPORTED BY CLEAR AND CONVINCING EVIDENCE.

II.

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR WHEN IT REVERSED THE ARBITRAL TRIBUNAL’S FINDINGS OF FACT AND LAW IN THE SECOND PARTIAL AWARD IN PATENT CONTRAVENTION OF THE SPECIAL ADR RULES WHICH EXPRESSLY PROHIBITS THE COURTS, IN AN APPLICATION TO VACATE AN ARBITRAL AWARD, FROM DISTURBING THE FINDINGS OF FACT AND/OR INTERPRE[TA]TION OF LAW OF THE ARBITRAL TRIBUNAL.71

BDO raises the following arguments in G.R. No. 199238:

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN PERFUNCTORILY DENYING PETITIONER BDO’S APPLICATION FOR STAY ORDER, AND/OR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION DESPITE THE EXISTENCE AND CONCURRENCE OF ALL THE ELEMENTS FOR THE ISSUANCE OF SAID PROVISIONAL RELIEFS

A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE RIGHTS TO BE PROTECTED BY THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR, WHICH, HOWEVER, WERE DISREGARDED BY PUBLIC RESPONDENT WHEN IT DENIED PETITIONER BDO’S PRAYER FOR ISSUANCE OF A STAY ORDER AND/OR TRO

B. PETITIONER BDO’S RIGHT TO DUE PROCESS AND EQUAL PROTECTION OF THE LAW WAS GROSSLY VIOLATED BY THE RTC-MAKATI CITY BRANCH 148, THE DEPUTIZED SHERIFFS AND

RESPONDENT RCBC CAPITAL, WHICH VIOLATION WAS AIDED BY PUBLIC RESPONDENT’S INACTION ON AND EVENTUAL DENIAL OF THE PRAYER FOR STAY ORDER AND/OR TRO

C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148, PETITIONER BDO SUFFERED IRREPARABLE DAMAGE AND INJURY, AND THERE WAS DIRE AND URGENT NECESSITY FOR THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR WHICH PUBLIC RESPONDENT DENIED IN GRAVE ABUSE OF DISCRETION72

Essentially, the issues to be resolved are: (1) whether there is legal ground to vacate the Second Partial Award; and (2) whether BDO is entitled to injunctive relief in connection with the execution proceedings in SP Proc. Case No. M-6046.

In their TOR, the parties agreed on the governing law and rules as follows:

Laws to be Applied

13 The Tribunal shall determine the issues to be resolved in accordance with the laws of the Republic of the Philippines.

Procedure to be Applied

14 The proceedings before the Tribunal shall be governed by the ICC Rules of Arbitration (1 January 1998) and the law currently applicable to arbitration in the Republic of the Philippines.73

As stated in the Partial Award dated September 27, 2007, although the parties provided in Section 10 of the SPA that the arbitration shall be conducted under the ICC Rules, it was nevertheless arbitration under Philippine law since the parties are both residents of this country. The provisions of Republic Act No. 87674 (RA 876),as amended by Republic Act No. 928575 (RA 9285)principally applied in the arbitration between the herein parties.76

The pertinent provisions of R.A. 9285 provide:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be promulgated by the Supreme Court.

x x x x

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.

Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:

Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The arbitral award may be vacated on the following grounds:

a. The arbitral award was procured through corruption, fraud or other undue means;

b. There was evident partiality or corruption in the arbitral tribunal or any of its members;

c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has materially prejudiced the rights of any party such as refusing to postpone a hearing upon sufficient cause shown or to hear evidence pertinent and material to the controversy;

d. One or more of the arbitrators was disqualified to act as such under the law and willfully refrained from disclosing such disqualification; or

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e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a complete, final and definite award upon the subject matter submitted to them was not made.

The award may also be vacated on any or all of the following grounds:

a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a contract or is otherwise unenforceable; or

b. A party to arbitration is a minor or a person judicially declared to be incompetent.

x x x x

In deciding the petition to vacate the arbitral award, the court shall disregard any other ground than those enumerated above. (Emphasis supplied)

Judicial Review

At the outset, it must be stated that a review brought to this Court under the Special ADR Rules is not a matter of right. Rule 19.36 of said Rules specified the conditions for the exercise of this Court’s discretionary review of the CA’s decision.

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.

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. (Emphasis supplied)

The applicable standard for judicial review of arbitral awards in this jurisdiction is set forth in Rule 19.10 which states:

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.

x x x x

The court shall not set aside or vacate the award of the arbitral tribunal merelyon 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. (Emphasis supplied)

The above rule embodied the stricter standard in deciding appeals from arbitral awards established by jurisprudence. In the case of Asset Privatization Trust v. Court of Appeals,77 this Court held:

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.78

Accordingly, we examine the merits of the petition before us solely on the statutory ground raised for vacating the Second Partial Award: evident partiality, pursuant to Section 24 (b) of the Arbitration Law (RA 876) and Rule 11.4 (b) of the Special ADR Rules.

Evident Partiality

Evident partiality is not defined in our arbitration laws. As one of the grounds for vacating an arbitral award under the Federal Arbitration Act (FAA) in the United States (US), the term "encompasses both an arbitrator’s explicit bias toward one party and an arbitrator’s inferred bias when an arbitrator fails to disclose relevant information to the parties."79

From a recent decision80 of the Court of Appeals of Oregon, we quote a brief discussion of the common meaning of evident partiality:

To determine the meaning of "evident partiality," we begin with the terms themselves. The common meaning of "partiality" is "the inclination to favor one side."Webster’s Third New Int'l Dictionary 1646 (unabridged ed 2002); see also id. (defining "partial" as "inclined to favor one party in a cause or one side of a question more than the other: biased, predisposed" (formatting in original)). "Inclination," in turn, means "a particular disposition of mind or character : propensity, bent" or "a tendency to a particular aspect, state, character, or action."Id. at 1143 (formatting in original); see also id. (defining "inclined" as "having inclination, disposition, or tendency").

The common meaning of "evident" is "capable of being perceived esp[ecially] by sight : distinctly visible : being in evidence : discernable[;] * * * clear to the understanding : obvious, manifest, apparent."Id. at 789 (formatting in original); see also id. (stating that synonyms of "evident" include "apparent, patent, manifest, plain, clear, distinct, obvious, [and] palpable" and that, "[s]ince evident rather naturally suggests evidence, it may imply the existence of signs and indications that must lead to an identification or inference" (formatting in original)). (Emphasis supplied)

Evident partiality in its common definition thus implies "the existence of signs and indications that must lead to an identification or inference" of partiality.81 Despite the increasing adoption of arbitration in many jurisdictions, there seems to be no established standard for determining the existence of evident partiality. In the US, evident partiality "continues to be the subject of somewhat conflicting and inconsistent judicial interpretation when an arbitrator’s failure to disclose prior dealings is at issue."82

The first case to delineate the standard of evident partiality in arbitration proceedings was Commonwealth Coatings Corp. v. Continental Casualty Co., et al.83 decided by the US Supreme Court in 1968. The Court therein addressed the issue of whether the requirement of impartiality applies to an arbitration proceeding. The plurality opinion written by Justice Black laid down the rule that the arbitrators must disclose to the parties "any dealings that might create an impression of possible bias,"84 and that underlying such standard is "the premise that any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias."85 In a separate concurring opinion, Justice White joined by Justice Marshall, remarked that "[t]he Court does not decide today that arbitrators are to be held to the standards of judicial decorum of Article III judges, or indeed of any judges."86 He opined that arbitrators should not automatically be disqualified from an arbitration proceeding because of a business relationship where both parties are aware of the relationship in advance, or where the parties are unaware of the circumstances but the relationship is trivial. However, in the event that the arbitrator has a "substantial interest" in the transaction at hand, such information must be disclosed.

Subsequent cases decided by the US Court of Appeals Circuit Courts adopted different approaches, given the imprecise standard of evident partiality in Commonwealth Coatings.

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In Morelite Construction Corp. v. New York District Council Carpenters Benefit Funds,87 the Second Circuit reversed the judgment of the district court and remanded with instructions to vacate the arbitrator’s award, holding that the existence of a father-son relationship between the arbitrator and the president of appellee union provided strong evidence of partiality and was unfair to appellant construction contractor. After examining prior decisions in the Circuit, the court concluded that –

x x x we cannot countenance the promulgation of a standard for partiality as insurmountable as "proof of actual bias" -- as the literal words of Section 10 might suggest. Bias is always difficult, and indeed often impossible, to "prove." Unless an arbitrator publicly announces his partiality, or is overheard in a moment of private admission, it is difficult to imagine how "proof" would be obtained. Such a standard, we fear, occasionally would require that we enforce awards in situations that are clearly repugnant to our sense of fairness, yet do not yield "proof" of anything.

If the standard of "appearance of bias" is too low for the invocation of Section 10, and "proof of actual bias" too high, with what are we left? Profoundly aware of the competing forces that have already been discussed, we hold that "evident partiality" within the meaning of 9 U.S.C. § 10 will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.x x x88 (Emphasis supplied)

In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed with the Morelite court’s analysis, and accordingly held that to invalidate an arbitration award on the grounds of bias, the challenging party must show that "a reasonable person would have to conclude that an arbitrator was partial" to the other party to the arbitration.

This "myriad of judicial interpretations and approaches to evident partiality" resulted in a lack of a uniform standard, leaving the courts "to examine evident partiality on a case-by-case basis."90 The case at bar does not present a non-disclosure issue but conduct allegedly showing an arbitrator’s partiality to one of the parties.

EPCIB/BDO, in moving to vacate the Second Partial Award claimed that the Arbitration Tribunal exceeded its powers in deciding the issue of advance cost not contemplated in the TOR, and that Chairman Barker acted with evident partiality in making such award. The RTC held that BDO failed to substantiate these allegations. On appeal, the CA likewise found that the Arbitration Tribunal did not go beyond the submission of the parties because the phrasing of the scope of the agreed issues in the TOR ("[t]he issues to be determined by the Tribunal are those issues arising from the said Request for Arbitration, Answer and Reply and such other issues as may properly arise during the arbitration")is broad enough to accommodate a finding on the liability and the repercussions of BDO’s failure to share in the advances on costs. Section 10 of the SPA also gave the Arbitration Tribunal authority to decide how the costs should be apportioned between them.

However, the CA found factual support in BDO’s charge of partiality, thus:

On the issue on evident partiality, the rationale in the American case of Commonwealth Coatings Corp. v. Continental Cas. Co. appears to be very prudent. In Commonwealth, the United States Supreme Court reasoned that courts "should…be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts, and are not subject to appellate review" in general. This taken into account, the Court applies the standard demanded of the conduct of magistrates by analogy. After all, the ICC Rules require that an arbitral tribunal should act fairly and impartially. Hence, an arbitrator’s conduct should be beyond reproach and suspicion. His acts should be free from the appearances of impropriety.

An examination of the circumstances claimed to be illustrative of Chairman Barker’s partiality is indicative of bias. Although RCBC had repeatedly asked for reimbursement and the withdrawal of BDO’s counterclaims prior to Chairman Barker’s December 18, 2007 letter, it is baffling why it is only in the said letter that RCBC’s prayer was given a complexion of being an application for a partial award. To the Court, the said letter signaled a preconceived course of action that the relief prayed for by RCBC will be granted.

That there was an action to be taken beforehand is confirmed by Chairman Barker’s furnishing the parties with a copy of the Secomb article. This article ultimately favored RCBC by advancing its cause. Chairman Barker makes it appear that he intended good to be done in doing so but due process dictates the cold neutrality of impartiality. This means that "it is not enough…[that] cases [be decided] without bias and favoritism. Nor is it sufficient that…prepossessions [be rid of]. [A]ctuations should moreover inspire that belief." These put into the equation, the furnishing of the Secomb article further marred the trust reposed in Chairman Barker. The

suspicion of his partiality on the subject matter deepened. Specifically, his act established that he had pre-formed opinions.

Chairman Barker’s providing of copies of the said text is easily interpretable that he had prejudged the matter before him. In any case, the Secomb article tackled bases upon which the Second Partial Award was founded. The subject article reflected in advance the disposition of the ICC arbitral tribunal. The award can definitely be viewed as an affirmation that the bases in the Secomb article were adopted earlier on. To the Court, actuations of arbitrators, like the language of judges, "must be guarded and measured lest the best of intentions be misconstrued."

x x x x91 (Emphasis supplied)

We affirm the foregoing findings and conclusion of the appellate court save for its reference to the obiter in Commonwealth Coatings that arbitrators are held to the same standard of conduct imposed on judges. Instead, the Court adopts the reasonable impression of partiality standard, which requires a showing that a reasonable person would have to conclude that an arbitrator was partial to the other party to the arbitration. Such interest or bias, moreover, "must be direct, definite and capable of demonstration rather than remote, uncertain, or speculative."92 When a claim of arbitrator’s evident partiality is made, "the court must ascertain from such record as is available whether the arbitrators’ conduct was so biased and prejudiced as to destroy fundamental fairness."93

Applying the foregoing standard, we agree with the CA in finding that Chairman Barker’s act of furnishing the parties with copies of Matthew Secomb’s article, considering the attendant circumstances,is indicative of partiality such that a reasonable man would have to conclude that he was favoring the Claimant, RCBC. Even before the issuance of the Second Partial Award for the reimbursement of advance costs paid by RCBC, Chairman Barker exhibited strong inclination to grant such relief to RCBC, notwithstanding his categorical ruling that the Arbitration Tribunal "has no power under the ICC Rules to order the Respondents to pay the advance on costs sought by the ICC or to give the Claimantany relief against the Respondents’ refusal to pay."94 That Chairman Barker was predisposed to grant relief to RCBC was shown by his act of interpreting RCBC’s letter, which merely reiterated its plea to declare the Respondents in default and consider all counterclaims withdrawn – as what the ICC Rules provide – as an application to the Arbitration Tribunal to issue a partial award in respect of BDO’s failure to share in the advance costs. It must be noted that RCBC in said letter did not contemplate the issuance of a partial order, despite Chairman Barker’s previous letter which mentioned the possibility of granting relief upon the parties making submissions to the Arbitration Tribunal. Expectedly, in compliance with Chairman Barker’s December 18, 2007 letter, RCBC formally applied for the issuance of a partial award ordering BDO to pay its share in the advance costs.

Mr. Secomb’s article, "Awards and Orders Dealing With the Advance on Costs in ICC Arbitration: Theoretical Questions and Practical Problems"95 specifically dealt with the situation when one of the parties to international commercial arbitration refuses to pay its share on the advance on costs. After a brief discussion of the provisions of ICC Rules dealing with advance on costs, which did not provide for issuance of a partial award to compel payment by the defaulting party, the author stated:

4. As we can see, the Rules have certain mechanisms to deal with defaulting parties. Occasionally, however, parties have sought to use other methods to tackle the problem of a party refusing to pay its part of the advance on costs. These have included seeking an order or award from the arbitral tribunal condemning the defaulting party to pay its share of the advance on costs.1âwphi1 Such applications are the subject of this article.96

By furnishing the parties with a copy of this article, Chairman Barker practically armed RCBC with supporting legal arguments under the "contractual approach" discussed by Secomb. True enough, RCBC in its Application for Reimbursement of Advance Costs Paid utilized said approach as it singularly focused on Article 30(3)97 of the ICC Rules and fiercely argued that BDO was contractually bound to share in the advance costs fixed by the ICC.98 But whether under the "contractual approach" or "provisional approach" (an application must be treated as an interim measure of protection under Article 23 [1] rather than enforcement of a contractual obligation), both treated in the Secomb article, RCBC succeeded in availing of a remedy which was not expressly allowed by the Rules but in practice has been resorted to by parties in international commercial arbitration proceedings. It may also be mentioned that the author, Matthew Secomb, is a member of the ICC Secretariat and the "Counsel in charge of the file", as in fact he signed some early communications on behalf of the ICC Secretariat pertaining to the advance costs fixed by the ICC.99 This bolstered the impression that Chairman Barker was predisposed to grant relief to RCBC by issuing a partial award.

Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to or directing RCBC towards a course of action to advance the latter’s cause, by

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providing it with legal arguments contained in an article written by a lawyer who serves at the ICC Secretariat and was involved or had participation -- insofar as the actions or recommendations of the ICC – in the case. Though done purportedly to assist both parties, Chairman Barker’s act clearly violated Article 15 of the ICC Rules declaring that "[i]n all cases, the Arbitral Tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case." Having pre-judged the matter in dispute, Chairman Barker had lost his objectivity in the issuance of the Second Partial Award.

In fine, we hold that the CA did not err in concluding that the article ultimately favored RCBC as it reflected in advance the disposition of the Arbitral Tribunal, as well as "signalled a preconceived course of action that the relief prayed for by RCBC will be granted." This conclusion is further confirmed by the Arbitral Tribunal’s pronouncements in its Second Partial Award which not only adopted the "contractual approach" but even cited Secomb’s article along with other references, thus:

6.1 It appears to the Tribunal that the issue posed by this application is essentially a contractual one. x x x

x x x x

6.5 Matthew Secomb, considered these points in the article in 14 ICC Bulletin No. 1 (2003) which was sent to the parties. At Para. 19, the learned author quoted from an ICC Tribunal (Case No. 11330) as follows:

"The Arbitral Tribunal concludes that the partiesin arbitrations conducted under the ICC Rules have a mutually binding obligation to pay the advance on costs as determined by the ICC Court, based on Article 30-3 ICC Rules which – by reference – forms part of the parties’ agreement to arbitration under such Rules."100

The Court, however, must clarify that the merits of the parties’ arguments as to the propriety of the issuance of the Second Partial Award are not in issue here. Courts are generally 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. A contrary rule would make an arbitration award the commencement, not the end, of litigation.101 It is the finding of evident partiality which constitutes legal ground for vacating the Second Partial Award and not the Arbitration Tribunal’s application of the ICC Rules adopting the "contractual approach" tackled in Secomb’s article.

Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are encouraged by this Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationship.102 Institutionalization of ADR was envisioned as "an important means to achieve speedy and impartial justice and declog court dockets."103 The most important feature of arbitration, and indeed, the key to its success, is the public’s confidence and trust in the integrity of the process.104 For this reason, the law authorizes vacating an arbitral award when there is evident partiality in the arbitrators.

Injunction Against Execution Of Arbitral Award

Before an injunctive writ can be issued, it is essential that the following requisites are present: (1) there must be a right inesse or the existence of a right to be protected; and (2) the act against which injunction to be directed is a violation of such right. The onus probandi is on movant to show that there exists a right to be protected, which is directly threatened by the act sought to be enjoined. Further, there must be a showing that the invasion of the right is material and substantial and that there is an urgent and paramount necessity for the writ to prevent a serious damage.105

Rule 19.22 of the Special ADR Rules states:

Rule 19.22. Effect of appeal.—The appeal shall not stay the award, judgment, final order or resolution sought to be reviewed unless the Court of Appeals directs otherwise upon such terms as it may deem just.

We find no reversible error or grave abuse of discretion in the CA’s denial of the application for stay order or TRO upon its finding that BDO failed to establish the existence of a clear legal right to enjoin execution of the Final Award confirmed by the Makati City RTC, Branch 148, pending resolution of its appeal.It would be premature to address on the merits the issues raised by BDO in the present petition considering that the CA still has to decide on the validity of said court's orders confirming the Final Award. But more important, since BOO had already paid P637,941,185.55 m manager's check, albeit under protest, and which payment was accepted by RCBC as full and

complete satisfaction of the writ of execution, there is no more act to be enjoined.

Settled is the rule that injunctive reliefs are preservative remedies for the protection of substantive rights and interests. Injunction is not a cause of action in itself, but merely a provisional remedy, an adjunct to a main suit. When the act sought to be enjoined has become fait accompli, the prayer for provisional remedy should be denied. 106

Thus, the Court ruled in Gov. Looyuko107 that when the events sought to be prevented by injunction or prohibition have already happened, nothing more could be enjoined or prohibited. Indeed, it is a universal principle of law that an injunction will not issue to restrain the performance of an act already done. This is so for the simple reason that nothing more can be done in reference thereto. A writ of injunction becomes moot and academic after the act sought to be enjoined has already been consummated.

WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The Resolution dated September 13,2011 ofthe Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.

The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.

SO ORDERED.

FIRST DIVISION

G.R. No. 189563 April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner, vs.UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.

D E C I S I O N

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 Decision4 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

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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 Complaint6 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.

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 Decision14 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 Agreement18 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 Comment21 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 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 Code25 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.33 Thus, 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

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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.

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."58 Assuming 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 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.

x x x x

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.

FIRST DIVISION

G.R. No. 212081 February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner, vs.UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

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D E C I S I O N

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an Agreement for Consultancy Services3 (Consultancy Agreement) with respondent United Planners Consultants, Inc. (respondent) in connection with the LMB' s Land Resource Management Master Plan Project (LRMMP).4 Under the Consultancy Agreement, petitioner committed to pay a total contract price of P4,337,141.00, based on a predetermined percentage corresponding to the particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the amount of P2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office Report8 (TSO) finding the contract price of the Agreement to be 84.14% excessive.9 This notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to respondent in the amount of P2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands, respondent instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City, Branch 222 (RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the arbitration clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty. Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission (CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral Tribunal. The court-referred arbitration was then docketed as Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed to submit their respective draft decisions in lieu of memoranda of arguments on or before April 21, 2010, among others.18

On the due date for submission of the draft decisions, however, only respondent complied with the given deadline,19 while petitioner moved for the deferment of the deadline which it followed with another motion for extension of time, asking that it be given until May 11, 2010 to submit its draft decision.20

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its non-submission as a waiver, but declared that it would still consider petitioner’s draft decision if submitted before May 7, 2010, or the expected date of the final award’s promulgation.22 Petitioner filed its draft decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent, directing petitioner to pay the latter the amount of (a) P2,285,089.89 representing the unpaid progress billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral Award upon confirmation by the RTC until fully paid; (b) P2,033,034.59 as accrued interest thereon; (c) P500,000.00 as exemplary damages; and (d) P150,000.00 as attorney’s fees.25 It also ordered petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in the amount of P182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted without any action, claiming that it had already lost jurisdiction over the case after it had submitted to the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010 (May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion30 dated June 1, 2010 (June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard when the Arbitral Tribunal failed to consider its draft decision and merely noted its motion for reconsideration.31 It also denied

receiving a copy of the Arbitral Award by either electronic or registered mail.32 For its part, respondent filed an opposition thereto and moved for the confirmation33 of the Arbitral Award in accordance with the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal, including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral Award pursuant to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay respondent the costs of confirming the award, as prayed for, in the total amount of P50,000.00. From this order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37 dated September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its monetary claims. It also claimed that the issuance of said writ was premature since the RTC should have first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and Motion, and not merely noted them, thereby violating its right to due process.40

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19, 2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a motion for correction of final award pursuant to Section 17.143 of the CIAC Rules, and not a motion for reconsideration of the said award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010 Manifestation and Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to be defective for petitioner’s failure to observe the three day notice rule.45 Having then failed to avail of the remedies attendant to an order of confirmation, the Arbitral Award had become final and executory.46

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to quash.47

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as CA-G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds, namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.2852 in relation to Rule 19.853 of said Rules which provide that a special civil action for certiorari must be filed before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled or set aside (or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of the Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004," institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the Philippines. The Act, however, was without prejudice to the adoption by the Supreme Court of any ADR system

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as a means of achieving speedy and efficient means of resolving cases pending before all courts in the Philippines.56

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall govern the procedure to be followed by the courts whenever judicial intervention is sought in ADR proceedings in the specific cases where it is allowed.57

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely: "(a) Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b) Referral to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d) Appointment of Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g) Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International Commercial Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k) Confidentiality/Protective Orders; and (l) Deposit and Enforcement of Mediated Settlement Agreements."58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of party autonomy or the freedom of the parties to make their own arrangements to resolve their own disputes.59 Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are free to agree on the procedure to be followed in the conduct of arbitral proceedings. Failing such agreement, the arbitral tribunal may conduct arbitration in the manner it considers appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent, after it filed its complaint, moved for its referral to arbitration62 which was not objected to by petitioner.63 By its referral to arbitration, the case fell within the coverage of the Special ADR Rules. However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought, but any of the parties may file a motion for correction64 of the final award, which shall interrupt the running of the period for appeal,65 based on any of the following grounds, to wit: a. an evident miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property referred to in the award;

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

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the parties in the Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66

Moreover, the parties may appeal the final award to the CA through a petition for review under Rule43 of the Rules of Court.67

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed the May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading under the Section 17.2,68 Rule 17 of the CIAC Rules, thus rendering the same final and executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of the Special ADR Rules which requires confirmation by the court of the final arbitral award. This is consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation of a domestic award to make the same enforceable:

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed by Section 2369 of R.A. 876.70

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a petition to vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it seek reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead, petitioner filed only on September 10, 2012 a special civil action for certiorari before the CA questioning the propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s motion for issuance of a writ of execution, and (b) Order dated July 9,2012 denying its motion to quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court, in making a ruling under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law, a party may file a special civil action for certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of the foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or set aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial arbitral award and referring the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an international commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that said certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the judgment, order or resolution sought to be annulled or set aside. No extension of time to file the petition shall be allowed."

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly, Rule 19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the Rules of Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for certiorari), which it claimed to have suppletory application in arbitration proceedings since the Special ADR Rules do not explicitly provide for a procedure on execution. The position is untenable.

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Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left unexecuted, would be nothing but an empty victory for the prevailing party.73

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms cover not only aspects of confirmation but necessarily extend to a confirmed award’s execution in light of the doctrine of necessary implication which states that every statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege. In Atienza v. Villarosa,74 the doctrine was explained, thus:

No statute can be enacted that can provide all the details involved in its application.1âwphi1 There is always an omission that may not meet a particular situation. What is thought, at the time of enactment, to be an all embracing legislation may be inadequate to provide for the unfolding of events of the future. So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied in a statute is as much a part thereof as that which is expressed. Every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex necessitate legis. And every statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege. This is so because the greater includes the lesser, expressed in the maxim, in eo plus sit, simper inest et minus.75 (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral award. To construe it otherwise would result in an absurd situation whereby the confirming court previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment award under the Special ADR Rules should be deemed to include the power to order its execution for such is but a collateral and subsidiary consequence that may be fairly and logically inferred from the statutory grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which provides that a statute must be read according to its spirit or intent,76 for what is within the spirit is within the statute although it is not within its letter, and that which is within the letter but not within the spirit is not within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve speedy and efficient resolution of disputes and curb a litigious culture,78 every interpretation thereof should be made consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as practicable, should be made to apply not only to the proceedings on confirmation but also to the confirmed award’s execution.

Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he 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."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be annulled or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No. 126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on September 10, 2012,81 said petition was clearly dismissible.82

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having failed to show a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s draft decision which was filed only on the day of the scheduled promulgation of final award on May 7, 2010.83 The touchstone of due process is basically the opportunity to be heard. Having been given such

opportunity, petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD) 144584 otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD 1445 expressly provides that execution of money judgment against the Government or any of its subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by the government, those funded by donation through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund or those partly funded by the government. (Emphases supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the Special ADR Rules.85 Hence, the respondent has to first seek the approval of the COA of their monetary claim. This appears to have been complied with by the latter when it filed a "Petition for Enforcement and Payment of Final and Executory Arbitral Award"86 before the COA. Accordingly, it is now the COA which has the authority to rule on this latter petition. WHEREFORE, the petition is DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the Department of Environment and Natural Resources is hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner, vs.MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.

D E C I S I O N

PEREZ, J.:

This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865.

The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered owner of a parcel of land located at Km. 16, South Superhighway, Parañaque City (subject land).3 Within the subject land are buildings and other improvements dedicated to the business of FKI.4

In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation.6 The respondent accepted the donation with all of its conditions.7 On 26 May1975, FKI and the respondent executed a Deed of Donation8 evidencing their consensus.

The Lease and the Amended Deed of Donation

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One of the conditions of the donation required the respondent to lease the subject land back to FKI under terms specified in their Deed of Donation.9

With the respondent’s acceptance of the donation, a lease agreement between FKI and the respondent was, therefore, effectively incorporated in the Deed of Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:

1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per annum .11

The Deed of Donation also stipulated that the lease over the subject property is renewable for another period of twenty-five (25) years " upon mutual agreement" of FKI and the respondent.12 In which case, the amount of rent shall be determined in accordance with item 2(g) of the Deed of Donation, viz:

g. The rental for the second 25 years shall be the subject of mutual agreement and in case of disagreement the matter shall be referred to a Board of three Arbitrators appointed and with powers in accordance with the Arbitration Law of the Philippines, Republic Act 878, whose function shall be to decide the current fair market value of the land excluding the improvements, provided, that, any increase in the fair market value of the land shall not exceed twenty five percent (25%) of the original value of the land donated as stated in paragraph 2(c) of this Deed. The rental for the second 25 years shall not exceed three percent (3%) of the fair market value of the land excluding the improvements as determined by the Board of Arbitrators.13

In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that reiterated the provisions of the Deed of Donation , including those relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of Donation , FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was set to expire, or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000 Lease Contract ) 15

covering the subject land. In this 2000 Lease Contract, FKI and respondent agreed on a new five-year lease to take effect on the 26th of May 2000, with annual rents ranging from P4,000,000 for the first year up to P4,900,000 for the fifth year.16 The 2000 Lease Contract also contained an arbitration clause enforceable in the event the parties come to disagreement about the" interpretation, application and execution" of the lease, viz :

19. Governing Law – The provisions of this 2000 Lease Contract shall be governed, interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent.17 (Emphasis supplied)

2005 Lease Contract

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another five (5) years. This new lease (2005 Lease Contract ) 18

required FKI to pay a fixed annual rent of P4,200,000.19 In addition to paying the fixed rent, however, the 2005 Lease Contract also obligated FKI to make a yearly " donation " of money to the respondent.20 Such donations ranged from P3,000,000 for the first year up to P3,900,000for the fifth year.21

Notably, the 2005 Lease Contract contained an arbitration clause similar to that in the 2000 Lease Contract, to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The

decision of the majority of the arbitrators shall be binding upon FKI and respondent.22 (Emphasis supplied)

The Assignment and Petitioner’s Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease Contract.23 But in June of 2008, FKI sold all its rights and properties relative to its business in favor of herein petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner executed an Assignment and Assumption of Lease and Donation25 —wherein FKI, with the conformity of the respondent, formally assigned all of its interests and obligations under the Amended Deed of Donation and the 2005 Lease Contract in favor of petitioner.

The following year, petitioner discontinued the payment of the rent and " donation " under the 2005 Lease Contract.

Petitioner’s refusal to pay such rent and "donation " emanated from its belief that the rental stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given effect because they violated one of the" material conditions " of the donation of the subject land, as stated in the Deed of Donation and Amended Deed of Donation.26

According to petitioner, the Deed of Donation and Amended Deed of Donation actually established not only one but two (2) lease agreements between FKI and respondent, i.e. , one lease for the first twenty-five (25)years or from 1975 to 2000, and another lease for the next twenty-five (25)years thereafter or from 2000 to 2025. 27 Both leases are material conditions of the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was not fixed in the Deed of Donation and Amended Deed of Donation , both deeds nevertheless prescribed rules and limitations by which the same may be determined. Such rules and limitations ought to be observed in any succeeding lease agreements between petitioner and respondent for they are, in themselves, material conditions of the donation of the subject land.28

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only " three percent (3%) of the fair market value of the subject land excluding the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation of the aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation . Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be governed by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.30

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)31 to petitioner notifying the latter of its default " per Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent and " donation " due for the year 2009. Respondent, in the same letter, further intimated of canceling the 2005 Lease Contract should petitioner fail to settle the said obligations.32

Petitioner received the First Demand Letter on2 June 2009.33

On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement over the rental stipulations of the 2005 Lease Contract — calling them " severely disproportionate," "unconscionable" and "in clear violation to the nominal rentals mandated by the Amended Deed of Donation." In lieu of the amount demanded by the respondent, which purportedly totaled to P8,394,000.00, exclusive of interests, petitioner offered to pay only P80,502.79,35 in accordance with the rental provisions of the Deed of Donation and Amended Deed of Donation.36 Respondent refused this offer.37

On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to petitioner, reiterating its demand for the payment of the obligations already due under the 2005 Lease Contract. The Second Demand Letter also contained a demand for petitioner to " immediately vacate the leased premises " should it fail to pay such obligations within seven (7) days from its receipt of the letter.39 The respondent warned of taking " legal steps " in the event that petitioner failed to comply with any of the said demands. 40

Petitioner received the Second Demand Letter on 26September 2009.41

Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009, petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint42 for the rescission or cancellation of the Deed of

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Donation and Amended Deed of Donation against the respondent. This case is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case43 against the petitioner before the Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was raffled to Branch 77 and was docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.44 In it, petitioner reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of the material conditions of the Deed of Donation and Amended Deed of Donation. 45 In addition to the foregoing, however, petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in view of the insufficiency of respondent’s demand.46 The First Demand Letter did not contain an actual demand to vacate the premises and, therefore, the refusal to comply there with does not give rise to an action for unlawful detainer.47

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same until the disagreement between the parties is first referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would not lie as the 2005 Lease Contract is void abinitio.49 The stipulation in the 2005 Lease Contract requiring petitioner to give yearly " donations " to respondent is a simulation, for they are, in fact, parts of the rent. 50 Such grants were only denominated as " donations " in the contract so that the respondent—anon-stock and non-profit corporation—could evade payment of the taxes otherwise due thereon.51

In due course, petitioner and respondent both submitted their position papers, together with their other documentary evidence.52 Remarkably, however, respondent failed to submit the Second Demand Letter as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused to dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with the petitioner with respect to the issues regarding the insufficiency of the respondent’s demand and the nullity of the 2005 Lease Contract.54 The MeTC thus disposed:

WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to costs.

SO ORDERED.55

The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch 274 of the RTC of Parañaque City and was docketed as Civil Case No. 10-0255.

On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the petitioner from the subject land:

WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial Court, Branch 77, Parañaque City, is hereby reversed, judgment is thus rendered in favor of the plaintiff-appellant and against the defendant-appellee, and ordering the latter –

(1) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to the plaintiff-appellant;

(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand Four Hundred Thirty Six Pesos (P9,362,436.00), penalties and net of 5% withholding tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly rental as will accrue during the pendency of this case;

(3) to pay attorney’s fees in the sum of P100,000.00 plus appearance fee of P3,000.00;

(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were built in good faith, the provisions of Art. 1678of the Civil Code shall apply.

SO ORDERED.57

The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a jurisdictional precursor to an unlawful detainer action.58 The First Demand Letter, in substance, contains a demand for petitioner to vacate when it mentioned that it was a notice " per Section12 of the 2005 Lease Contract."59 Moreover, the issue of sufficiency of the respondent’s demand ought to have been laid to rest by the Second Demand Letter which, though not submitted in evidence, was nonetheless admitted by petitioner as containing a" demand to eject " in its Answer with Compulsory Counterclaim.60

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same time, impugn such contract’s validity.61 Even assuming that it can, petitioner still did not file a formal application before the MeTC so as to render such arbitration clause operational.62 At any rate, the MeTC would not be precluded from exercising its jurisdiction over an action for unlawful detainer, over which, it has exclusive original jurisdiction.63

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to adduce any evidence to support its allegation that the same is void.64 There was, in this case, no evidence that respondent is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:

WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of Parañaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

x x x x

SO ORDERED.67

Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a Temporary Restraining Order68 staying the immediate implementation of the decisions adverse to it.

OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the significance of the arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it, that is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under theArbitration Clause of the 2005 LeaseAgreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent insists upon the enforce ability and validity of such stipulations, whereas, petitioner, in substance, repudiates them. It is from petitioner’s apparent breach of the 2005 Lease Contract that respondent filed the instant unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner and respondent arose from the application or execution of the 2005 Lease Contract . Undoubtedly, such kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit:

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19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent.69 (Emphasis supplied)

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the " interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract including the one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal effects. However, before discussing what these legal effects are, We shall first deal with the challenges posed against the application of such arbitration clause.

Challenges Against the Application of theArbitration Clause of the 2005 LeaseContract

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well as the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the instant case. A plethora of arguments was hurled in favor of bypassing arbitration. We now address them.

At different points in the proceedings of this case, the following arguments were offered against the application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably touch upon the issue of the validity of the 2005 Lease Contract.71 It was submitted that one of the reasons offered by the petitioner in justifying its failure to pay under the 2005 Lease Contract was the nullity of such contract for being contrary to law and public policy.72 The Supreme Court, in Gonzales v. Climax Mining, Ltd.,73 held that " the validity of contract cannot be subject of arbitration proceedings " as such questions are " legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function ." 74

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same time, impugn such contract’s validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease Contract , petitioner still did not file a formal application before the MeTC so as to render such arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires the party seeking arbitration to first file a " request " or an application therefor with the court not later than the preliminary conference.77

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings before the RTC.78 Hence, a further referral of the dispute to arbitration would only be circuitous.79

Moreover, an ejectment case, in view of its summary nature, already fulfills the prime purpose of arbitration, i.e. , to provide parties in conflict with an expedient method for the resolution of their dispute.80 Arbitration then would no longer be necessary in this case.81

None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract, or at least, of such contract’s rental stipulations would have to be determined, the same would not render such disagreement non-arbitrable. The quotation from Gonzales that was used to justify the contrary position was taken out of context. A rereading of Gonzales would fix its relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement and other mining related agreements entered into by private parties.82

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality.83 The pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that particular arbitration complaint. Stated otherwise, the question was whether the complaint for arbitration raises arbitrable issues that the PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-MGB with exclusive original jurisdiction only over mining disputes, i.e., disputes involving " rights to mining areas," "mineral agreements or permits," and " surface owners, occupants, claim holders or concessionaires" requiring the technical knowledge and experience of mining authorities in order to be resolved.84 Accordingly, since the complaint for arbitration in Gonzales did not raise mining disputes as contemplated under R.A. No. 7942 but only issues relating to the validity of certain mining related agreements, this Court held that such complaint could not be arbitrated before the PA-MGB.85 It is in this context that we made the pronouncement now in discussion:

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 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.86 (Emphasis supplied)

The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real consideration behind the ruling was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected the complaint for arbitration because the issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is rendered non-arbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes.87

Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc. v. San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the question of whether issues involving the rescission of a contract are arbitrable. The respondent in Cargill argued against arbitrability, also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of arbitrability.89 Thus, We held:

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.90 (Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact that it assails the validity of such contract. This is due to the doctrine of separability.91

Under the doctrine of separability, an arbitration agreement is considered as independent of the main contract.92 Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of the main contract.93

Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine of separability, even the very party who repudiates the main contract may invoke its arbitration clause.94

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Third . 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. [Emphasis ours; italics original]

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.

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed . - The request for referral shall be made not later than the pre-trial conference. After the pre-trial conference, the court will only act upon the request for referral if it is made with the agreement of all parties to the case.

(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but the parties subsequently enter into an arbitration agreement, they may request the court to refer their dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall state that the dispute is covered by an arbitration agreement.

A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and time when it would be heard. The party making the request shall serve it upon the respondent to give him the opportunity to file a comment or opposition as provided in the immediately succeeding Rule before the hearing. [Emphasis ours; italics original]

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 x x x 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.95

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 Contract96 and, more significantly, of its desire to have the same enforced in this case.97 This act of petitioner is enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner and respondent already under went through JDR proceedings before the RTC, will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous. The JDR system is substantially different from arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which entails the submission of a dispute before a " JDR judge " who shall merely " facilitate settlement " between the parties in conflict or make a " non-binding evaluation or assessment of the chances of each party’s case."98 Thus in JDR, the JDR judge lacks the authority to render a resolution of the dispute that is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an arbitrator/s —a

neutral third person or a group of thereof— who shall have the authority to render a resolution binding upon the parties.99

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration where a binding resolution to the dispute could finally be achieved. This situation precisely finds application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary nature of ejectment cases, arbitration still remains relevant as it aims not only to afford the parties an expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a product of party autonomy or the freedom of the parties to " make their own arrangements to resolve their own disputes."100 Arbitration agreements manifest not only the desire of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more so, the parties’ mutual aspiration to achieve such resolution outside of judicial auspices, in a more informal and less antagonistic environment under the terms of their choosing. Needless to state, this critical feature can never be satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease Agreement in this case, We shall now proceed with the discussion of its legal effects.

Legal Effect of the Application of theArbitration Clause

Since there really are no legal impediments to the application of the arbitration clause of the 2005 Contract of Lease in this case, We find that the instant unlawful detainer action was instituted in violation of such clause. The Law, therefore, should have governed the fate of the parties and this suit:

R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant for the stay is not in default in proceeding with such arbitration.[Emphasis supplied]

R.A. No. 9285

Section 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, in operative or incapable of being performed. [Emphasis supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed;101 the petitioner and the respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract . The MeTC, however, did not do so in violation of the law—which violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with Counterclaim —the point when the petitioner and the respondent should have been referred to arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to make. Nonetheless, this Court must make the same if only to stress the point that, in our jurisdiction, bona fide arbitration agreements are recognized as valid;102 and that laws,103 rules and regulations104 do exist protecting and ensuring their enforcement as a matter of state policy. Gone should be the days when courts treat otherwise valid arbitration agreements with disdain and hostility, if not outright " jealousy,"105 and then get away

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with it. Courts should instead learn to treat alternative means of dispute resolution as effective partners in the administration of justice and, in the case of arbitration agreements, to afford them judicial restraint.106 Today, this Court only performs its part in upholding a once disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Parañaque City, a complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. The case is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. However, since the records of Civil Case No. CV 09-0346 are not before this Court, We can never know with true certainty and only speculate. In this light, let a copy of this Decision be also served to Branch 257of the RTC of Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of Parañaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of its Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Parañaque City in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Parañaque City in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

No costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner, vs.SAN FERNANDO REGALA TRADING, INC., Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 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 Damages3 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.

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

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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 Order10 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, 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 Manifestation12 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 immediately ordering the parties to proceed with arbitration despite the proper, valid and timely

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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 certiorari under 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.16 R.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 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,

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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 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 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.

THIRD DIVISION

G.R. No. 167022 April 4, 2011

LICOMCEN INCORPORATED, Petitioner, vs.FOUNDATION SPECIALISTS, INC., Respondent.

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

G.R. No. 169678

FOUNDATION SPECIALISTS, INC., Petitioner, vs.LICOMCEN INCORPORATED, Respondent.

D E C I S I O N

BRION, J.:

THE FACTS

The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the business of operating shopping malls in the country.

In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a lease contract over a lot located in the central business district of the city. Under the contract, LICOMCEN was obliged to finance the construction of a commercial complex/mall to be known as the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years, and was, thereafter, required to turn over the ownership and operation to the City Government.1

For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN contracted respondent Foundation Specialists,

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Inc. (FSI) to do initial construction works, specifically, the construction and installation of bored piles foundation.2 LICOMCEN and FSI signed the Construction Agreement,3 and the accompanying Bid Documents4 and General Conditions of Contract5 (GCC) on September 1, 1997. Immediately thereafter, FSI purchased the materials needed for the Citimall6 project and began working in order to meet the 90-day deadline set by LICOMCEN.

On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension of work on the Citimall project. FSI replied on December 18, 1997, expressing concern over the revisions and the suspension, as it had fully mobilized its manpower and equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of accomplished work amounting to P3,627,818.00.7 A series of correspondence between LICOMCEN and FSI then followed.

ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to Manila.8 Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January 14, 1998.9

On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the project,"10 in view of a pending administrative case against the officials of the City Government of Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622).11 On January 19, 1998, ESCA formalized the suspension of construction activities and ordered the construction’s demobilization until the case was resolved.12 In response, FSI sent ESCA a letter, dated February 3, 1998, requesting payment of costs incurred on account of the suspension which totaled P22,667,026.97.13 FSI repeated its demand for payment on March 3, 1998.14

ESCA replied to FSI’s demands for payment on March 24, 1998, objecting to some of the claims.15 It denied the claim for the cost of the steel bars that were delivered, since the delivery was done in complete disregard of its instructions. It further disclaimed liability for the other FSI claims based on the suspension, as its cause was not due to LICOMCEN’s fault. FSI rejected ESCA’s evaluation of its claims in its April 15, 1998 letter.16

On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of P29,232,672.83.17 Since LICOMCEN took no positive action on FSI’s demand for payment,18 FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on October 2, 2002, docketed as CIAC Case No. 37-2002.19 In the arbitration petition, FSI demanded payment of the following amounts:

a. Unpaid accomplished work billings……………. P 1,264,404.12

b. Material costs at site…………………………….. 15,143,638.51

c. Equipment and labor standby costs…………….. 3,058,984.34

d. Unrealized gross profit………………………….. 9,023,575.29

e. Attorney’s fees………………………………….. 300,000.00

f. Interest expenses …………... equivalent to 15%of the total claim

LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to indefinitely suspend the Citimall project due to the cases filed against it involving its Lease Contract with the City Government of Legaspi. LICOMCEN also assailed the CIAC’s jurisdiction, contending that FSI’s claims were matters not subject to arbitration under GC-61 of the GCC, but one that should have been filed before the regular courts of Legaspi City pursuant to GC-05.20

During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the CIAC’s jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to draft the Terms of Reference.21

On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela Omnibus Motion, insisting that FSI’s petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until the issue of jurisdiction was finally settled. The CIAC denied LICOMCEN’s motion in its February 20, 2003 order,22 finding that the question of jurisdiction depends on certain factual conditions that have yet to be established by ample evidence. As the CIAC’s February 20, 2003 order stood uncontested, the arbitration proceedings continued, with both parties actively participating.

The CIAC issued its decision on July 7, 2003,23 ruling in favor of FSI and awarding the following amounts:

a. Unpaid accomplished work billings……………. P 1,264,404.12

b. Material costs at site…………………………… 14,643,638.51

c. Equipment and labor standby costs…………… 2,957,989.94

d. Unrealized gross profit………………………… 5,120,000.00

LICOMCEN was also required to bear the costs of arbitration in the total amount of P474,407.95.

LICOMCEN appealed the CIAC’s decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIAC’s decision, modifying only the amounts awarded by (a) reducing LICOMCEN’s liability for material costs at site to P5,694,939.87, and (b) deleting its liability for equipment and labor standby costs and unrealized gross profit; all the other awards were affirmed.24 Both parties moved for the reconsideration of the CA’s Decision; LICOMCEN’s motion was denied in the CA’s February 4, 2005 Resolution, while FSI’s motion was denied in the CA’s September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari before the Court.25

LICOMCEN’s Arguments

LICOMCEM principally raises the question of the CIAC’s jurisdiction, insisting that FSI’s claims are non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION

Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor [referring to FSI] or the Engineer [referring to ESCA] and the Contractor in connection with, or arising out of the execution of the Works, such dispute shall first be referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally requested by either party to resolve the dispute, issue a written decision to the Engineer and Contractor.

Such decision shall be final and binding upon the parties and the Contractor shall proceed with the execution of the Works with due diligence notwithstanding any Contractor's objection to the decision of the Engineer. If within a period of thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision on the dispute, either party does not officially give notice to contest such decision through arbitration, the said decision shall remain final and binding. However, should any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations shall have full power to open up, revise and review any decision, opinion, direction, certificate or valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being called as a witness and giving evidence in the arbitration. It is understood that the obligations of the LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works.26

LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works" are subject to arbitration. LICOMCEN construes the phrase "execution of the Works" as referring to the physical construction activities, since "Works" under the GCC specifically refer to the "structures and facilities" required to be constructed and completed for the Citimall project.27 It considers FSI’s claims as mere contractual monetary claims that should be litigated before the courts of Legaspi City, as provided in GC-05 of the GCC:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru arbitration as provided herein.28

LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be referred to and settled by LICOMCEN,

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which has 30 days to resolve it. If within a period of 30 days from receipt of LICOMCEN’s decision on the dispute, either party does not officially give notice to contest such decision through arbitration, the said decision shall remain final and binding. However, should any party, within 30 days from receipt of LICOMCEN’s decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law.

LICOMCEN considers its March 24, 1998 letter as its final decision on FSI’s claims, but declares that FSI’s reply letter of April 15, 1998 is not the "notice to contest" required by GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSI’s April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSI’s final demand letter of March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN declares that the letter was made three years after its March 24, 1998 letter, hence, long after the 30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on October 2, 2002.29 Considering FSI’s delays in asserting its claims, LICOMCEN also contends that FSI’s action is barred by laches.

With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its liability for material costs at site for the reinforcing steel bars in the amount of P5,694,939.87, computed as follows30:

2nd initial rebar requirements purchased from Pag-Asa Steel Works, Inc………………………………..Reinforcing steel bars purchased from ARCA Industrial Sales (total net weight of 744,197.66 kilograms) – 50% of net amount due……………….

Subtotal…………………………………………….LessPurchase cost of steel bars by Ramon Quinquileria……………………………………..

TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT SITE……………...

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the Contractor but not yet used, and which delivery has been certified by the Engineer."31 None of these requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars delivered in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars were delivered not at the site of the Citimall project, but at FSI’s batching plant called Tuanzon compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the delivery was done in violation of ESCA’s instruction to ship only 50% of the materials. Advised as early as December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI willingly incurred for itself.32

Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be minimized by the fact that FSI incurred no actual damage from the purchase and delivery of the steel bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for P500,000.00 to a third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a ridiculously low price of P 4.00/kilo, when the prevailing rate was P20.00/kilo. The sale could have garnered a higher price that would offset LICOMCEN’s liability. LICOMCEN also wants FSI to account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be unjustly enriched at LICOMCEN’s expense, receiving payment for materials not delivered to LICOMCEN.33

LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of arbitration. The ruling was apparently based on the finding that LICOMCEN’s "failure or refusal to meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to arbitration."34 LICOMCEN asserts that it was FSI’s decision to proceed with the delivery of the steel bars that actually caused the dispute; it insists that it is not the party at fault which should bear the arbitration costs.35

FSI’s Arguments

FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted the awards for equipment and labor standby costs and unrealized profits.

Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel bars. Under GC-42, it is enough that the materials were delivered to the contractor, although not used. FSI said that the 744 metric tons of steel bars were ordered and paid for by it for the Citimall project as early as November 1997. If LICOMCEN contends that these were procured for other projects FSI also had in Legaspi City, it should have presented proof of this claim, but it failed to do so.36

ESCA’s January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were ordered and paid for long before the notice to suspend was given; by then, it was too late to stop the delivery. FSI also claims that since it believed in good faith that the Citimall project was simply suspended, it expected work to resume soon after and decided to proceed with the shipment.37

Contrary to LICOMCEN’s arguments, GC-42 of the GCC does not require delivery of the materials at the site of the Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the Tuanzon compound, where the steel bars were actually delivered, is very close to the Citimall project site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to prepare the materials and equipment to be used, rather than stock them in the crowded job/project site. FSI also asserts that it was useless to have the delivery certified by ESCA because by then the Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA and LICOMCEN themselves had prevented from happening.38

The CA deleted the awards for equipment and labor standby costs on the ground that FSI’s documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN never questioned the list of employees and equipments employed and rented by FSI for the duration of the suspension.39

FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While LICOMCEN cited several other cases in its petition for review on certiorari as grounds for suspending the works, its letters/notices of suspension only referred to one case, OMB-ADM-1-97-0622, an administrative case before the Ombudsman that was dismissed as early as October 12, 1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no restraining order or injunction was issued in any of these cases to justify the suspension of the Citimall project.40 FSI posits that LICOMCEN’s true intent was to terminate its contract with it, but, to avoid paying damages for breach of contract, simply declared it as "indefinitely suspended." That LICOMCEN conducted another public bidding for the "new designs" is a telling indication of LICOMCEN’s intent to ease out FSI. 41 Thus, FSI states that LICOMCEN’s bad faith in indefinitely suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that "[t]he contractor shall have no claim for anticipated profits on the work thus terminated,"42 will not apply because the stipulation refers to a contract lawfully and properly terminated. FSI seeks to recover unrealized profits under Articles 1170 and 2201 of the Civil Code.

THE COURT’S RULING

The jurisdiction of the CIAC

The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an arbitral machinery that would expeditiously settle construction industry disputes. The prompt resolution of problems arising from or connected with the construction industry was considered of necessary and vital for the fulfillment of national development goals, as the construction industry provides employment to a large segment of the national labor force and is a leading contributor to the gross national product.43 Section 4 of E.O. 1008 states:

Sec. 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.

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.44 It cannot be fixed by the will of the parties to a dispute;45 the parties can neither expand nor diminish a tribunal’s jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 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.46 Considering the intent behind the law and the broad language adopted, LICOMCEN erred in insisting on its restrictive interpretation of GC-61. The CIAC’s jurisdiction cannot be limited by the

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parties’ stipulation that only disputes in connection with or arising out of the physical construction activities (execution of the works) are arbitrable before it.

In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93) states:

Section 1. Submission to CIAC Jurisdiction. – An 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. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.

An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed 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.

In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,47 the Court declared that "the bare fact that the parties x x x incorporated an arbitration clause in [their contract] is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the parties. The arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction."

Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent to limit resort to arbitration only to disputes relating to the physical construction activities.

First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted at its widest signification. Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not only arising of out the execution of the works but also in connection therewith. The payments, demand and disputed issues in this case – namely, work billings, material costs, equipment and labor standby costs, unrealized profits – all arose because of the construction activities and/or are connected or related to these activities. In other words, they are there because of the construction activities. Attorney’s fees and interests payment, on the other hand, are costs directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all the disputed items.

Second and more importantly, in insisting that contractual money claims can be resolved only through court action, LICOMCEN deliberately ignores one of the exceptions to the general rule stated in GC-05:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru arbitration as provided herein.

The second exception clause authorizes the submission to arbitration of any dispute between LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical construction works. This was precisely the avenue taken by FSI when it filed its petition for arbitration with the CIAC.

If the CIAC’s jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition precedent. GC-61 requires a party disagreeing with LICOMCEN’s decision to "officially give notice to contest such decision through arbitration" within 30 days from receipt of the decision. However, FSI’s April 15, 1998 letter is not the notice contemplated by GC-61; it never mentioned FSI’s plan to submit the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding FSI’s failure to make a proper and timely notice, LICOMCEN’s decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for the parties to agree to submit their dispute to voluntary arbitration:

[T]he 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 CIAC jurisdiction, without any qualification or condition precedent. To affirm a condition precedent in the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the recognized intention of

the law and rules to automatically vest CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.48

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.49 This jurisdiction cannot be altered by stipulations restricting the nature of construction disputes, appointing another arbitral body, or making that body’s decision final and binding.

The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed.

The validity of the indefinitesuspension of the works on theCitimall project

Before the Court rules on each of FSI’s contractual monetary claims, we deem it important to discuss the validity of LICOMCEN’s indefinite suspension of the works on the Citimall project. We quote below two contractual stipulations relevant to this issue:

GC-38. SUSPENSION OF WORKS

The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to suspend the Works wholly or partly by written order for such period as may be deemed necessary, due to unfavorable weather or other conditions considered unfavorable for the prosecution of the Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for workers or the general public, or failure or refusal to carry out valid orders, or due to change of plans to suit field conditions as found necessary during construction, or to other factors or causes which, in the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN, INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the work wholly or partly directed.

In case of total suspension or suspension of activities along the critical path of the approved PERT/CPM network and the cause of which is not due to any fault of the Contractor, the elapsed time between the effective order for suspending work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract Works.

The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of work when conditions to resume work shall have become favorable or the reasons for the suspension have been duly corrected.50

GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT

x x x x

2. For Convenience of LICOMCEN, INCORPORATED

If any time before completion of work under the Contract it shall be found by the LICOMCEN, INCORPORATED that reasons beyond the control of the parties render it impossible or against the interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN, INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and terminate the Contract in whole or in part. Upon the issuance of such notice of termination, the Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN, INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and only until such time or times as the LICOMCEN, INCORPORATED/Engineer may direct.51

Under these stipulations, we consider LICOMCEN’s initial suspension of the works valid. GC-38 authorizes the suspension of the works for factors or causes which ESCA deems necessary in the interests of the works and LICOMCEN. The factors or causes of suspension may pertain to a change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCEN’s January 15, 1998 letter and ESCA’s January 19, 1998 and February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in any of the cases filed against LICOMCEN before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient discretion to determine whether the existence of a particular situation or condition necessitates the suspension of the works and serves the interests of LICOMCEN.1avvphi1

Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when

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conditions to resume work shall have become favorable or the reasons for the suspension have been duly corrected." The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other cases52 may justify the continued suspension of the works, but LICOMCEN never bothered to inform FSI of the existence of these cases until the arbitration proceedings commenced. By May 28, 2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the Citimall project;53 again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a rebidding of the Citimall project based on the new design.54 LICOMCEN’s claim that the rebidding was conducted merely to get cost estimates for the new design goes against the established practice in the construction industry. We find the CIAC’s discussion on this matter relevant:

But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral Tribunal finds said act of asking for bids, without any intention of awarding the project to the lowest and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be branded as fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was non-refundable. The presence of x x x deceit makes the whole story repugnant and unacceptable.55

LICOMCEN’s omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCEN’s intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine what reasons render it against its interest to complete the work – in this case, the pendency of the other cases and the revised designs for the Citimall project. Given this authority, the Court fails to the see the logic why LICOMCEN had to resort to an "indefinite suspension" of the works, instead of outrightly terminating the contract in exercise of its rights under GC-42(2).

We now proceed to discuss the effects of these findings with regard to FSI’s monetary claims against LICOMCEN.

The claim for material costs at site

GC-42 of the GCC states:

GC-42 PAYMENT FOR TERMINATED CONTRACT

If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed, satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of termination, at the rates and prices provided for in the Contract and in addition:

1. The cost of partially accomplished items of additional or extra work agreed upon by the LICOMCEN, INCORPORATED and the Contractor.

2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the Contractor but not yet used and which delivery has been certified by the Engineer.

3. The reasonable cost of demobilization

For any payment due the Contractor under the above conditions, the LICOMCEN, INCORPORATED, however, shall deduct any outstanding balance due from the Contractor for advances in respect to mobilization and materials, and any other sum the LICOMCEN, INCORPORATED is entitled to be credited.56

For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that

a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;

b. the materials or goods were delivered to the Contractor but not yet used; and

c. the delivery was certified by the Engineer.

Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable for the cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the extent of LICOMCEN’s liability

because the CA opined that it should be limited only to 50% of the cost of the steel bars. A review of the records compels us to uphold the CA’s finding.

Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCA’s January 6, 1998 letter reads:

As per our information to you on December 16, 1997, a major revision in the design of the Legaspi Citimall necessitated a change in the bored piles requirement of the project. The change involved a substantial reduction in the number and length of piles.

We expected that you would have suspended the deliveries of the steel bars until the new design has been approved.

According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.

In order to avoid double handling, storage, security problems, we suggest that only 50% of the total requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where storage and security is better.

In order for us to consider additional cost due to the shipping of the excess steel bars, we need to know the actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot consider the additional cost if you have had the chance to delay the shipping of the steel bars.57

From the above, it appears that FSI was informed of the necessity of suspending the works as early as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply with the order to suspend the work.58 Though ESCA’s December 16, 1997 notice may not have been categorical in ordering the suspension of the works, FSI’s reply letter of December 18, 1997 indicated that it actually complied with the notice to suspend, as it said, "We hope for the early resolution of the new foundation plan and the resumption of work."59 Despite the suspension, FSI claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a) the steel bars were ordered as early as November 1997 and were already loaded in Manila and expected to arrive in Legaspi City by December 23, 1997, and (b) it expected immediate resumption of work to meet the 90-day deadline.60

Records, however, disclose that these claims are not entirely accurate. The memorandum of agreement and sale covering the steel bars specifically stated that these would be withdrawn from the Cagayan de Oro depot, not Manila61; indeed, the bill of lading stated that the steel bars were loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on January 14, 1998.62 The loading and delivery of the steel bar thus happened after FSI received ESCA’s December 16, 1997 and January 6, 1998 letters – days after the instruction to suspend the works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the extension of the period to complete the works. The relevant portion of GC-38 states:

In case of total suspension x x x and the cause of which is not due to any fault of the Contractor [FSI], the elapsed time between the effective order for suspending work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract Works.63

The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de Oro to Legaspi City, thus negates both FSI’s

argument and the CIAC’s ruling64 that there was no necessity to stop the shipment so as to meet the 90-day deadline. These circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to LICOMCEN’s instructions. The CA was correct in holding LICOMCEN liable for only 50% of the costs of the steel bars delivered.

The claim for equipment andlabor standby costs

The Court upholds the CA’s ruling deleting the award for equipment and labor standby costs. We quote in agreement pertinent portions of the CA decision:

The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and maintained at the construction site during the suspension of the project with the prorated rentals incurred x x x. To the mind of this Court, these lists are not sufficient to establish the fact that indeed [FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of equipments is a mere index or catalog of the equipments, which may be utilized at the construction site. It is not the best

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evidence to prove that said equipment were in fact rented and maintained at the construction site during the suspension of the work. x x x [FSI] should have presented the lease contracts or any similar documents such as receipts of payments x x x. Likewise, the list of employees does not in anyway prove that those employees in the list were indeed at the construction site or were required to be on call should their services be needed and were being paid their salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We deny the claim for equipment and labor standby costs.65

The claim for unrealized profit

FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:

GC-41. LICOMCEN, INCORPORATED’s RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT

x x x x

2. For Convenience of the LICOMCEN, INCORPORATED

x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract, but the Contractor shall receive compensation for reasonable expenses incurred in good faith for the performance of the Contract and for reasonable expenses associated with termination of the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such expenses. The Contractor [FSI] shall have no claim for anticipated profits on the work thus terminated, nor any other claim, except for the work actually performed at the time of complete discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done.

The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit" from the prohibited claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from the language of the contract itself, according to its plain and ordinary meaning."66

If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control.67

Nonetheless, on account of our earlier discussion of LICOMCEN’s failure to observe the proper procedure in terminating the contract by declaring that it was merely indefinitely suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him.68 Its award is, thus, not for the purpose of indemnification for a loss but for the recognition and vindication of a right. A violation of the plaintiff’s right, even if only technical, is sufficient to support an award of nominal damages.69 FSI is entitled to recover the amount of P100,000.00 as nominal damages.

The liability for costs of arbitration

Under the parties’ Terms of Reference, executed before the CIAC, the costs of arbitration shall be equally divided between them, subject to the CIAC’s determination of which of the parties shall eventually shoulder the amount.70

The CIAC eventually ruled that since LICOMCEN was the party at fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was LICOMCEN’s imprudent declaration of indefinitely suspending the works that caused the dispute between it and FSI. LICOMCEN should bear the costs of arbitration.

WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:

a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;

b. P5,694,939.87 for material costs at site; and

c. P100,000.00 for nominal damages.

LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.

SO ORDERED.

FIRST DIVISION

G.R. Nos. 159561-62 October 3, 2012

R.V. SANTOS COMPANY, INC., Petitioner, vs.BELLE CORPORATION, Respondent.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

For disposition of the Court is a Petition for Review on Certiorari, assailing the Court of Appeals' Decision1 dated March 7, 2003 and Resolution2 dated August 20, 2003 in the consolidated cases docketed as CA-G.R. SP Nos. 60217 and 60224. In its Decision dated March 7, 2003, the Court of Appeals affirmed the July 28, 2000 Decision3 in CIAC Case No. 45-99 of the Construction Industry Arbitration Commission (CIAC), which, among others, (a) ordered RV Santos Company, Inc. (RVSCI) to refund the amount of P4,940,108.58 to Belle Corporation (Belle), and (b) denied Belle’s claim for liquidated damages and RVSCI’s counterclaims for unpaid billings and attorney’s fees. In the assailed August 20, 2003 Resolution, the Court of Appeals denied the parties’ respective motions for reconsideration of its March 7, 2003 Decision.

The present controversy arose from a Request for Adjudication4 filed by Belle with the CIAC on November 3, 1999. According to the Complaint5 attached to said Request, Belle and RVSCI entered into a Construction Contract on July 14, 1997. As stipulated therein, RVSCI undertook to construct a detailed underground electrical network for Belle’s Tagaytay Woodlands Condominium Project located in Tagaytay City6 with a project cost that shall not be more than Twenty-Two Million Pesos (P22,000,000.00), inclusive of all taxes, government fees and the service fee under the Contract.7 Likewise under said contract, Belle advanced to RVSCI fifty percent (50%) of the contract price in the amount of Eleven Million Pesos (P11,000,000.00)8 for which RVSCI issued to Belle an official receipt9 dated August 8, 1997.

Some time thereafter, RVSCI commenced work on the project. Under Article VII(A) of the Construction Contract, the project was supposed to be completed and ready for operation within 180 calendar days from receipt by RVSCI of the notice to commence from Belle, provided that all civil related works necessary for the execution of the project works were in place. However, the project was allegedly not completed within the stipulated time frame.

On March 17, 1998, Belle’s Woodlands General Committee supposedly set April 21, 1998 as the target date for completion of the Log Home Units in Woodlands. In a Memorandum10 dated April 14, 1998, Belle purportedly informed RVSCI of the target date and urged the latter to complete the project on or before said deadline. Still the project was not completed on April 21, 1998.

Subsequently, in June 1998, Belle placed additional work orders with RVSCI, who in turn made the following cost estimates for the additional work:

Additional Order No. 1 P3,854,400.00

Installation of 7 units of Load breakswitch, 102 units of kw-hrs. metersand fabrication of 21 sets of Bus ducts

Additional Order No. 2 541,528.54

Supply and installation of one (1) unitMDP-DTIA

Additional Order No. 3 158,612.00

Various work orders issued to RVSCI ----------------------

P4,554,540.5411

Belle admittedly approved RVSCI’s cost estimates for Additional Order Nos. 1 and 2 but the former allegedly did not approve the cost estimate for Additional Order No. 3 which Belle estimated should only cost P22,442.47.

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Nonetheless, RVSCI proceeded to implement Additional Order Nos. 1 and 3 while Belle itself accomplished Additional Order No. 2.

On August 10, 1998, RVSCI submitted its Progress Billing12 to Belle, claiming 53.3% accomplishment of the project, including the work done for Additional Order No. 1, as set forth above. RVSCI claimed that the value of the work accomplished under the August 10, 1998 Progress Billing was P7,159,216.63 on the main project and P1,768,000.00 on the additional work order. After deducting 50% of the Progress Billing on the main project, the total amount billed by RVSCI was P5,347,608.03. Purportedly relying on RVSCI’s representations, Belle’s project engineer recommended approval of the Progress Billing.

Subsequently, however, Belle reputedly made its own assessment of the work accomplished by RVSCI and determined that it was only worth P4,676,724.64. Belle supposedly relayed its findings to RVSCI.13

On September 30, 1998, while negotiations were allegedly on-going between the parties regarding the payment of the Progress Billing, Belle claimed that RVSCI unceremoniously abandoned the project without prior notice and forced Belle to take over the construction work therein. Belle purportedly sent a Memorandum14 dated December 15, 1998 to RVSCI to convey its "extreme disappointment" over the latter’s abandonment of the project.

On January 11, 1999, the parties’ representatives met and during that meeting RVSCI allegedly advised Belle that it will not return to the site until the outstanding balance due to it is paid.15

Meanwhile, on January 22, 1999, Belle made an additional payment for electrical works to RVSCI in the amount of P476,503.30. This payment was evidenced by an official receipt16 issued by RVSCI. Belle likewise remitted the amount of P122,491.14 to the Bureau of Internal Revenue representing the withholding tax due from RVSCI.

In February 1999, Belle engaged the services of an assessor, R.A. Mojica and Partners (R.A. Mojica), to determine the value of the work done by RVSCI. After it conducted an electrical works audit, R.A. Mojica reported to Belle that the work accomplished by RVSCI on the main project only amounted to P4,868,443.59 and not P7,159,216.05 as billed by RVSCI.17

In Belle’s view, it had overpaid RVSCI, based on the following computation:

Downpayment P11,000,000.00

Withholding Tax Payable 122,491.14

Additional Payment for electrical works

(Billing #01) 476,503.33

===============P11,598,994.44

LESS:

Actual Value of Work Accomplished 4,868,443.59

Approved Change of Specifications and

Additional Work Orders 1,790,442.70

NET DUE TO BELLE-------------------P 4,940,108.15 18

RVSCI allegedly refused to return the excess payment despite repeated demands. Thus, relying on the arbitration clause in the Construction Contract, Belle brought the matter before the CIAC and prayed that RVSCI be directed to (a) reimburse Belle the amount of P4,940,108.15, and (b) pay Belle the amount of P2,200,000.00 as liquidated damages.19

By way of defense, RVSCI claimed that its August 10, 1998 Progress Billing was a result of a "bilateral assessment" by the representatives of both parties and was, in fact, approved/recommended for payment by Belle’s representatives. RVSCI complained that Belle segregated the project into two phases (Phase 1 and Phase 2) with Phase 1 comprising the area already worked on by RVSCI and Phase 2 comprising the "unworked" area. It was Belle which advised RVSCI in a meeting on January 11, 1999 that the former was suspending Phase 2 of the project due to economic difficulties. RVSCI allegedly made several demands for payment of its Progress Billing but Belle

ignored said demands. Thus, in view of Belle’s suspension of the work and the nonpayment of the progress billing, RVSCI was purportedly forced to stop work on the project, despite being fully prepared to comply with its obligations under the contract. RVSCI further asserted that it was not notified of, nor made privy to, the audit work conducted by R.A. Mojica and therefore RVSCI was not bound by such audit. Insisting on the accuracy of its Progress Billing, RVSCI interposed a counterclaim against Belle for the payment of the amount of P4,312,170.95, computed thus:

Progress Billing P 7,159,216.05

Remaining MDPs for deliveryUnder original contract (11 sets @P327,128.54) P 3,598,413.94

Approved Change ofSpecifications and AdditionalWork Order/s (dated August 10, 1998and September 30, 1998) P 4,554,540.95

Total P 15,312,170.95

Less: Advance Payment P 11,000,000.00

Net Due to RVSCI P 4,312,170.95 20

RVSCI prayed for the dismissal of the Complaint and for the CIAC to order Belle to pay the following amounts: (a) P4,312,170.95 as balance of RVSCI’s progress billing(s), (b) P500,000.00 as moral damages, and (c) P500,000.00 as attorney’s fees and costs of suit.21

At the preliminary conference, the parties agreed on the Terms of Reference for the arbitration of their respective claims. According to the Terms of Reference, the admitted facts and the issues to be resolved by the arbitration panel were as follows:

II. ADMITTED FACTS

The parties admit the following:

1. Their respective identity/juridical existence and circumstances.

2. The genuineness and due execution of the Contract (attached as Annex A of the Complaint) for the construction of a detailed underground electrical network for the Tagaytay Woodlands Condominium Project in Tagaytay City entered into by the parties on 14 July 1997 for a contract price of P22,000,000.00.

3. Article IV, Section 4.2 of the Construction Contract which provide (sic) that the "Contractor RVSCI guarantees and warrants that the total project cost shall not be more than P22,000,000.00, inclusive of all taxes and government fees and the service fee under the Contract."

4. Sec. 6.2(a), Art. VI of the Construction Contract which provides that: "Owner Belle shall advance to Contractor an amount equivalent to 50% of the Contract Price or the amount of P11,000,000.00, as down payment for the construction, upon execution of the Contract, receipt of which is hereby acknowledged by Contractor. Progress payments to be made by Owner to Contractor, proportionate to the percentage of accomplishment of the Project, shall be deducted from the balance of the Contract Price. The same proportion of the down payment shall also be deducted from billing progress payments."

5. The payment made by Claimant to Respondent in the amount of P11,000,000.00 as acknowledged to have been received under Official Receipt No. 0706 issued by the latter on 8 August 1997 (attached as Annex B of the Complaint).

6. The following proposed cost estimate of the Respondent on Claimant’s additional work orders in June 1998:

Additional Order No. 1

Installation of 7 units of Load breakswitch, 102 units of kw-hrs. meters andfabrication of 21 sets of Bus ducts. P3,854,400.00

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Additional Order No. 2

Supply and installation of one (1) unitMDP-DTIA 541,528.54

Additional Order No. 3

Various work orders issued to RVSCI 158,612.00

--------------------P4,554,540.54=============

7. Claimant approved Respondent’s proposed estimates on Additional Orders Nos. 1 and 2, but disputed the cost estimate of Additional Order No. 3. Thereafter, Respondent proceeded to implement additional Orders Nos. 1 and 3.

8. Progress Billing No. 1 (attached as Annex D of the Complaint) which Claimant received on 10 August 1998.

9. On 11 January 1999, the parties’ representatives met to discuss the reasons for Respondent’s failure/refusal to return to the Site. These representatives were Fernando R. Santico, Edgardo F. Villarino & Rudy P. Aninipot, for the Claimant, and Renato V. Santos & Joey C. Caldeo, for the Respondent.

10. Claimant made additional payment to Respondent for electrical works on 22 January 1999 amounting to P476,503.30 as per Official Receipt No. 0717 issued by Respondent (attached as Annex G of the Complaint).

11. Existence of Respondent’s letter to Claimant dated 4 May 1999 re: Underground Electrical Utilities (attached as Annex A of the Reply).

x x x x

IV. ISSUES TO BE DETERMINED

1. Is Claimant entitled to its claims for overpayment? If so, how much should be returned to the Claimant?

1.1 How much was the work accomplished by Respondent in the project?

1.2 Whether or not Respondent has manufactured/produced and/or installed 11 sets of Main Distribution Panels? If so, is Claimant liable and for how much should it be liable to pay Respondent for their cost/value?

1.3 Whether or not Respondent is entitled to its claim for unpaid billings?

2. Is Claimant entitled to its claim for liquidated damages? If so, how much by way of liquidated damages should be awarded to it?

2.1 Was Respondent justified in suspending its work?

2.2 Is Respondent justified in declining to return to work?

3. Is Respondent entitled to its counterclaim for attorney’s fees? If so, how much is Claimant liable to Respondent for such claim?22

The Terms of Reference further indicated the parties’ agreement that the presentation of their testimonial evidence shall be by way of affidavits of witnesses. Hearings were held on March 24 and 28, 2000. Thereafter, the parties submitted their draft Decisions to the arbitral tribunal.

In a Decision dated July 28, 2000, the CIAC found that, under the Construction Contract23 and industry practice, Belle had the right to the true value of the work performed by RVSCI upon termination. Further, the CIAC ruled that according to the Uniform General Conditions of Contract for Private Construction (CIAP Document 102), approval of a progress billing is provisional24 and is subject to final review and approval before acceptance of the completed work and prior to final payment.25 Hence, Belle was within its rights to make a reevaluation of the work accomplishment of RVSCI. Finding that Engr. Raladin A. Mojica qualified as an expert witness, the CIAC gave weight to the results of the re-survey done by R.A. Mojica and held that Belle

indeed made an overpayment to RVSCI. Since the date when RVSCI commenced work on the Project and the supposed completion date cannot be determined, the CIAC found no basis to award liquidated damages in favor of Belle. The arbitral tribunal likewise denied RVSCI’s counterclaims. Thus, the dispositive portion of the CIAC Decision reads:

WHEREFORE, award is hereby made as follows:

1. Claimant’s Belle’s claim for refund of P4,940,108.58, representing overpayment to the Respondent is hereby granted. Respondent is, therefore, ordered to pay this amount to Claimant with interest at the rate of 6% per annum from the date of this Award.

2. Claimant’s claim for liquidated damages and Respondent’s counterclaims for an alleged balance due and unpaid on progress billings and for attorney’s fees are denied.

3. Arbitration fees and expenses shall be shared by the parties pro rata on the basis of the amount of their claims and counterclaims.

4. The amount of P4,940,108.58 found in paragraph 1 of this Award to be due the Claimant plus interest at 6% per annum shall further earn interest at the rate of 12% per annum from the time this decision becomes final and executory and the total amount found to be due remains unpaid.26

Both Belle and RVSCI filed petitions for review under Rule 43 of the Rules of Court to assail the foregoing CIAC Decision with the Court of Appeals, which were docketed as CA-G.R. SP No. 60217 and CA-G.R. SP No. 60224, respectively. Upon motion by the parties, the cases were consolidated and after due proceedings, the Court of Appeals issued a Decision dated March 7, 2003, dismissing the petitions and affirming the CIAC Decision. The separate motions for reconsideration of the parties were likewise denied by the Court of Appeals in a Resolution dated August 20, 2003.

RVSCI elevated the matter to this Court and questioned the Court of Appeals’ March 7, 2003 Decision and August 20, 2003 Resolution through the present petition for review on certiorari under Rule 45. The grounds relied upon by RVSCI were:

I. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT THE SURVEYOR’S ELECTRICAL WORK AUDIT WAS COMPETENT AND MUST BE GIVEN WEIGHT.

II. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT BELLE MAY WITHDRAW ITS APPROVAL OF THE PROGRESS BILLING PURSUANT TO ARTICLES VI(2)(C) AND XIII(4) OF THE CONTRACT.

III. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT RVSCI IS NOT ENTITLED TO AN AWARD FOR DAMAGES.27

Anent the first ground, RVSCI argued that R.A. Mojica’s electrical work audit that was unilaterally commissioned by Belle was not binding on the former since (a) it was not authorized by the Contract and was done without the consent or participation of RVSCI; (b) assuming that the Contract allowed Belle to commission such audit, it was incomplete as it failed to cover the entire work performed by RVSCI as shown by its Progress Billing and Bill of Quantities, allegedly approved by Belle; and (c) the audit was tainted by obvious partiality since R.A. Mojica was a regular contractor of Belle and a competitor of RVSCI.

With respect to the second ground, it is RVSCI’s contention that Article VI, Section 6.2(c) of the Construction Contract merely differentiate acceptance by Belle of RVSCI’s work accomplishment from time to time from Belle’s final acceptance of work upon completion of the entire project. Also RVSCI claims that Article XIII, Section 13.4 only allows Belle to determine the true value of the works in cases of termination of the Contract upon occurrence of any of the events of default enumerated under Article XIII, Section 13.1 and said provision has no application in instances of justified suspension of works due to Belle’s breach of the Contract. In any event, it is RVSCI’s view that neither Article VI, Section 6.2(c) nor Article XIII, Section 13.4 allows Belle to withdraw its previous approval of RVSCI’s Progress Billing, contrary to the rulings of both the CIAC and the Court of Appeals. Assuming without conceding that Article XIII, Section 13.4 of the Contract applies in this instance, RVSCI believes that the final determination of the value of the works should be made by (a) both parties or (b) an independent third party mutually commissioned by them.

As for the last ground, RVSCI asserts that the CIAC and the Court of Appeals erred in denying RVSCI’s claim for damages in view of Belle’s breach of the Contract by its unjustified refusal or failure to pay the Progress Billing.

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On the other hand, Belle claims that the Petition should be dismissed for raising questions of fact, which are improper in a petition under Rule 45 of the Rules of Court, without showing that this case fell under the recognized exceptions under jurisprudence. On the merits of the Petition, Belle argued that it had the right to determine the true value of work done and nothing in the Contract limited that right. According to Belle, the CIAC and the Court of Appeals properly relied on Article VI, Section 6.2(c) and Article XIII, 13.4 of the Contract and on industry practice in upholding Belle’s right for a re-evaluation of RVSCI’s actual work accomplishment. Thus, the CIAC and the appellate court allegedly were correct in giving weight to the electrical audit report made by R.A. Mojica. Belle further propounds that the lower tribunals correctly did not grant RVSCI any award for damages considering that RVSCI did not prove such damages as it had, in fact, been overpaid. As for RVSCI’s claim for the value of materials and equipment purportedly left at the site, the same was not included in the Terms of Reference and RVSCI was not allowed by the CIAC to present evidence on the same. Thus, this matter cannot be raised for the first time on appeal.

After a thorough review of the issues raised by the parties, the Court finds no merit in the Petition.

On the procedural issue:

It must be stressed that in petitions for review under Rule 45 only questions of law may be raised, unless the petitioner shows that the case falls under the recognized exceptions. In Makati Sports Club, Inc. v. Cheng,28 we explained, thus:

At the outset, we note that this recourse is a petition for review on certiorari under Rule 45 of the Rules of Court. Under Section 1 of the Rule, such a petition shall raise only questions of law which must be distinctly alleged in the appropriate pleading. In a case involving a question of law, the resolution of the issue must rest solely on what the law provides for a given set of facts drawn from the evidence presented. Stated differently, there should be nothing in dispute as to the state of facts; the issue to be resolved is merely the correctness of the conclusion drawn from the said facts. Once it is clear that the issue invites a review of the probative value of the evidence presented, the question posed is one of fact. If the query requires a reevaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to each other, then the issue is necessarily factual.29 (Emphases supplied, citation omitted.)

In cases decided by the CIAC, the above rule finds even more stringent application. As we previously observed in one case:

Executive Order No. 1008, as amended, provides, in its Section 19, as follows:

"Sec. 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."

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 general, and 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.

x x x x

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 for 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 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.30 (Emphasis supplied, citations omitted.)

In another case, we have also held that:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality, especially when affirmed by the Court of Appeals. In particular, factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual findings of construction arbitrators may be reviewed by this 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 any of them; (3) the arbitrators were guilty of misconduct 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.

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of discretion resulting in lack or loss 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.31 (Citations omitted.)

In the case at bar, petitioner indeed raises factual matters in the present controversy which this Court may not look into under a petition for review on certiorari. We likewise find that this case is not among the exceptions to this settled rule. Nevertheless, even if we were to excuse this procedural infirmity of the petition, we are still not inclined to reverse the lower tribunals’ findings on the merits of the case.

On the substantive matters:Whether the third party audit reportcommissioned by Belle is admissible andmay be given weight

To recapitulate, petitioner assailed R.A. Mojica’s audit report on the following grounds: (a) that there was no provision in the Construction Contract allowing Belle to unilaterally conduct an audit of petitioner’s work; (b) assuming the Contract allows such an audit, it nonetheless failed to include all the work done by petitioner; and (c) it was tainted by bias and partiality since R.A. Mojica was a regular, long time contractor of Belle.

On this issue, we uphold the CIAC and the Court of Appeals in their allowance of the third party audit report done by R.A. Mojica.

First, while there was no provision in the Construction Contract expressly authorizing Belle to secure the services of a third party auditor to determine the value of the work accomplished by petitioner RVSCI, there is likewise no provision prohibiting the same. Certainly, RVSCI failed to point to any contractual stipulation preventing RVSCI to seek expert opinion regarding the value of RVSCI’s accomplishment or the accuracy of the Progress Billing, whether prior or subsequent to the approval of such billing.

Second, the mere fact that the audit was unilateral, or was not participated in by petitioner, did not render the same objectionable. There is nothing in the Construction Contract which obligates Belle to inform RVSCI or to secure the latter’s participation should the former decide to commission an audit of the work accomplished. On the contrary, in case of termination due to default of the contractor, Article XIII, Section 13.4 of the Construction Contract explicitly allows Belle to unilaterally evaluate the value of the work and the only condition is that it be done in good faith. Even assuming arguendo we accept RVSCI’s contentions that it justifiably suspended work and that Article XIII, Section 13.4 merely covers instances of default and not situations of justified suspension of works, we see no reason why the procedure for cessation of work due to default cannot be applied to other instances of cessation of work, particularly in the absence of a contractual provision governing termination or suspension of works in situations not involving a default.

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Verily, the fact that the parties agreed to a unilateral valuation of the work by the owner in the event of a termination of the contract due to default signifies that the parties, including RVSCI, did not find anything abhorrent in a one-sided valuation at the time of the execution of the contract. If RVSCI believed that this was unfair or that its participation should be required in a review or audit of its work, then it should not have acquiesced to such a provision in the first place and instead insisted on a stipulation prohibiting a unilateral audit of its work.

Third, bias on the part of a witness cannot be presumed. It is a basic rule that good faith is always presumed and bad faith must be proved.32 In a previous case, we have held that the witness’ employment relationship with, or financial dependence on, the party presenting his testimony would not be sufficient reason to discredit said witness and label his testimony as biased and unworthy of credence.33 Analogously, that Belle and R.A. Mojica had a long standing business relationship does not necessarily mean that the latter’s report was tainted with irregularity, especially in the absence of evidence that the audit report was indeed inaccurate or erroneous. It must be emphasized as well that RVSCI had ample opportunity to cross-examine Engr. Mojica with respect to the particulars of his company’s audit report.

To be sure, RVSCI is not precluded from proffering evidence to rebut the findings of R.A. Mojica. However, RVSCI did not present or point to documents, invoices, and receipts to show that the amounts and quantities in the audit report were not correct, nor did RVSCI convincingly substantiate its assertion that it had completed work in other areas of the project that was not included in said report. RVSCI merely relied on its own Progress Billing as supposedly signed by Belle’s representatives. However, it is that Progress Billing which was later questioned by Belle on the suspicion that the same was bloated and inaccurate. Thus, Belle had a third party conduct an audit of RVSCI’s actual work accomplishment. As the CIAC noted, there was nothing to prevent RVSCI to secure the services of its own expert witness to contest the findings of R.A. Mojica and buttress the accuracy of its Progress Billing with supporting documents other than such billing but RVSCI did not.

Hence, we find no error on the part of the CIAC and the Court of Appeals in relying on the third party audit report and giving it due weight in the resolution of the present case.

Whether Belle’s approval of the ProgressBilling is final and binding and may nolonger be withdrawn

After careful consideration of the contentions of the parties, we agree with the CIAC’s finding, as affirmed by the Court of Appeals, that the owner’s approval of progress billing is merely provisional. This much can be gleaned from Article VI, Section 6.2(c) of the Construction Contract which states that "[t]he acceptance of work from time to time for the purpose of making progress payment shall not be considered as final acceptance of the work under the Contract." There can be no other interpretation of the said provision but that progress billings are but preliminary estimates of the value of the periodic accomplishments of the contractor. Otherwise, there would be no need to include Article VI, Section 6.2(c) in the Contract since final acceptance of the contractor’s work would come as a matter of course if progress billings were, as RVSCI contends, final and binding upon the owner. On the contrary, progress billings and final acceptance of the work were clearly still subject to review by the owner.

Moreover, we see no reason to disturb the CIAC ruling that the foregoing contractual provision is consistent with industry practice, as can be deduced from Articles 22.02, 22.04 and 22.09 of CIAP Document 102 which pertinently state:

22.02 REQUESTS FOR PAYMENT: The Contractor may submit periodically but not more than once each month a Request for Payment for work done. The Contractor shall furnish the Owner all reasonable facilities required for obtaining the necessary information relative to the progress and execution of the Work. x x x.

x x x x

22.04 CONDITIONS RELATIVE TO PAYMENTS: The Owner shall estimate the value of work accomplished by the Contractor using as basis the schedule stipulated in the Breakdown of Work and Corresponding Value. Such estimate of the Owner of the amount of work performed shall be taken as the basis for the compensation to be received by the Contractor. While such preliminary estimates of amount and quantity shall not be required to be made by strict measurement or with exactness, they must be made as close as possible to the actual percentage of work accomplishment.

x x x x

22.09 ACCEPTANCE AND FINAL PAYMENT: Whenever the Contractor notifies the Owner that the Work under the Contract has been completely performed by the Contractor, the Owner shall proceed to verify the work, shall make the final estimates, certify to the completion of the work, and accept the same.

From the above-quoted provisions, it is readily apparent that, whether in the case of progress billings or of turn-over of completed work, the owner has the right to verify the contractor’s actual work accomplishment prior to payment.

In all, we approve the CIAC’s pronouncement that "[t]he owner is, therefore, not estopped from questioning a prior evaluation of the percentage of accomplishment of the contractor and to downgrade such accomplishment after re-evaluation. It is the right of every owner to re-evaluate or re-measure the work of its contractor during the progress of the work."34

Whether Belle should be made liable to RVSCI for damages

Anent the third issue, it is apropos to state here that the rationale underlying the owner’s right to seek an evaluation of the contractor’s work is the right to pay only the true value of the work as may be reasonably determined under the circumstances.

This is consistent with the law against unjust enrichment under Article 22 of the Civil Code which states that "every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." Expounding on this provision in a recent case, we have held that "the principle of unjust enrichment essentially contemplates payment when there is no duty to pay, and the person who receives the payment has no right to receive it."35

In the case at bar, we uphold the CIAC’s factual finding that the value of the total work accomplished by RVSCI on the main project was P4,868,443.59 while the cost of the additional work amounted to P1,768,000.00 plus P22,442.27, for a total of P6,658,885.86. On the other hand, Belle had made payments in the total amount of P11,598,994.44.36 It is thus undeniable that RVSCI had received payments from Belle in excess of the value of its work accomplishment. In light of this overpayment, it seems specious for RVSCI to claim that it has suffered damages from Belle’s refusal to pay its Progress Billing, which had been proven to be excessive and inaccurate. Bearing in mind the law and jurisprudence on unjust enrichment, we hold that RVSCI is indeed liable to return what it had received beyond the actual value of the work it had done for Belle.1âwphi1

On a related note, this Court cannot grant RVSCI’s claim for the value of materials and equipment allegedly left at the site. As observed by the CIAC, this particular claim was not included in the Terms of Reference and, hence, could not be litigated upon or proved during the CIAC proceedings.

In conclusion, the CIAC rightly dismissed RVSCI's counterclaims for lack of merit.

WHEREFORE, the instant petition for review is DENIED. The Decision dated March 7, 2003 and the Resolution dated August 20, 2003 of the Court 'of Appeals in CA-G.R. SP Nos. 60224 and 60217 are AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 172525 October 20, 2010

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner, vs.RRN INCORPORATED,* Respondent.

D E C I S I O N

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision1 of the Court of Appeals (CA) dated February 22, 2006, affirming the Decision of the Construction Industry Arbitration Commission (CIAC), and the CA Resolution2 dated April 26, 2006, denying herein petitioner's motion for reconsideration, be reversed and set aside.

The facts, as accurately narrated in the CA Decision, are as follows.

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Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic corporation organized under Philippine laws. Private respondent RRN Incorporated (hereinafter respondent) is likewise a domestic corporation organized under Philippine laws.

Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid account which consists of unpaid portions of the sub-contract, variations and unused materials in the total sum of P5,275,184.17 and legal interest in the amount of P442,014.73. Petitioner filed a counterclaim for overpayment in the amount of P2,512,997.96.

The parties admitted several facts before the CIAC. It was shown that petitioner and respondent executed an Agreement and Conditions of Sub-contract (hereafter Agreement signed on June 11, 1996 and June 14, 1996, respectively. Respondent signified its willingness to accept and perform for petitioner in any of its projects, a part or the whole of the works more particularly described in Conditions of Sub-Contract and other Sub-contract documents.

On June 11, 2002, the parties executed a "Supply of Manpower, Tools/Equipment, Consumables for the Electrical Works-Power and Equipment Supply, Bus Duct Installation" for the Phillip Morris Greenfield Project (hereafter Project) covered by Purchase Order Nos. 4501200300-000274 and 4501200300-000275 amounting to P15,724,000.00 and P9,276,000.00 respectively, or a total amount of P25,000,000.00. The parties also agreed that respondent will perform variation orders in the Project. In connection with the Project, petitioner supplied manpower chargeable against respondent.

Respondent was not able to finish the entire works with petitioner due to financial difficulties. Petitioner paid respondent a total amount of P26,547,624.76. On June 25, 2005 [should read 2003], respondent, through its former counsel sent a letter to petitioner demanding for the payment of its unpaid balance amounting to P5,275,184.17. Petitioner claimed material back charges in the amount of P4,063,633.43. On September 26, 2003, respondent only acknowledged P2,371,895.33 as material back charges. Thereafter, on October 16, 2003, respondent sent another letter to petitioner for them to meet and settle their dispute.

On January 8, 2004, respondent sent another letter to petitioner regarding the cost of equipment rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a letter to respondent denying any unpaid account and the failure in their negotiations for amicable settlement.

On September 3, 2004, respondent, through its new counsel, advised petitioner of their intention to submit the matter to arbitration. Thereafter, their dispute was submitted to arbitration. During the preliminary conference, the parties agreed in their Terms of Reference to resolve eight issues, to wit:

1. What should be the basis in evaluating the variation cost?

1.1 How much is the variation cost?

2. Is the Respondent (petitioner in the instant case) justified in charging claimant (herein respondent) the equipment rental fee and for the use of the scaffoldings? If so, how much should be charged to Claimant?

3. What should be the basis in evaluating the total cost of materials supplied by Respondent to the Project which is chargeable to Claimant?

3.1 How much is the total cost of materials supply chargeable to Claimant?

4. How much is the value of the remaining works left undone by the Claimant in the project?

5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the value thereof?

6. Is the Respondent entitled to its claim for an overpayment in the amount of P2,512,997.96?

7. Is Claimant entitled to its claim for interest? If so, how much?

8. Who between the parties shall bear the cost of Arbitration?

The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The dispositive portion of said decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is ordered to pay claimant its unpaid account in the sum of P3,728,960.54 plus legal interest of 6% reckoned from June 25, 2003 up to the filing of the case on October 11, 2004 and 12% of P3,728,960.54 from the finality of the judgment until fully paid and arbitration cost of P104,333.82 representing claimant's share of the arbitration cost which respondent should reimburse.

SO ORDERED.]

Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue No. 2 in so far as the amount of P440,000.00 awarded as back charges for the use of scaffoldings. x x x3

On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the CIAC. The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof that the parties had an agreement regarding charges for respondent's use of the manlift. As to the other charges for materials, the CA held that the evidence on record amply supports the CIAC findings. Petitioner moved for reconsideration of said ruling, but the same was denied per Resolution dated April 26, 2006.

Hence, this petition where it is alleged that:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT OF P511,000.00 DESPITE EVIDENCE ON RECORD THAT RESPONDENT RRN ACTUALLY USED AND BENEFITED FROM THE MANLIFT EQUIPMENT.

II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.

III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:

A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT OF MATERIAL SUPPLY, WHICH INCLUDED THE INVENTORIED MATERIALS.

B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE MATERIALS CAME FROM RESPONDENT RRN OR FROM PETITIONER AND THAT IT WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID MATERIALS AS PART OF REMAINING WORKS THAT PETITIONER TOOK OVER FROM RESPONDENT RRN.

C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM OR DOUBLE ENTRY BECAUSE IN THE COMPUTATION OF THE FINAL ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL CONTRACT PRICE AND THE COST OF VARIATIONS, WHICH INCLUDED THE INVENTORIED MATERIALS.

IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY DISREGARDED THE PROVISION OF THE SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING WORKS THAT PRIVATE RESPONDENT ADMITTEDLY FAILED TO COMPLETE.

V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT COMPLETELY DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING WORKS.

VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED THE CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT RRN.4

The petition is bereft of merit.

Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear that what petitioner seeks is for this Court to recalibrate the evidence it has presented before the CIAC. It insists that its evidence sufficiently proves that it is entitled to payment for respondent's use of its manlift equipment, and even absent proof of the supposed agreement on the charges petitioner may impose on respondent for the use of said equipment, respondent should be made to pay based on the principle of unjust enrichment. Petitioner also questions the amounts awarded by the

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CIAC for inventoried materials, and costs incurred by petitioner for completing the work left unfinished by respondent.

As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,5 to wit:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality, especially when affirmed by the Court of Appeals. In particular, factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual findings of construction arbitrators may be reviewed by this 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 any of them; (3) the arbitrators were guilty of misconduct 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.1avvp++i1

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of discretion resulting in lack or loss 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.6

A perusal of the records would reveal that none of the aforementioned circumstances, which would justify exemption of this case from the general rule, are present here. Such being the case, the Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze anew the evidence presented before the arbitration body.7

Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the Court in University of the Philippines v. Philab Industries, Inc.8 is highly instructive, thus:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.9

As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's free use of the manlift was without legal ground based on the provisions of their contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or legal ground, is missing. In addition, petitioner's claim is based on contract, hence, the fourth requisite − that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict − is also absent. Clearly, the principle of unjust enrichment is not applicable in this case.

The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting its claims for costs of some materials.

Again, these issues are purely factual and cannot be properly addressed in this petition for review on certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and Construction Corp.,10 it was emphasized that mathematical computations, the propriety of arbitral awards, claims for "other costs" and "abandonment" are factual questions. Since the discussions of the CIAC and the CA in their respective Decisions show that its factual findings are supported by substantial evidence, there is no reason why this Court should not accord finality to said findings. Verily, to accede to petitioner's request for a recalibration of its evidence, which had been thoroughly studied by both the CIAC and the CA would result in negating the objective of Executive Order No. 1008, which created an arbitration body to ensure the prompt and efficient settlement of disputes in the construction industry. Thus, the Court held in Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda Construction and Development Corporation,11 that:

x x x The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended 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 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.12

As discussed above, there is nothing in the records that point to any grave abuse of discretion committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with prevailing jurisprudence.13

IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 179628 January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner, vs.SPOUSES ROBERTO and AIDA AMURAO, Respondents.

D E C I S I O N

DEL CASTILLO, J.:

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 41 of Executive Order (E.O.) No. I 008, otherwise known as the Construction Industry Arbitration Law, "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."2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 96815.

Factual Antecedents

On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction Contract Agreement (CCA)6 with Aegean Construction and Development Corporation (Aegean) for the construction of a six-storey commercial building in Tomas Morato corner E. Rodriguez Avenue, Quezon

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City.7 To guarantee its full and faithful compliance with the terms and conditions of the CCA, Aegean posted performance bonds secured by petitioner The Manila Insurance Company, Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra Strata).9

On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on the performance bonds they issued in the amounts of P2,760,000.00 and P4,440,000.00, respectively.11

Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party Complaint,13 with attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.

Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states no cause of action16 and that the filing of the Complaint is premature due to the failure of respondent-spouses to implead the principal contractor, Aegean.17 The RTC, however, denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and Cross-claim,19 followed by a Third Party Complaint20 against Aegean and spouses Ronald and Susana Nicdao.

During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by respondent-spouses and Aegean contained an arbitration clause.21

Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction.

Ruling of the Regional Trial Court

On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for reconsideration but their motions were denied by the RTC in its subsequent Order24 dated September 11, 2006.

Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.25

Ruling of the Court of Appeals

On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that the presence of an arbitration clause in the CCA does not merit a dismissal of the case because under the CCA, it is only when there are differences in the interpretation of Article I of the construction agreement that the parties can resort to arbitration.27 The CA also found no grave abuse of discretion on the part of the RTC when it disregarded the fact that the CCA was not yet signed at the time petitioner issued the performance bond on February 29, 2000.28 The CA explained that the performance bond was intended to be coterminous with the construction of the building.29 It pointed out that "if the delivery of the original contract is contemporaneous with the delivery of the surety’s obligation, each contract becomes completed at the same time, and the consideration which supports the principal contract likewise supports the subsidiary one."30 The CA likewise said that, although the contract of surety is only an accessory to the principal contract, the surety’s liability is direct, primary and absolute.31 Thus:

WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion attended the issuance of the order of the public respondent denying the petitioner’s motion to dismiss.

IT IS SO ORDERED.32

Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated September 7, 2007.

Issues

Hence, this petition raising the following issues:

A.

THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.

B.

THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.

C.

THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34

Petitioner’s Arguments

Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when there is difference in the interpretation of the contract documents stated in Article I of the CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has original and exclusive jurisdiction over construction disputes, such as the instant case.36

Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidary guarantor.37 Petitioner argues that while a surety is bound solidarily with the obligor, this does not make the surety a solidary co-debtor.38 A surety or guarantor is liable only if the debtor is himself liable.39 In this case, since respondent-spouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is imperative that the dispute between respondent-spouses and Aegean must first be referred to arbitration in order to establish the liability of Aegean.40 In other words, unless the liability of Aegean is determined, the filing of the instant case is premature.41

Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the CCA.42 Petitioner claims that since there was no existing contract at the time the performance bond was executed, respondent-spouses have no cause of action against petitioner.43 Thus, the complaint should be dismissed.44

Respondent spouses’ Arguments

Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case because there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for arbitration proceedings.47

Respondent-spouses also insist that petitioner as a surety is directly and equally bound with the principal.48 The fact that the performance bond was issued prior to the execution of the CCA also does not affect the latter’s validity because the performance bond is coterminous with the construction of the building.49

Our Ruling

The petition has merit.

Nature of the liability of the surety

A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206."50 We have consistently held that a surety’s liability is joint and several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee.51 It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and absolute.52

In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety) to collect on the performance bond it issued. Petitioner, however, seeks the dismissal of the Complaint on the grounds of lack of cause of action and lack of jurisdiction.

The respondent-spouses have cause of action against the petitioner; the performance bond is coterminous with the CCA

Petitioner claims that respondent-spouses have no cause of action against it because at the time it issued the performance bond, the CCA was not yet signed by respondent-spouses and Aegean.

We do not agree.

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A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the project."53 Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or effectivity.

But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of jurisdiction.

The CIAC has jurisdiction over the case

Section 4 of E.O. No. 1008 provides that:

SEC. 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 the law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines.

Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the dispute must be somehow connected to a construction contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings."54

In this case, both requisites are present.

The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the execution and performance of the CCA by reason of difference in interpretation of the Contract Documents x x x which the parties are unable to resolve amicably between themselves."55 Article XVII of the CCA reads:

ARTICLE XVII – ARBITRATION

17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference in interpretation of the Contract Documents set forth in Article I which the OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall be submitted by either party to a board of arbitrators composed of Three (3) members chosen as follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of the board, which decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding upon the OWNER and CONTRACTOR.1âwphi1

17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be governed by the provisions of the Arbitration Law, Executive Order No. 1008.56

In William Golangco Construction Corporation v. Ray Burton Development Corporation,57 we declared that monetary claims under a construction contract are disputes arising from "differences in interpretation of the contract" because "the matter of ascertaining the duties and obligations of the parties under their contract all involve interpretation of the provisions of the contract."58 Following our reasoning in that case, we find that the issue of whether respondent-spouses are entitled to collect on the performance bond issued by petitioner is a "dispute arising in the course of the execution and performance of the CCA by reason of difference in the interpretation of the contract documents."

The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of the CIAC because the issue of whether respondent-spouses are entitled to collect on the performance bond, as we have said, is a dispute arising from or connected to the CCA.

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., 59 we rejected the argument that the jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend to surety contracts. In that case, we declared that "although not the construction contract itself, the

performance bond is deemed as an associate of the main construction contract that it cannot be separated or severed from its principal. The Performance Bond is significantly and substantially connected to the construction contract that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60

In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC must be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.

SO ORDERED.

THIRD DIVISION

G.R. Nos. 147925-26 June 8, 2009

ELPIDIO S. UY, doing business under the name and style EDISON DEVELOPMENT & CONSTRUCTION, Petitioner, vs.PUBLIC ESTATES AUTHORITY and the HONORABLE COURT OF APPEALS, Respondents.

D E C I S I O N

NACHURA, J.:

Petitioner Elpidio S. Uy (Uy) appeals by certiorari the Joint Decision1 dated September 25, 2000 and the Joint Resolution2 dated April 25, 2001 of the Court of Appeals (CA) in the consolidated cases CA-G.R. SP Nos. 59308 and 59849.

Respondent Public Estates Authority (PEA) was designated as project manager by the Bases Conversion Development Authority (BCDA), primarily tasked to develop its 105-hectare demilitarized lot in Fort Bonifacio, Taguig City into a first-class memorial park to be known as Heritage Park. PEA then engaged the services of Makati Development Corporation (MDC) to undertake the horizontal works on the project; and Uy, doing business under the name and style Edison Development and Construction (EDC), to do the landscaping.

For a contract price of Three Hundred Fifty-Five Million Eighty Thousand One Hundred Forty-One and 15/100 Pesos (P355,080,141.15), PEA and EDC signed the Landscaping and Construction Agreement3 on November 20, 1996. EDC undertook to complete the landscaping works in four hundred fifty (450) days commencing on the date of receipt of the notice to proceed.

EDC received the notice to proceed on December 3, 1996;4 and three (3) days after, or on December 6, 1996,5 it commenced the mobilization of the equipment and manpower needed for the project. PEA, however, could not deliver any work area to EDC because the horizontal works of MDC were still ongoing. EDC commenced the landscaping works only on January 7, 1997 when PEA finally made an initial delivery of a work area.

PEA continuously incurred delay in the turnover of work areas. Resultantly, the contract period of 450 days was extended to 693 days. PEA also failed to turn over the entire 105-hectare work area due to the presence of squatters. Thus, on March 15, 1999, the PEA Project Management Office (PEA-PMO) issued Change Order No. 2-LC,6 excluding from the contract the 45-square-meter portion of the park occupied by squatters.

In view of the delay in the delivery of work area, EDC claimed additional cost from the PEA-PMO amounting to P181,338,056.30. Specifically, Uy alleged that he incurred additional rental costs for the equipment, which were kept on standby, and labor costs for the idle manpower. He added that the delay by PEA caused the topsoil at the original supplier to be depleted; thus, he was compelled to obtain the topsoil from a farther source, thereby incurring extra costs. He also claims that he had to mobilize water trucks for the plants and trees which had already been delivered to the site. Furthermore, it became necessary to construct a nursery shade to protect and preserve the young plants and trees prior to actual transplanting to the landscaped area. The PEA-PMO evaluated the EDC’s claim and arrived at a lesser amount of P146,484,910.7 The evaluation of PEA-PMO was then referred to the Heritage Park Executive Committee (ExCom) for approval.

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On November 12, 1999, the Performance Audit Committee (PAC) reviewed the progress report submitted by the works engineer and noted that the EDC’s landscaping works were behind schedule by twenty percent (20%). The PAC considered this delay unreasonable and intolerable, and immediately recommended to BCDA the termination of the landscaping contract.8 The BCDA adopted PAC’s recommendation and demanded from PEA the termination of the contract with EDC. In compliance, PEA terminated the agreement on November 29, 1999.

PEA fully paid all the progress billings up to August 26, 1999, but it did not heed EDC’s additional claims. Consequently, Uy filed a Complaint9 with the Construction Industry Arbitration Commission (CIAC), docketed as CIAC Case No. 02-2000.

On May 16, 2000, the CIAC rendered a Decision,10 the dispositive portion of which reads:

WHEREFORE, Judgment is hereby rendered in favor of the [Petitioner] Contractor ELPIDIO S. UY and Award is hereby made on its monetary claims as follows:

Respondent PUBLIC ESTATES AUTHORITY is directed to pay the [petitioner] the following amounts:

P19,604,132.06 --- for the cost of idle time of equipment.

2,275,721.00 --- for the cost of idled manpower.

6,050,165.05 --- for the construction of the nursery shade net area.

605,016.50 --- for attorney’s fees.

Interest on the amount of P6,050,165.05 as cost for the construction of the nursery shade net area shall be paid at the rate of 6% per annum from the date the Complaint was filed on 12 January 2000. Interest on the total amount of P21,879,853.06 for the cost of idled manpower and equipment shall be paid at the same rate of 6% per annum from the date this Decision is promulgated. After finality of this Decision, interest at the rate of 12% per annum shall be paid on the total of these 3 awards amounting to P27,930,018.11 until full payment of the awarded amount shall have been made, "this interim period being deemed to be at that time already a forbearance of credit" (Eastern Shipping Lines, Inc. v. Court of Appeals, et al., 243 SCRA 78 [1994]; Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA 257 [1998]; Crismina Garments, Inc. v. Court of Appeals, G.R. No. 128721, March 9, 1999).

SO ORDERED.11

Uy received the CIAC decision on June 7, 2000. On June 16, 2000, Uy filed a motion for correction of computation,12 followed by an amended motion for correction of computation,13 on July 21, 2000. The CIAC, however, failed to resolve Uy’s motion and amended motion within the 30-day period as provided in its rules, and Uy considered it as denial of the motion.

Hence, on July 24, 2000, Uy filed a petition for review14 with the CA, docketed as CA-G.R. SP No. 59849. Uy’s petition was consolidated with CA-G.R. SP No. 59308, the earlier petition filed by PEA, assailing the same CIAC decision.

On August 1, 2000, the CIAC issued an Order15 denying Uy’s motion for correction of computation.

On September 25, 2000, the CA rendered the now assailed Joint Decision dismissing both petitions on both technical and substantive grounds. PEA’s petition was dismissed because the verification thereof was defective. Uy’s petition, on the other hand, was dismissed upon a finding that it was belatedly filed. Further, the CA found no sufficient basis to warrant the reversal of the CIAC ruling, which it held is based on clear provisions of the contract, the evidence on record and relevant law and jurisprudence.

The CA disposed thus:

WHEREFORE, premises considered, the petitions in CA-G.R. SP No. 59308, entitled "Public Estates Authority v. Elpidio S. Uy, doing business under the name and style of Edison [D]evelopment & Construction," and CA-G.R. SP No. 59849, "Elpidio S. Uy, doing business under the name and style of Edison [D]evelopment & Construction v. Public Estates Authority," are both hereby DENIED DUE COURSE and accordingly DISMISSED, for lack of merit.

Consequently, the Award/Decision issued by the Construction Industry Arbitration Commission on May 16, 2000 in CIAC Case No. 02-2000, entitled

"Elpidio S. Uy, doing business under the name and style of Edison [D]evelopment & Construction v. Public Estates Authority," is hereby AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.16

PEA and Uy filed motions for reconsideration. Subsequently, PEA filed with the CA an Urgent Motion for Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction,17 seeking to enjoin the CIAC from proceeding with CIAC Case No. 03-2001, which Uy had subsequently filed. PEA alleged that the case involved claims arising from the same Landscaping and Construction Agreement, subject of the cases pending with the CA.

On April 25, 2001, the CA issued the assailed Joint Resolution, thus:

WHEREFORE, the present Motion/s for Reconsideration in CA-G.R. SP No. 59308 and CA-G.R. SP No. 59849 are hereby both DENIED, for lack of merit.

Accordingly, let an injunction issue permanently enjoining the Construction Industry Arbitration Commission from proceeding with CIAC CASE NO. 03-2001, entitled ELPIDIO S. UY, doing business under the name and style of EDISON DEVELOPMENT &

CONSTRUCTION v. PUBLIC ESTATES AUTHORITY and/or HONORABLE CARLOS P. DOBLE.

SO ORDERED.18

PEA and Uy then came to us with their respective petitions for review assailing the CA ruling. PEA’s petition was docketed as G.R. Nos. 147933-34, while that of Uy was docketed as G.R. Nos. 147925-26. The petitions, however, were not consolidated.

On December 12, 2001, this Court resolved G.R. Nos. 147933-34 in this wise:

WHEREFORE, in view of the foregoing, the petition for review is DENIED. The Motion to Consolidate this petition with G.R. No. 147925-26 is also DENIED.

SO ORDERED.19

Thus, what remains for us to resolve is Uy’s petition, raising the following issues:

I

WHETHER OR NOT RESPONDENT COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN DISMISSING PETITIONER UY’S PETITION IN CA-G.R. SP NO. 59849 ON THE ALLEGED GROUND OF NON-COMPLIANCE WITH THE REGLEMENTARY PERIOD IN FILING AN APPEAL

II

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS, IN AFFIRMING THE DECISION OF THE CIAC ARBITRAL TRIBUNAL INSOFAR AS IT DENIED CERTAIN CLAIMS OF PETITIONER UY, HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT

III

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ENJOINED THE PROCEEDINGS IN CIAC CASE NO. 03-2001 IN ITS JOINT RESOLUTION DATED 25 APRIL 2000, WHICH CASE IS TOTALLY DIFFERENT FROM THE CASE A QUO20

We will deal first with the procedural issue.

Appeals from judgment of the CIAC shall be taken to the CA by filing a petition for review within fifteen (15) days from the receipt of the notice of award, judgment, final order or resolution, or from the date of its last publication if publication is required by law for its effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo.21

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Admittedly, Uy received the CIAC decision on June 7, 2000; that instead of filing a verified petition for review with the CA, Uy filed a motion for correction of computation on June 16, 2000, pursuant to Section 9, Article XV of the Rules of Procedure Governing Construction Arbitration:

Section 9. Motion for Reconsideration. – As a matter of policy, no motion for reconsideration shall be allowed. Any of the parties may, however, file a motion for correction within fifteen (15) days from receipt of the award upon any of the following grounds:

a. An evident miscalculation of figures, a typographical or arithmetical error;

b. An evident mistake in the description of any party, person, date, amount, thing or property referred to in the award.

The filing of the motion for correction shall interrupt the running of the period for appeal.

With the filing of the motion for correction, the running of the period to appeal was effectively interrupted.

CIAC was supposed to resolve the motion for correction of computation within 30 days from the time the comment or opposition thereto was submitted. In Uy’s case, no resolution was issued despite the lapse of the 30-day period, and Uy considered it as a denial of his motion. Accordingly, he elevated his case to the CA on July 24, 2000. But not long thereafter, or on August 1, 2000, the CIAC issued an Order22 denying the motion for correction of computation.

Obviously, when Uy filed his petition for review with the CA, the period to appeal had not yet lapsed; it was interrupted by the pendency of his motion for computation. There is no basis, therefore, to conclude that the petition was belatedly filed.

The foregoing notwithstanding, inasmuch as the CA resolved the petition on the merits, we now confront the substantive issue – the propriety of the CA’s affirmance of the CIAC decision.

Uy cries foul on the award granted by CIAC, and affirmed by the CA. He posits that PEA already admitted its liability, pegged at P146,484,910.10, in its memorandum dated January 6, 2000. Thus, he faults the CA for awarding a lesser amount.

We meticulously reviewed the records before us and failed to discern any admission of liability on the part of PEA.

The PEA-PMO evaluation dated January 6, 2000,23 where PEA allegedly admitted its liability, reads in full:

M E M O R A N D U M

For : Mr. Jaime R. MillanProject ManagerHeritage Park Project

Subject: EDC’s Various ClaimLandscape Development Works

Revision shall be made on our evaluation dated 28 December 1999 concerning various claims of contractor EDC-Landscape Development Works (Package IV), particularly on the claim on Project Equipment on Standby (item a of the earlier evaluation).

Reference to item 4 of the Terms and Conditions of 1998 ACEL Rate Equipment Guidebook, the CMO inadvertently did not consider are the wages and salaries of standby operator/driver corresponding to the equipment standby being claimed.

Thus, the corresponding gross amount to be incorporated shall be P4,925,600.00 computed based on the total man-months of each standby equipment being claimed.

A tabulation of the claims is shown hereinbelow:

Nature of Claim EDC Claim Works Engineer Evaluation

a. Project Equipmenton Standby

P95,740,834.30 67,422,840.40

Equipment Operator/Driver

b. Manpower on Standby 28,165,022.00 2,275,721.00c. Topsoil Add’l Hauling

Distance37,780,200.00 37,780,200.00

d. Water Truck Operating Cost

19,652,000.00 15,467,800.00

Total P181,338,056.30 122,946,561.40

Further, it is being specified that the PMO maintains the earlier notes of the CMO in its memo of 18 October 1999 and that legal interpretations on each item of claims is likewise enjoined.

Attached are pertinent documents for your review and reference

(Sgd.)ROGELIO H. IGNACIOPMO-B Asst.

(Sgd.)FLORO C. URCIAProject Manager

By no stretch of the imagination can we consider this memorandum an admission of liability on the part of PEA. First, nowhere in the memorandum does it say that PEA is admitting its liability. The evaluation contained in the above memorandum is merely a verification of the accuracy of EDC’s claims. As a matter of fact, the evaluation is still subject for review by the project manager, whose decision on the matter requires the approval of the Heritage Park ExCom. Second, Messrs. Ignacio and Urcia had no legal authority to make admissions on behalf of PEA. Thus, even assuming that the evaluation contained in the memorandum was in the nature of an admission, the same cannot bind PEA. Third, Uy filed his complaint with the CIAC because PEA did not act on EDC’s various claims. This supports our conclusion that PEA never admitted, but on the contrary denied, whatever additional liabilities were claimed by Uy under the landscaping contract.

Neither do we find any admission of liability on the part of PEA during the proceedings before the CIAC. What was admitted by PEA was that PMO evaluated the claim at the lesser amount of P146,484,910 (Exh. "S").24 The admission of the evaluation made by PEA cannot translate to an admission of liability. There is simply no basis for Uy to claim that PEA had admitted its liability.

This issue disposed of, we now resolve Uy’s claims on the basis of the evidence presented.

Uy claims P95,740,834.30 as the standby equipment cost. CIAC, however, did not agree and granted only P19,604,132.06 as the cost of standby equipment using its so-called equitable method:

[Uy] had mobilized manpower and equipment sufficient to do the landscaping works for the entire 105 hectares. The unilateral reduction in scope of work made by [PEA] thus laid idle the men and equipment of [Uy] in direct proportion to said reduction. In effect, therefore, Uy had on hand manpower and equipment amounting to 42.85% in excess of that necessary to perform the landscaping works for the reduced scope of work. [Uy] thus suffered costs in terms of excess manpower and equipment in proportion to the reduced scope of work.

x x x x

The total contract period – original extensions – to complete the landscaping works for the entire 105 hectares is 693 days. The reduction in scope of work 42.85% laid idle his equipment by the same percentage of 42.85[%] or 296.95 days. Since [Uy] calculated his claim for idled equipment on a per month basis, it is necessary to convert this into months. 296.95 days is equivalent of 9.89 months. Multiplied by the rate of P1,982,217.60 per month of delay, this would translate to P19,604,132.06 as the cost of idle time for equipment by reason of the [delay].25

Upon review of the records before us, we find a need to modify, by increasing, the award for standby equipment cost.

CIAC found that PEA incurred delays in the turnover of work areas:

The first delay was the turn-over of a portion of Area 1 A that was made on 17 April 1997. The start of work on that area was scheduled for March, 1997. There was, therefore, a delay of about one month. The second delay was the turn-over of a portion of Area 2 A that was made on 20 October 1997. The start of work on that area was scheduled for May, 1997. There was, therefore, a delay of about five months. The third delay was the turn-over of a portion of Area 2 B that was made on 05 March 1998. The start of work on

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that area was scheduled for mid-February 1997. There was, therefore, a delay of more than one (1) year. Altogether,

the several periods of delayed turn-over of work areas total one year and six months or 546 days.26

Surely, on the days that EDC was waiting for the turn over of additional work areas, it was paying rentals for the equipment on standby. Yet, CIAC completely ignored these delays in determining the cost of equipment on standby, reasoning that:

It must be pointed out, however, that the division of the vast area to be landscaped into distinct work areas with different start of work schedules under the PERT-CPM, [Uy] could easily have shifted his equipment from an area where the delivery was delayed to the area where there was an advanced turn-over.27

This is wrong.

Records establish that EDC promptly commenced the landscaping work on every area that was turned over. EDC, in fact, shifted its equipment where there was an advance delivery, if only to minimize the additional expenses incurred by reason of the long delays in the turnover of the other work areas. Thus, in addition to the award of P19,604,132.06 for cost of idle time for equipment by reason of the reduction of scope of work,

Uy is entitled to the cost of idle time for equipment by reason of the delay incurred in the delivery of work areas.

The period of owner-caused delay was 546 days or 18.2 months. The rate given by the Association of Carriers and Equipment Lessors (ACEL), Inc., and which was also used as basis by CIAC in granting the costs for equipment on standby, was P1,982,271.60 per month of delay. Considering that PEA was in delay for 564 days or 18.2 months, Uy is entitled to an additional award of P36,076,360.32. Accordingly, he is entitled to an aggregate amount of P55,680,492.38 for the equipment rentals on standby.

As to the awards of P2,275,721.00, for the cost of idle manpower, and P6,050,165.05, for the construction of the nursery shade net area, we find no reason to disturb the same, as Uy never raised this issue in his petition.

Next, we resolve Uy’s claims for costs for additional hauling distance of topsoil and for mobilization of water truck.

The approved hauling cost of topsoil was only P12.00/kilometer or P120.00 for the 10 kms original source. Uy, however, claims that due to the delay in delivery of work areas, the original source became depleted; hence, he was constrained to haul topsoil from another source located at a much farther distance of 40 kms. Uy insists that the exhaustion of topsoil at the original source was solely attributable to the delay in the turnover of the project site. Thus, he claims from PEA the increased cost of topsoil amounting to P37,780,200.00.

Article 1724 of the Civil Code provides:

ART. 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.

By this article, a written authorization from the owner is required before the contractor can validly recover his claim. The evident purpose of the provision is to avoid litigation for added costs incurred by reason of additions or changes in the original plan. Undoubtedly, it was adopted to serve as a safeguard or a substantive condition precedent to recovery.28

This provision is echoed in the Landscaping Contract, viz.:

ARTICLE IXCHANGE OF WORK

x x x x

9.3. Under no circumstances shall PEA be held liable for the payment of change of work undertaken without the written approval of the PEA General Manager x x x.

ARTICLE XEXTRA WORK

x x x x

10.3. Under no circumstances shall PEA be held liable for the payment of extra work undertaken without the written approval of the PEA General Manager to perform the said work.29

Admittedly, EDC did not secure the required written approval of PEA’s general manager before obtaining the topsoil from a farther source. As pointed out by the CIAC:

There is no change order authorizing payment for the increased cost upon which this claim is based. There is, therefore, no legal right based upon contract (the landscaping agreement or a change order) that would impose such a liability upon [PEA]. In a lump sum contract, as that entered into by the parties, the matter of how the contractor had made [a] computation to arrive at [a] bid that he submits is completely irrelevant. The contract amount of delivered topsoil is P780.00 per truckload of 5.5 cubic meters sourced from a distance of [10] km. or 100 [meters]. There is nothing in Exhibit "L" or in the landscaping contract (Exhibit "A") that would indicate an agreement of [PEA] to pay for the increase in hauling cost if the source of topsoil exceeds 10 kilometers. Corollarily, there is also nothing therein to show that [PEA] would also be entitled to decrease said costs by paying less if the distance would have been less than 10 kilometers. Had there been such a counterpart provision, there might have been more arguable claim for [Uy]. Unfortunately, no such provision exists.30

In Powton Conglomerate, Inc. v. Agcolicol,31 we emphasized:

The written consent of the owner to the increased costs sought by the respondent is not a mere formal requisite, but a vital precondition to the validity of a subsequent contract authorizing a higher or additional contract price. Moreover, the safeguards enshrined in the provisions of Article 1724 are not only intended to obviate future misunderstandings but also to give the parties a chance to decide whether to bind one’s self to or withdraw from a contract.

By proceeding to obtain topsoil up to a 40-kilometer radius without written approval from the PEA general manager, Uy cannot claim the additional cost he incurred.

Uy further claims P19,625,000.00 for cost of mobilization of water trucks. He asserts that PEA completely failed to provide the generator sets necessary to undertake the watering and/or irrigation works for the landscaping and construction activities.32

Uy, however, admitted that MDC had already installed a deep well in the project site, and EDC used it in its landscaping and construction activities.33

Under the contract, the operational costs of the deep well and its appurtenant accessories, including the generator sets, shall be borne by EDC:

The CONTRACTOR shall shoulder all cost of electricity, maintenance, repairs, replacement of parts, when needed, and all costs of operation of the deepwell/s, and its appurtenant accessories, i.e. generator sets, etc. (which are already existing at the project site, constructed by another Contractor) while such deepwell/s are being used by CONTRACTOR herein for its landscaping and construction activities. These [deepwells] shall be turned over to PEA by CONTRACTOR in good operating/usable condition as when it was first used by CONTRACTOR.34

Thus, Uy cannot claim additional cost for providing generator sets.

Uy also attempts to justify his claim for cost of mobilization of water trucks by alleging that the water from the deep well provided by MDC and PEA was grossly insufficient to undertake the watering works for the project; hence, he was constrained to mobilize water trucks to save the plants from dying.

Indisputably, Uy mobilized water trucks for the landscaping projects and, certainly, incurred additional costs. But like his claim for additional cost of topsoil, such additional expenses were incurred without prior written approval of PEA’s general manager. Thus, he cannot claim payment for such cost from PEA.

As aptly said by the CIAC:

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Since [Uy] had presumably intended all along to charge [PEA] for the water truck operating costs, considering the very substantial amount of his claim, the prudence that he presumably has, as an experienced general contractor of the highest triple A category, should have dictated that he negotiate with the [PEA] for a change order or an extra work order before continuing to spend the huge amounts that he claims to have spent. [Uy] did just that in relation to his much smaller claim for the construction of the nursery shade x x x. He, however, made no effort to negotiate with the PEA for a similar change order or extra work order to safeguard his even bigger additional costs to operate the water trucks. No explanation was offered for such a mystifying differential treatment. He cannot, therefore, pass on without any contractual basis, such additional costs to the [PEA].

Neither can we hold PEA liable based on solutio indebiti, the legal maxim that no one should enrich itself at the expense of another. As we explained in Powton Conglomerate, Inc. v. Agcolicol,35

the principle of unjust enrichment cannot be validly invoked by the respondent who, through his own act or omission, took the risk of being denied payment for additional costs by not giving the petitioners prior notice of such costs and/or by not securing their written consent thereto, as required by law and their contract.1avvphi1

Uy cannot, therefore, claim from PEA the costs of the additional hauling distance of topsoil, and of the mobilization of water trucks.

Uy also assails the grant of attorney’s fees equivalent to 10% of the total amount due. Citing paragraph 24.4 of the Landscaping and Construction Agreement, Uy asserts entitlement to attorney’s fees of twenty percent (20%) of the total amount claimed. He ascribes error to the CIAC and the CA for reducing the stipulated attorney’s fees from 20% to 10% of the total amount due.

Paragraph 24.4 of the agreement provides:

Should the PEA be constrained to resort to judicial or quasi-judicial relief to enforce or safeguard its rights and interests under this Agreement, the CONTRACTOR if found by the court or [the] quasi-judicial body, as the case [may be], to have been at fault, shall be liable to PEA for attorney’s fees in an amount equivalent to twenty percent (20%) of the total [amount] claimed in the complaint, exclusive of [any] damages and costs of suit.36

Clearly, the cited provision cannot support Uy’s insistence. Paragraph 24.4 on stipulated attorney’s fees is applicable only in complaints filed by PEA against the contractor. The provision is silent on the amount of attorney’s fees that can be recovered from PEA.

Besides, even assuming that Paragraph 24.4 is applicable, the amount of attorney’s fees may be reduced if found to be iniquitous or unconscionable. Thus:

Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or unconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed to the sound discretion of the court and depends on several factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences.37

The Court finds Uy’s claim for attorney's fees equivalent to 20% of whatever amount is due and payable to be exorbitant. The CIAC and the CA, therefore, correctly awarded 10% of the total amount due and payable as reasonable attorney’s fees.

Finally, on the propriety of the writ of injunction.

Uy asserts that the CA acted without or in excess of jurisdiction when it enjoined the proceedings in CIAC Case No. 03-2001, despite the fact that the said case is totally different from the instant case.

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave, as when it is exercised arbitrarily or despotically by reason of passion or personal hostility; and such abuse must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.38

The CA granted PEA’s prayer for the injunctive writ not without reason. We quote its Joint Resolution, viz.:

[T]here is no question that Elpidio S. Uy’s amended complaint is based on the same Landscaping and Construction Agreement, as he himself admits. The claims pertinent thereto had already been arbitrated and passed upon in

CIAC CASE NO. 02-2000 and the decision therein was already elevated to Us for review and, in view of Our joint decision in the instant petitions, a reconsideration thereof.1avvphi1

Based on the foregoing, We are inclined to grant the prayer of PEA to enjoin the CIAC from further proceeding with CIAC CASE NO. 03-2001, considering that the allegations therein constrain Us to apply the doctrine of litis pendentia, which has for its requisites: (a) identity of parties, or at least such parties who represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity with respect to the two preceding particulars in the two (2) cases is such that any judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other case. Forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other. The principle of bar by prior judgment raised by the PEA, i.e., res judicata, finds application only upon a showing of a final judgment as one of its requisites, which is not yet present under the present circumstances.

At this juncture, it bears stressing that the essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. Accordingly, based on Our holding that the final resolution of the instant petitions takes precedence as it is the appropriate vehicle for litigating the issues between the parties, now that the instant petitions before Us have come full circle with this joint resolution and, if the parties herein so choose, may seek further relief to the High Tribunal afterwards. We cannot allow CIAC CASE NO. 03-2001 to proceed because to do so would render inutile the proscriptions against forum shopping which is frowned upon in Our jurisdiction. Hence, the grant of injunctive relief. This must be done, or else a travesty of the efficient administration of justice would lamentably result.39

Indeed, the assailed resolution shows no patent or gross error amounting to grave abuse of discretion. Neither does it show an arbitrary or despotic exercise of power arising from passion or hostility.

At this point, it should be stated that the Court is not convinced by Uy’s argument that the claims under CIAC Case No. 03-2001 are different from his claims in CIAC Case No. 02-2000. There is only one cause of action running through Uy’s litigious undertakings – his alleged right under the Landscaping and Construction Agreement. Therefore, the landscaping agreement is indispensable in prosecuting his claims in both CIAC Cases Nos. 02-2000 and 03-2001.

As we held in Villanueva v. Court of Appeals:40

A party, by varying the form or action or by bringing forward in a second case additional parties or arguments, cannot escape the effects of the principle of res judicata when the facts remain the same at least where such new parties or matter could have been impleaded or pleaded in the prior action.

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint Resolution of the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with MODIFICATIONS. Respondent Public Estates Authority is ordered to pay Elpidio S. Uy, doing business under the name and style Edison Development and Construction, P55,680,492.38 for equipment rentals on standby; P2,275,721.00 for the cost of idle manpower; and P6,050,165.05 for the construction of the nursery shade net area; plus interest at 6% per annum to be computed from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA is further ordered to pay petitioner Uy 10% of the total award as attorney’s fees.

SO ORDERED.

SECOND DIVISION

G.R. No. 203957 July 30, 2014

UNIVERSITY OF SANTO TOMAS FACULTY UNION, Petitioner, vs.UNIVERSITY OF STO. TOMAS, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

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G.R. No. 203957 is a petition for review1 assailing the Decision2 promulgated on 13 July 2012 as well as the Resolution3 promulgated on 19 October 2012 by the Court of Appeals (CA) in CA-G.R. SP No. 120970. The CA set aside the 8 June 2011 Decision4 and 29 July 2011 Resolution5 of the Fourth Division of the National Labor Relations Commission (NLRC) in NLRC LAC No. 10-003370-08, as well as the 24 September 2010 Decision6 of the Labor Arbiter (LA) in NLRC-NCR Case No. 09-09745-07.

In its 24 September 2010 decision, the LA ordered the University of Santo Tomas (UST) to remit P18,000,000.00 to the hospitalization and medical benefits fund (fund) pursuant to the mandate of the 1996-2001 Collective Bargaining Agreement (CBA).The LA also ordered UST to pay 10% of the total monetary award as attorney’s fees. The other claims were dismissed for lack of merit. In its 8 June 2011 decision, the NLRC ordered UST to remit to the University of Santo Tomas Faculty Union (USTFU) the amounts of P80,000,000.00 for the fund pursuant to the CBA and P8,000,000.00 as attorney’s fees equivalent to 10% of the monetary award. The NLRC denied UST’s motion for reconsideration for lack of merit.

In its 13 July 2012 decision, the CA found grave abuse of discretion on the part of NLRC and granted UST’s petition. The CA set aside the decisions of the NLRC and the LA, without prejudice to the refiling of USTFU’s complaint in the proper forum. The CA denied USTFU’s motion for reconsideration for lack of merit.

The Facts

The CA recited the facts as follows:

In a letter dated February 6, 2007, [USTFU] demanded from [UST], through its Rector, Fr. Ernesto M. Arceo, O.P. ("Fr. Arceo"), remittance of the total amount of P65,000,000.00 plus legal interest thereon, representing deficiency in its contribution to the medical and hospitalization fund ("fund") of [UST’s] faculty members. [USTFU] also sent [UST] a letter dated February 26, 2007, accompanied by a summary of its claims pursuant to their 1996-2001 CBA.

On March 2, 2007, Fr. Arceo informed [USTFU] that the aforesaid benefits were not meant to be given annually but rather as a one-time allocation or contribution to the fund.[USTFU] then sent [UST] another demand letter dated June 24, 2007 reiterating its position that [UST] is obliged to remit to the fund, its contributions not only for the years 1996-1997 but also for the subsequent years, but to no avail.

Thus, on September 5, 2007 [USTFU] filed against [UST], a complaint for unfair labor practice, as well as for moral and exemplary damages plus attorney’s fees before the arbitration branch of the NLRC.

[UST] sought the dismissal of the complaint on the ground of lack of jurisdiction. It contended that the case falls within the exclusive jurisdiction of the voluntary arbitratoror panel of voluntary arbitrators because it involves the interpretation and implementation of the provisions of the CBA; and the conflict between the herein parties must be resolved as grievance under the CBA and not as unfair labor practice.

[UST’s] motion to dismiss was denied by the LA in its August 8, 2008 order. [UST] appealed the Order to the NLRC. The NLRC Seventh Division, however, dismissed the appeal on May 12, 2009 and remanded the case to the LA for further proceedings.

The NLRC, in its assailed decision, correctly summarized the issues and submissions of the hereinparties in their respective position papers, as follows:

According to [UST], the parties had, in the past, concluded several Collective Bargaining Agreements for the mutual benefit of the union members and [UST], and one of these agreements was the 1996-2001 CBA. It is undisputed that one of the economic benefits granted by [UST] under the said CBA was the "Hospitalization Fund," provided under Section 1-A(4) of the Article XIII thereof, the pertinent provisions of which state:

ARTICLE XIIIECONOMIC BENEFITS

Section 1. ECONOMIC BENEFITUpon ratification and approval and for the term of this Agreement, the economic benefits to be granted by the UNIVERSITY and the schedule of such releases are as follows:

A. School Year 1996-97 (June 1, 1996 to May 31, 1997):

x x x

4. Hospitalization Fund: Upon ratification and approval hereof, the UNIVERSITY shall establish a perpetual hospitalization and medical benefits fund in the sum of TWO MILLION PESOS (P2,000,000) to be managed conjointly by a hospitalization and medical benefits committee where both management and union are equally represented.

x x x

B. School Year 1997-98 (June 1, 1997-May 31, 1998);

x x x

2. Hospitalization Fund: The UNIVERSITY shall contribute the sum of ONE MILLION PESOS (P1,000,000) to augment the Hospitalization and Medical Benefits fund. The saidsum shall be addedto the remaining balance of theaforementioned fund;

x x x

C. School Year 1998-99 (June 1, 1998-May 31, 1999);

x x x

2. Hospitalization Fund: The UNIVERSITY shall contribute the sum of ONE MILLION PESOS (P1,000,000) to augment the Hospitalization and Medical Benefits Fund. The said sum shall be added to the remaining balance of the aforementioned fund;

D. Miscellaneous Provisions:

x x x

2. All the economic benefits herein given and those elsewhere provided under this agreement, other than retirement benefits and one-half of the signing bonus, are chargeable to the tuition fee share, if any, of the faculty members;

x x x x x x x x x

[USTFU] added that the amount offour (4) million pesos was agreed to be paid by the Universityto the Hospitalization Fund annually for the fourth and fifth year of their CBA, pursuant to the parties’ Memorandum of Agreement (MOA) which embodied the renegotiated economic provisions of the said CBAfor the years 1999-2000 and 2000-2001.

According to [USTFU], Section D(2) of the 1996-2001 CBA provides that:

‘All the economic benefitsherein given and those elsewhere provided under thisagreement, other than retirement benefits and one-half of the signing bonus, are chargeable to the tuition fee share, if any, of the faculty members.’

[USTFU] explained that the rationale for the above-quoted provision is that the economic benefits under the said CBA like the Hospitalization and Medical BenefitsFund, are sourced from the tuition fee increases and pursuant thereto, [UST] is obligated to remit the amount of P2,000,000.00 not only in the first year of the CBA (1996-1997) but also in the subsequent years because the said amount became an integral part of the current or existing tuition fee. Furthermore, [UST] is likewise obligated to slide in the amounts allocated for the Hospitalization and Medical Benefits Fund for the succeeding years to the next CBA year and so on and so forth. [USTFU] claimed that the tuition fee increase once integrated to the old amount of tuition fee becomes and remains an integral part of the existing tuition fee.

[USTFU] averred that while [UST] remitted the amount of P2,000,000.00 during the first year of the 1996-2001 CBA, [UST] did not slide-in or remit the said amount in the succeeding year (1997-1998). [UST] only remitted the amount of P1,000.000,000.00 [sic] for the CBA year 1998-1999. Moreover, [UST] remitted only the amount of P1,000,000.00 on the third year of the CBA instead of P4,000,000.00 (2 Million + 1 Million + 1 Million). And though [UST] remitted the amount of P4,000,000 during the fourth year (2) [sic] of the 1996-2001 CBA, it did not remit any amount at all during the fifth year of the said Agreement.

[USTFU] claimed that during the period of the 1996-2001 CBA, [UST] should have remitted the total amount of P25,000,000.00 instead of P8,000,000.00 only. Thus, a deficiency of P17,000,000.00. [USTFU’s] assertion is based on the following illustration:

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Year 21997-98

Year 31998-99

Year 41999-00

Year 52000-01

Actualamountremitted

2M did notslide

2M did notslide

2M did notslide

2M did notslide

2M

1Mremitted

1M did notslide

1M did notslide

1M did notslide

1M

1Mremitted

1M did notslide

1M did notslide

1M

4Mremitted

4M did notslide

4M

Total 8M

[USTFU] added that after the fifth year of the CBA, i.e. 2001 onwards, [UST] ought to remit the amount of P8,000,000.00 ([2]M+1M+1M+4M) annually to the Hospitalization and Medical Benefits Fund. Hence, for the school year2001-2002 up to the school year 2005-2006, an additional amount of P24,000,000.00 (8M x 3) should have been remitted by [UST] to the aforesaid fund.All in all, the total amount yet to be remitted had ballooned to P81,000,000.00.

Furthermore, [USTFU] averred that [UST] likewise failed and refused to render a proper accounting ofthe monies it paid or released to the covered faculty as well as the money it received as tuition fee increase starting from school year 1997-1998 onwards thereby violating Section D (1), Article XIII of the 1996-2001 CBA which provides that:

‘At the end of this agreement, and within three (3) months therefrom, the UNIVERSITY shall render an accounting of the monies it paid or released to the covered faculty in consequence hereof.’

On the other hand, [UST] claimed that it religiously complied with the economic provisions of the 1996-2001CBA particularly its obligation to remit to the Hospitalization and Medical Benefits Fund as the renegotiated economic provisions under the MOA by remitting the total amount of P8,000,000.00. [UST] claimed that it was never the intention of the parties to the CBA that the amounts deposited to the Hospitalization fund for each year shall be carried over to the succeeding years. UST added that the MOA likewise madeno mention that the amount of P4,000,000.00 corresponding to the school year 1999-2000 should be carried over to the next school year. Thus, it was safe to conclude that the clear intention of the parties was that the amounts indicated on the CBA should only be remitted once on the scheduled school year. Accordingly, [UST] averred that it was not guilty of unfair labor practice.

[UST] further argued that the claim of [USTFU] had already been barred by prescription since under Article 290 of the Labor Code all unfair labor practice [cases] should be filed within one (1) year from the accrual thereof otherwise they shall forever be barred. And assuming that the instance [sic] case may be considered as a money claim, the same already prescribed after three (3) years fromthe time the cause of action accrued.

Finally, [UST] maintained that the present dispute should not be treated as unfair labor practice but should be resolved as a grievance under the CBA and referred to a Voluntary Arbitrator.

The parties thereafter submitted their respective Replies and Rejoinders amplifying their arguments while refuting those made by the other.7

The Labor Arbiter’s Ruling

The LA ruled in favor of USTFU.The LA classified USTFU’s complaint as one for "unfair labor practice, claims for sliding in of funds to hospitalization and medical benefits under the CBA, damages and attorney’s fee with prayer for slide-in and restoration of medical benefits under the CBA."8 The LA ruled that UST was not able to comply with Article XIII, Section 1A-(4) of the 1996-2001 CBA. However, despite UST’s alleged non-compliance, the LA ruled that UST did not commit unfair labor practice.

The LA interpreted the pertinent CBA provisions to mean that UST bound itself to contribute to the fund P2,000,000.00 every school year, regardless of the appropriated augmentation amount. The LA computed UST’s liability in this manner:

Considering that the pertinent provision of the [1996-2001] CBA Article XIII, Section 1A(4) stated that"The University shall establish a perpetual

hospitalization and medical benefits fund in the sum of two million pesos (P2,000,000.00) x x x x" it follows that the amount of P2M every school year must beslided in regardless of the augmentation amount as may be appropriated. The wordshall is mandatory and the word perpetual [is] continuous thus, [UST] is obligated to remit the actual amount to wit:

SY 1996-1997 – P2M = P2M

SY 1997-1998 – P2M + P1M = P3M

SY 1998-1999 – P2M + P1M = P3M

SY 1999-2000 – P4M (Renegotiated) = P4M

SY 2000-2001 – P4M = P4M

TOTAL REMITTANCE = P16M

Thus, [UST] therefore has an unremitted fund of Eight Million (P8,000,000.00) pesos.

Corollarily, the CBA covering the period SY 2001-2006 [UST] is under obligation to remit two (2) million (P2,000,000.00) [sic] pesos every year or a total of ten million (P10,000,000.00) pesos in addition to whatever augmented amount stipulated in the CBA.

In fine, the total unremitted amountto the [hospitalization and medical benefits] fund is eighteen million (P18,000,000.00) pesos. P8M for SY 1996-2001 and P10M for SY 2001-2006.9

The LA did not find UST’s non-compliance with the 1996-2001 CBA as acts that constituteunfair labor practice.

The failure of [UST] to slide in yearly the P2M hospitalization fund is not violation of the CBA but an error in the interpretation of the provision of the CBA. It could not be said eitherthat [UST] acted with malice and bad faith in view of the compliance with the other economic provision[s] of the CBA. An error in the interpretation of a provision in the CBA, absent any malice or bad faith could not be considered as unfair laborpractice as held in the case of Singapore Airlines Local Employees Association vs. NLRC, et al., 130 SCRA 472.10

The dispositive portion of the LA’s Decision reads:

WHEREFORE, premised on the foregoing considerations, judgment is hereby rendered ordering [UST] to remit the amount of eighteen million (P18,000,000.00) pesos to [the] hospitalization and medical benefits fund pursuant tothe mandate of the Collective Bargaining Agreement on economic benefits.

[UST is] likewise directed to pay attorney’s fee[s] equivalent to ten (10) percent of the total monetary award in this case.

Other claims dismissed for lack of merit.

SO ORDERED.11

USTFU filed a Memorandum of Partial Appeal12 from the LA’s Decision. USTFU claimed that the LA erred in holding that UST is liable to USTFU in the amount of P18 million only, and in not holding that the amounts claimed by USTFU should beremitted by UST to USTFU. USTFU claimed that, as of 2011, UST’s total liability to the fund is P97 million: P17 million for CBA years 1996 to 2001, P40 million for CBA years 2001 to 2006, and P40 million for CBA years 2006 to 2011. USTFU also claimed that the amount should be remitted byUST to USTFU for proper turnover to the fund.

UST, on the other hand, filed an Appeal Memorandum.13 UST claimed that the LA committed grave abuse of discretion in taking cognizance over the case because the issue is within the jurisdiction of the voluntary arbitrator. UST further claimed that the LA committed grave abuse of discretion in finding that UST erred in its interpretation of the CBA and in not finding that USTFU’s claims are already barred by prescription.

The NLRC’s Ruling

The NLRC granted USTFU’s appeal and denied UST’s appeal for lack of merit. The NLRC ordered UST to pay USTFU P80,000,000.00 and attorney’s fees equivalent to ten percent of the monetary award.

The NLRC pointed out that UST’s refusal to comply, despite repeated demands, with the CBA’s economic provisions is tantamount to a gross and flagrant violation. Thus, the present case properly falls under the LA’s original

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jurisdiction as well as the NLRC’s appellate jurisdiction. The issue of prescription also cannot be heldagainst USTFU because the cause of action accrued only when UST refused to comply with USTFU’s 6 February 2007 demand letter. The demand letter was sent only after the conduct of proceedings in the Permanent Union-University Committee (PUUC).

The NLRC noted that the subsequent CBAs between UST and USTFU show that the parties intendedthat the amount appropriated each year to augment the fund shall be carried over to the succeeding years and is chargeable to the tuition fee increment. The NLRC ruled that the amounts appropriated for each year during the effectivity of the 1996-2001 CBA should still be appropriated to the succeeding years. From school year 1997-1998 and onwards, the basis for suchcarry over is that the amounts were sourced from tuition increases corresponding to a given school year. Since any increase in tuition is integrated into the subsequent tuition, the amount allocated to the fund because of the tuition increaseshould be remitted to the fund. The 2001-2006 and 2006-2011 CBAs have express provisions on the carry over. The NLRC computed UST’s deficiency14 as follows:

For the 1996-2001 CBA:

Year 1 Year 21997-98

Year 31998-99

Year 41999-00

Year 52000-01

Total amountthat shouldbe submitted

2M 2M 2M 2M

1M 1M 1M 1M

1M 1M 1M

4M 4M

3M + 4M + 8M + 8M = 25M

Since it is undisputed that [UST] remitted the amount of PhP8,000,000.00 only, there is stilla deficiency of PhP17,000,000.00 corresponding to the 1996-2001 CBA.

x x x x

For the 2001-2006 CBA:

Year 1 Year 22002-03

Year 32003-04

Year 42005-06

Total amountthat should besubmitted

2M 2M 2M

3M 3M 3M

3M 3M

5M + 8M + 8M = 23M

For the 2006-2011 CBA:

Year 1 Year 22007-08

Year 32008-09

Year 42009-10

Year 52010-11

Total amountthat shouldbe submitted

8M + 8M + 8M + 8M = 40M

The NLRC computed UST’s total liability for school years 1996-1997 up to 2010-2011 at P80,000,000.00. The records show that UST remitted P8,000,000.00 for 1996-2001 CBA, and there is absence of proof that the additional contributions to the fund were made for the 2001-2006 and 2006-2011 CBAs. The NLRC also ordered UST to pay USTFU attorney’s fees at 10% of the monetary award.

UST filed a motion for reconsideration of the NLRC decision.1âwphi1 UST again claimed that the Voluntary Arbitrator, and not LA, had jurisdiction over the interpretation of the CBA; the P80,000,000.00 award had no basis; and the fund should be remitted to the Hospital and Medical Benefits Committee, not to USTFU, as stated in the CBA.

In a Resolution promulgated on 29 July 2011, the NLRC denied UST’s motion for reconsideration for lack of merit.

UST filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court before the CA. UST still questioned the jurisdiction of the LA, as well as the award of P80,000,000.00. UST also claimed that USTFU’s money claims are barred byprescription, and that the proper recipient of the award should bethe Hospital and Medical Benefits Committee. Finally, UST also questioned the award for attorney’s fees.15

On 8 November 2011, USTFU filed a comment before the CA. USTFU claimed that the NLRC did not commit grave abuse of discretion in finding that USTFU is entitled to its claims for payment of the unremitted benefits. USTFU also claimed that certiorari is not a proper remedy for UST because the NLRC did not commit any grave abuse of discretion.16

The Court of Appeals’ Ruling

The CA, in its decision promulgated on 13 July 2012, disposed of the present case by agreeing with UST’s argument that the LA and the NLRC did not have jurisdiction to hear and decide the present case. The CA stated that since USTFU’s ultimateobjective is to clarify the relevant items in the CBA, then USTFU’s complaint should have been filed with the voluntary arbitrator or panel of voluntary arbitrators.

The dispositive portion of the CA’s decision reads:

WHEREFORE, finding grave abuse of discretion on the part of public respondent NLRC, the petition isGRANTED. Without prejudice to the re-filing of private respondent’s complaint with the proper forum, the assailed NLRC decision dated June 8,2011 and resolution dated July 29, 2011 in NLRC LAC No. 10-003370-08, as well as the decision dated September 24, 2010 of the Labor Arbiter in NLRC-NCR Case No. 09-09745-07 are hereby SET ASIDE.

SO ORDERED.17

USTFU filed its motion for reconsideration18 before the CA. USTFU maintained that the LA and the NLRC had jurisdiction over the subject matter of the complaint.

In a resolution19 promulgated on 19 October 2012, the CA denied USTFU’s motion for reconsideration for lack of merit.

USTFU filed the present petition for review20 before this Court on 7 December 2012.

The Issues

USTFU enumerated the following grounds warranting allowance of its petition:

1. The Honorable Court of Appeals departed from the usual course of judicial proceedings in holding that the Labor Arbiter and the NLRC have no jurisdiction over the complaint for unfair labor practice (ULP) filed by USTFU.

2. The Court of Appeals acted in a way not in accord with the applicable decisions of the Supreme Court in holding that the voluntary arbitrator has jurisdiction over the instant case despite the fact that Article XIII ("Grievance Machinery") of the CBA is not applicable.

3. The Court of Appeals committed grave abuse of discretion in the appreciation of facts in not finding that under Art. XXII of the CBA, the Permanent University-Union Committee (PUUC) is the proper forum to resolve the dispute betweenUST and USTFU. However, Art. XXII does not provide for a "voluntary arbitration" clause and therefore, USTFU validly filed the complaint for ULP before the Labor Arbiter.

4. The Honorable Court of Appeals committed grave abuse of discretion in its appreciation of evidence in not finding that the parties agreed to have the dispute resolved by the labor tribunals and UST had actively participated in the proceedings before the Labor Arbiter and the NLRC which is tantamount to a recognitionof the jurisdiction of the said bodies.

5. The Court of Appeals departed from the usual course of proceedings in referring back the case to voluntary arbitration despite the fact that the parties already fully and exhaustively litigated the case before the Labor Arbiter and the NLRC which both correctly found in favor of USTFU. Moreover, referral to voluntary arbitration would result in waste of precious time in relitigating the case all over again.21

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UST, for its part, enumerated the following grounds for opposing USTFU’s petition:

1. The Court of Appeals correctly ruled that it is the Voluntary Arbitrator which has jurisdiction over the instant case.

2. Assuming arguendo that NLRC has jurisdiction over the instant case, it clearly erred when it made an award not prayed for in petitioner USTFU’s complaint, in effect mandating double payment.

3. Assuming arguendo that NLRC has jurisdiction over the instant case, it erred in ruling that respondent UST is still liable to pay the amount of P17,000,000.00 for the period 1996-2001 under the 1996-2001 CBA considering that:

a. There is no slide-in provision in the 1996-2001 CBA.

b. The amounts allocated for the Hospitalization Fund during SYs 1996-2001 were not sourced from the 70% share of the teaching and non-teaching personnel in the tuition fee increases.

4. The complaint for money claims ofpetitioner USTFU arising from the interpretation of the 1996-2001 CBA isalready barred by prescription.

5. Assuming arguendo that NLRC has jurisdiction over the instant case, it unjustly and erroneously ordered respondent UST to pay the subject amount to petitioner USTFU and notto the Hospital and Medical Benefits Committee under the CBA.22

The Court’s Ruling

The petition has no merit. We shall address the issues raised by the parties one by one.

Jurisdiction over the Present Case

On the issue of jurisdiction, we affirm with modification the ruling of the CA. The Labor Arbiter has no jurisdiction over the present case; however, despite the lack of jurisdiction, we rule on the issues presented. We recognize that a remand to the voluntary arbitration stage will give rise to the possibility that this case will still reach this Court through the parties’ appeals. Furthermore, it does not serve the cause of justice if we allow this case to go unresolved for aninordinate amount of time.

We quote the pertinent Articles of the Labor Code of the Philippines below:

Art. 217. Jurisdiction of Labor Arbiters and the Commission. – (a) Except as otherwise provided underthis Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, x x x:

1. Unfair labor practices cases;

x x x x

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may beprovided in said agreements.

Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. – The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations

of Collective Bargaining Agreement shall mean flagrant and/ormalicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel ofVoluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective Bargaining Agreement.

Art. 262. Jurisdiction over other labor disputes. – The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

Art. 262-A. Procedures. – The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have the power to hold hearings, receive evidences and take whatever action isnecessary to resolve the issue or issues subject to the dispute, including efforts to effect a voluntary settlement between the parties.

All parties to the dispute shall be entitled to attend the arbitration proceedings. The attendance of any third party to the exclusion of any witness from the proceedings shall be determined by the Voluntary Arbitrator or panel of Voluntary Arbitrators. Hearing may be adjourned for cause or upon agreement by the parties.

Unless the parties agree otherwise,it shall be mandatory for the Voluntary Arbitrator or panel of Voluntary Arbitrators to render an award or decision within twenty (20) calendar days from the date of submission of the dispute to voluntary arbitration.

The award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators shall contain the facts and the law on which it is based. It shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties.

Upon motion of any interested party, the Voluntary Arbitrator or panel of Voluntary Arbitrators or the Labor Arbiter in the region where the movant resides, in case of the absence or incapacity of the Voluntary Arbitrator or panel of Voluntary Arbitrators for any reason, may issue a writ of execution requiring either the sheriff of the Commission or regular courts or any public official whom the parties may designate in the submission agreement to execute the final decision, order or award.

On the other hand, the pertinent provisions in the 1996-2001 CBA between UST and USTFU provide:

ARTICLE XGRIEVANCE MACHINERY

Section 1. Grievance.– Any misunderstanding concerning policies and practices directly affecting faculty members covered by this [collective bargaining] agreement ortheir working conditions in the UNIVERSITY or any dispute arising as to the meaning, application or violation of any provisions of thisAgreement or any complaint that a covered faculty member may haveagainst the UNIVERSITY shall be considered a grievance.

Section 2. Exclusion. – Termination of employment and preventive suspension shall be exempted from the provisions of this Article as the same shall be governed by the procedure in the Labor Code and its Implementing Rules.

Section 3. Procedure. – A grievance shall be settled as expeditiously as possible in accordance with the following procedure:

STEP I. Upon presentation of a grievance in writing by the aggrieved faculty member, to the FACULTY UNION Grievance Officer, the said officer shall present the same to the Dean or school/department head concerned who shall render his decision on the matter within five (5) school days from the date of the presentation. If the aggrieved party is not satisfied with the decision, or if the Dean or school/department head fails toact within the five-schoolday period, appeal may be made to Step II within five (5) school days from receipt of the decision or, in the absence of a decision, the expiration ofthe period for its rendition. If no appeal is made within the period of appeal, the grievance shall be deemed settled on the basis of Step I.

STEP II. All appeals from StepI shall be presented to and considered by an Adjudication Committee which shall be composed of two (2) representatives chosen by the UNIVERSITY and two (2) representatives chosen by the FACULTY UNION. The Committee shall meet within ten (10) school days after the elevation to this step and and try to settle the grievance to the

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satisfaction of all concerned. It shall render its decision within twenty (20) school days following the presentation of the grievance to the Adjudication Committee. A quorum for any meeting of the Committee shall consist of a majority of its entire membership. The affirmative vote of at least three (3) members of the Committee shall be necessary to reach a decision. If the Committee renders a decision, the grievance shall be deemed settled accordingly. If the Committee fails to make a decision within the period of twenty (20) days above stated, the FACULTY UNION President may, within ten (10)days thereafter elevate the grievance to Step III.

STEP III. The grievance appealed to this step shall be handled by the FACULTY UNION President who shall take it up with the Rector of the UNIVERSITY who, in turn, shall settle the grievance within ten (10) days. If no settlement is arrived at within the aforementioned period, the grievance will automatically be referred to voluntary arbitration.

STEP IV. The mechanics of arbitration shall be as follows:

(a) The UNIVERSITY and the FACULTY UNION shall select within three (3) days, by raffle or process of elimination, an arbitrator mutually agreeable to them preferably from the list provided by the Bureau of Labor Relations.

(b) The voluntary arbitrator shall render an award within ten (10) days after the issue in dispute is submitted for decision and his award shall be final and binding upon all parties to the grievance. (c) Arbitration costs shall be shared equally by the UNIVERSITY and the FACULTY UNION.23

ARTICLE XXIIPERMANENT UNIVERSITY-UNION COMMITTEE (PUUC)

Permanent UNION-UNIVERSITY Committee (PUUC). – The UNIVERSITY and the FACULTY UNION realize that notwithstanding this CBA, there will remain problems and irritants which will require the continuing attention of both parties. Symbolic of the mutual good faith of the parties, they have agreed to establish a permanent committee, where the UNIVERSITY and the FACULTY UNION are equally represented, to address these problems as they arise.

a. Within thirty (30) days from signing of this Agreement, the Committee shall meet. The members of the Committee are the following:

1) For the ADMINISTRATION:

a) Rector or his representative;

b) Vice Rector for Academic Affairs or his representative;

c) Vice Rector for Finance or his representative; and d) Appointee of the Rector.

2) For the FACULTY UNION:

a) President of the UNION;

b) Executive Vice President of the UNION or his representative;

c) Secretary General orhis representative; and

d) Appointee of the UNION President.

b. The regular meetings of this Committee shall be held at least bimonthly or as the need arises. c. The decision reached in the PUUCMeetings shall be binding to all UNIVERSITY functionaries.24

Jurisdiction is determined by the allegations of the complaint. In the present case, USTFU alleged that UST committed unfair labor practice in its blatant violation of the economic provisions of the 1996-2001 CBA, and subsequently, the 2001-2006 and 2006-2011 CBAs. UST, meanwhile, has consistently questioned USTFU’s act of bringing the case before the LA, and

of not submitting the present case to voluntary arbitration. The LA assumed jurisdiction, but ruled that UST did not commit any unfair labor practice in UST’s interpretation of the economic provisions of the 1996-2001 CBA. The NLRC, on the other hand, ruled that there was indeed unfair labor practice. The CA ruled that the LA and the NLRC did not have jurisdiction as there was no unfair labor practice. Reading the pertinent portions of the 1996-2001 CBA along with those of the Labor Code, we see that UST and USTFU’s misunderstanding arose solely from their differing interpretations of the CBA’s provisions on economic benefits, specifically those concerning the fund. Therefore, it was clearly error for the LA to assume jurisdiction over the present case. The case should have been resolved through the voluntary arbitrator or panel of voluntary arbitrators.

Article 217(c) of the Labor Code provides that the Labor Arbiter shall refer to the grievance machinery and voluntary arbitration as provided in the CBA those cases that involve the interpretation of said agreements. Article 261 of the Labor Code further provides that all unresolved grievances arising from the interpretation or implementation of the CBA, including violations of said agreement, are under the original and exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators. Excluded from this original and exclusive jurisdiction is gross violation of the CBA, which is defined in Article 261 as "flagrant and/or malicious refusal to comply with the economic provisions" of the CBA. San Jose v. NLRC25 provides guidelines for understanding Articles 217, 261, and 262:

1. The jurisdiction of the Labor Arbiter and Voluntary Arbitrator or Panel of Voluntary Arbitrators over the cases enumerated in Articles 217, 261, and 262 can possibly include money claims in one form or another.

2. The cases where the Labor Arbiters have original and exclusive jurisdiction are enumerated in Article 217, and that of the Voluntary Arbitrator or Panel of Voluntary Arbitrators in Article 261.

3. The original and exclusive jurisdiction of Labor Arbiters is qualified by an exception as indicated in the introductory sentence of Article 217 (a), to wit:

"Art. 217. Jurisdiction of Labor Arbiters ... (a) Except as otherwise provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear and decide ... the following cases involving all workers..."

The phrase "Except as otherwise provided under this Code" refers to the following exceptions:

A. Art. 217. Jurisdiction of Labor Arbiters...

x x x

(c) Cases arising from the interpretation or implementation of collective bargaining agreement and those arising from the interpretation or enforcement of company procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitrator as may be provided in said agreement.

B. Art. 262. Jurisdiction over other labor disputes. – The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

Parenthetically, the original and exclusive jurisdiction of the Labor Arbiter under Article 217 (c), for money claims is limited only to those arising from statutes or contracts other than a Collective Bargaining Agreement. The Voluntary Arbitrator or Panel of Voluntary Arbitrators will have original and exclusive jurisdiction over money claims "arising from the interpretation or implementation of the Collective Bargaining Agreement and, those arising fromthe interpretation or enforcement of company personnel policies," under Article 261.

4. The jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators is provided for in Arts. 261 and 262 of the Labor Code as indicated above.

1. A close reading of Article 261 indicates that the original and exclusive jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators is limited only to:

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"... unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies... Accordingly, violations of a collective bargaining agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved asgrievances under the Collective Bargaining Agreement. x x x."

2. Voluntary Arbitrators or Panel of Voluntary Arbitrators, however, can exercise jurisdiction over any and all disputes between an employer and a union and/or individual worker as provided for in Article 262.

"Art. 262. Jurisdiction over other labor disputes. - The voluntary arbitrator or panel of voluntary arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks."

It must be emphasized that the jurisdiction of the Voluntary Arbitrator or Panel of Voluntary Arbitrators under Article 262 must be voluntarily conferred upon by bothlabor and management. The labor disputes referred to in the same Article 262 can include all those disputes mentioned in Article 217 over which the Labor Arbiter has original and exclusive jurisdiction.

As shown in the above contextual and wholistic analysis of Articles 217, 261, and 262 of the Labor Code, the National Labor Relations Commission correctly ruled that the Labor Arbiter had no jurisdiction to hear and decide petitioner’s money-claim underpayment of retirement benefits, as the controversy between the parties involved an issue "arising from the interpretationor implementation" of a provision of the collective bargaining agreement. The Voluntary Arbitrator or Panel of Voluntary Arbitrators has original and exclusive jurisdiction over the controversy under Article 261 of the Labor Code, and not the Labor Arbiter.

Despite the allegation that UST refused to comply with the economic provisions of the 1996-2001 CBA, we cannot characterize UST’s refusal as "flagrant and/or malicious." Indeed, UST’s literal interpretation of the CBA was, in fact, what led USTFU to fileits complaint. To our mind, USTFU actually went beyond the text of the 1996-2001 CBA when it claimed that the integrated tuition fee increase as described in Section 1D(2) is the basis for UST’s alleged deficiency.

We cannot subscribe to USTFU’s view that the 1996-2001 CBA’s Article X: Grievance Machinery is not applicable to the present case. When the issue is about the grievance procedure, USTFU insists on a literal interpretation of the 1996-2001 CBA. Indeed, the present case falls under Section 1’s definition of grievance:"[a]ny misunderstanding concerning policies and practices directly affecting faculty members covered by this [collective bargaining] agreement ortheir working conditions in the UNIVERSITY or any dispute arising as to the meaning, application or violation of any provisions of this Agreement or any complaint that a covered faculty member may have against the UNIVERSITY." Section 2 excludes only termination and preventive suspension from the grievance procedure.

USTFU’s focus is on the 1996-2001 CBA’s provisions about the grievance process rather than the provision about the subject matters covered by the grievance process. Despite UST’s alleged violation of the economic provisions of the CBA by its insufficient remittances to the fund, a dispute arising as to the meaning, application or violation of the CBA, USTFU used Step I in Section 3, and ignored Steps III and IV, to rule out any referral to voluntary arbitration. USTFU concludes that the 1996-2001 CBA’s provisions on grievance machinery only refer to a grievance of a faculty member against UST, and that said provisions do not contemplate a situation where USTFU itself has a grievance against UST.

USTFU argues that the PUUC is the proper forum to resolve the issue, and that the filing of a complaint beforethe LA is proper inthe absence of a voluntary arbitration clause in the 1996-2001 CBA’s Article XXII: Permanent University-Union Committee. However, as provided in the 1996-2001 CBA, PUUC is established for "continuing problems and irritants which will require the continuing attention" of UST and USTFU. Clearly, the PUUC addresses mattersnot covered by the CBA.

USTFU’s adamant refusal to considervoluntary arbitration ignores Articles 261 to 262-A of the Labor Code, as well as Steps III and IV of Section 3 of the 1996-2001 CBA.

Accrual of Cause of Action andPrescription of Claims

USTFU’s claims arose from UST’s alleged failure to contribute the correct amounts to the fund during the 1996-2001 CBA. However, USTFU did not complain of any violation by UST during the lifetime of the 1996-2001 CBA. Neither did USTFU complain of any violation by UST during the lifetime of the succeeding 2001-2006 CBA. It was only on 6 February 2007 that USTFU sent a demand letter to UST Rector Fr. Ernesto M. Arceo, O.P., for the claimed hospitalization and medical benefits under the 1996-2001 CBA. On 2 March 2007, UST, through its Rector, Fr. Ernesto M. Arceo, O.P., informed USTFU, through its President, Dr. Gil Gamilla, that "the hospitalization and medical benefits contained in [the 1996-2001 CBA] were a one-time give, and therefore not meant to slide." USTFU notified UST on 24 June 2007 about its intent to file the necessary complaint. On 6 September 2007, USTFU filed a complaint against UST before the LA.

The 1996-2001 CBA, as well as the applicable laws, is silent as to when UST’s alleged violation becomes actionable. Thus, we apply Article 1150 of the Civil Code of the Philippines: "The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought."26 Prescription of an action is counted from the time the action may be brought.27

It is error to state that USTFU’s cause of action accrued only upon UST’s categorical denial of its claims on 2 March 2007. USTFU’s cause of action accrued when UST allegedly failed to comply with the economic provisions of the 1996-2001 CBA. Upon such failure by UST, USTFU could have brought an action against UST.

Article 290 of the Labor Code provides that unfair labor practices prescribe within one year "from accrual of such unfair labor practice; otherwise, they shall be forever barred." Article 291 of the same Code provides that money claims arising from employer-employee relations prescribe "within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred." USTFU’s claims under the 1996-2001 CBA, whether characterized as one for unfair labor practice or for money claims from employer-employee relations, have already prescribed when USTFU filed a complaint before the LA.

USTFU filed its complaint under the theory of unfairlabor practice. Thus, USTFU had one year from UST’s alleged failure to contribute, or "slide in," the correct amount to the fund to file its complaint. USTFU had one year for every alleged breach by UST: school year (SY) 1997-1998, SY 1998-1999, SY 1999-2000, SY 2000-2001, SY 2001-2002, and SY 2002-2003. USTFU did not file any complaint within the respective one-year prescriptive periods. USTFU decided to file its complaint only in 2007, several years after the accrual of its several possible causes of action. Even if USTFU filed its complaint under the theory of money claims from employer-employee relations, its cause of action still has prescribed.

Determination of the Benefits Due

We consolidate USTFU’s claims, UST’s remittances, and UST’s alleged balances in the table below:

USTFU’s claims28 UST’s remittances29 UST’s allegedBalances

P2,000,000.00 P2,000,000.00 0

P3,000,000.00 P1,000,000.00 P2,000,000.00

P4,000,000.00 P1,000,000.00 P3,000,000.00

1999 Memorandum

P8,000,000.00 P4,000,000.00 P4,000,000.00

P8,000,000.00 - P8,000,000.00

P8,000,000.00 P2,000,000.00 P6,000,000.00

P8,000,000.00 P5,000,000.00 P3,000,000.00

P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

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P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

P8,000,000.00 P8,000,000.00 0

P105,000,000.00 P79,000,000.00 P26,000,000.00

We restate the following provisions inthe pertinent CBAs to establish what USTFU claims as its bases for additional funds:

1996-2001 CBA

ARTICLE XIIIECONOMIC BENEFITS

Section 1. ECONOMIC BENEFIT- Upon ratification and approval and for the term of this Agreement. the economic benefitsto be granted by the UNIVERSITY and the schedule ofsuch releases are as follows:

A. School Year 1996-97 (June 1, 1996 to May 31, 1997):

x x x x

4. Hospitalization Fund: Upon ratification and approval hereof, the UNIVERSITY shall establish a perpetual hospitalization and medical benefits fund in the sum of TWO MILLION PESOS (P2,000,000) to be managed conjointly by a hospitalization and medical benefits committee where both management and union are equally represented.

The joint committee shall promulgate its internal rules and regulations, and on the second year of this agreement, i.e., SY 1997-98, may allocate such amount as required, but not to exceed ten per cent (10%) of the gross income of the fund,for administrative expenses. For the duration of the first year of operation of the fund, the UNIVERSITY and the FACULTY UNION shall equally subsidize the operations of the fund.

The hospitalization costs and medical benefits of the members of the faculty as provided in Article XVIof this agreement shall be taken from this fund.

This fund is independently managed by the aforementioned joint committee, subject to independent audit. The yearly state of finances of the fund shall be reported, appended to the FACULTY UNION’s own annual report, to all members of the university faculty.

B. School Year 1997-98 (June 1, 1997-May 31, 1998):

x x x x

2. Hospitalization Fund: The UNIVERSITY shall contribute the sum of ONE MILLION PESOS (P1,000,000) to augment the Hospitalization and Medical Benefits fund.The said sum shall be added to the remaining balance of the aforementioned fund;

x x x x

C. School Year 1998-99 (June 1, 1998-May 31, 1999):

x x x x

2. Hospitalization Fund: The UNIVERSITY shall contribute the sum of ONE MILLION PESOS (P1,000,000) to augment the Hospitalization and Medical Benefits fund.The said sum shall be added to the remaining balance of the aforementioned fund;

D. Miscellaneous Provisions:

1. At the end of this agreement, and within three months therefrom, the UNIVERSITY shall render an accounting of the monies it paid or released to the covered faculty in consequence thereof;

2. All the economic benefits herein given and those elsewhere provided under this agreement, other than retirement benefits and one-half of the signing bonus, are chargeable to the tuition fee share, if any, of the faculty members;

3. In the event that the tuition fee benefits of the faculty for any of the three years covered by this part of this agreement i.e., the University decides to raise tuition fees in the coming two school years, exceed those provided herein, the same may be allocated for salaries and other benefits as determined by the FACULTY UNION and the matter duly communicated to the UNIVERSITY; and,

4. None of the benefits provided herein, both distributable immediately after ratification and those to be given during the term hereof, other than the amounts checked-off and the Hospitalization and Medical Benefits are to be directly distributed to the faculty members by the University.30 1999 Memorandum of Agreement

1.0 The University hereby agrees to grant increase in salary and fringe benefits as provided for by the tuition fee increase of school year 1999-2000 according to the following scheme:

x x x x

6.0 If there is any tuition fee increase for school year 2000-2001, there will be an additional increase in salary/fringe benefitsto be agreed upon by both parties.

7.0An additional amount of four million pesos will be deposited in the hospitalization fund of the faculty.31

2001-2006 CBA

Article XXHOSPITALIZATION AND MEDICAL BENEFITS

Section 1. Hospitalization and Medical Benefits Fund. – The UNION and the UNIVERSITY shall buildup and maintain the perpetual Hospitalization and Medical Benefits Fund. For this purpose, the UNIVERSITY agrees to appropriate for AY 2001-2002 two million pesos (PhP2,000,000.00); for AY 2002-2003 three million pesos (PhP3,000,000.00); and for AY 2003-2004 another three million pesos (PhP3,000,000.00). It is understood that the amount appropriated for each year is carried over to the succeeding years and is chargeable to the tuition fee increment. x x x32 2006-2011 CBA

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Article XXHOSPITALIZATION AND MEDICAL BENEFITS

Section 5. Miscellaneous Provisions. a. The UNIVERSITY will continue to slide in the amounts set aside in the 2001-2006 CBA to augment the fund. Fifty percent of the amount due shall be remitted within a month from the start of the first semester and the other fifty percent within a month from the start of the second semester of the academic year. These sums of money shall be remitted without necessity of demand on the part of the union and may not be garnished or held by the university on account of disputesin hospital billings between the University and the Union.

x x x x33

USTFU claims that UST’s contributions should have been cumulative, with the amount appropriated for each year carried over to the succeeding years and is chargeable to the tuitionfee increment. However, USTFU’s claims are not supported by the economic provisions of the 1996-2001 CBA and the 1999 Memorandum of Agreement reproduced above.

We wholly agree with UST’s interpretation of the economic provisions of the 1996-2001 CBA, the 1999 Memorandumof Agreement, and the 2001-2006 and 2006-2011 CBAs, as well as its remittances to the fund for the covered periods. UST faithfully followed the clear provisions of these agreements.

The 1996-2001 CBA established the fund, with an initial remittance of P2, 000, 000. 00 for school year 1996-1997. UST bound itself to augment the fund by contributing P1,000,000.00 per year for school years 1997-1998 and 1998-1999. The 1999 Memorandum of Agreement merely stated that UST will deposit P4,000,000.00 to the fund. Express mention of the carryover is found onlv in Section 1, Article XX of the 2001-2006 CBA: "It is understood that the amount appropriated for each year is carried over to the succeeding years xx x." The 1996-2001 CBA does not have this carry-over provision. During the lifetime of the 1996-2001 CBA, the 1999 Memorandum of Agreement, and the 2001-2006 CBA, USTFU never questioned the non-compliance by UST with an alleged carry-over agreement applicable to the 1996-2001 CBA. This Court is well aware of Article 1702 of the Civil Code, which provides that "[i]n case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer." This Court is also well aware that when the provisions of the CBA are clear and unambiguous, the literal meaning of the stipulations shall govern.34 In the present case, the CBA provisions pertaining to the fund are clear and should be interpreted according to their literal meaning.

WHEREFORE, we DENY the petition. We DECLARE that the claims of the University of Santo Tomas Faculty Union have prescribed and that there is no carry-over provision for the Hospitalization and Medical Benefits Fund in the 1996-2001 Collective Bargaining Agreement and in the 1999 Memorandum of Agreement. The carry-over provision for the Hospitalization and Medical Benefits Fund is found only in the 2001-2006 and 2006-2011 Collective Bargaining Agreements.

No costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 138938 October 24, 2000

CELESTINO VIVIERO, petitioner, vs.COURT OF APPEALS, HAMMONIA MARINE SERVICES, and HANSEATIC SHIPPING CO., LTD. respondents.

D E C I S I O N

BELLOSILLO, J.:

CELESTINO VIVERO, in this petition for review, seeks the reversal of the Decision of the Court of Appeals of 26 May 1999 setting aside the Decision of the National Labor Relations Commission of 28 May 1998 as well as its Resolution of 23 July 1998 denying his motion for its reconsideration, and reinstating the decision of the Labor Arbiter of 21 January 1997.

Petitioner Vivero, a licensed seaman, is a member of the Associated Marine Officers and Seamen's Union of the Philippines (AMOSUP). The Collective Bargaining Agreement entered into by AMOSUP and private respondents provides, among others -

ARTICLE XII

GRIEVANCE PROCEDURE

x x x x

Sec. 3. A dispute or grievance arising in connection with the terms and provisions of this Agreement shall be adjusted in accordance with the following procedure:

1. Any seaman who feels that he has been unjustly treated or even subjected to an unfair consideration shall endeavor to have said grievance adjusted by the designated representative of the unlicensed department abroad the vessel in the following manner:

A. Presentation of the complaint to his immediate superior.

B. Appeal to the head of the department in which the seaman involved shall be employed.

C. Appeal directly to the Master.

Sec. 4. If the grievance cannnot be resolved under the provision of Section 3, the decision of the Master shall govern at sea x x x x in foreign ports and until the vessel arrives at a port where the Master shall refer such dispute to either the COMPANY or the UNION in order to resolve such dispute. It is understood, however, if the dispute could not be resolved then both parties shall avail of the grievance procedure.

Sec. 5. In furtherance of the foregoing principle, there is hereby created a GRIEVANCE COMMITTEE to be composed of two COMPANY REPRESENTATIVES to be designated by the COMPANY and two LABOR REPRESENTATIVES to be designated by the UNION.

Sec. 6. Any grievance, dispute or misunderstanding concerning any ruling, practice, wages or working conditions in the COMPANY, or any breach of the Employment Contract, or any dispute arising from the meaning or the application of the provision of this Agreement or a claim of violation thereof or any complaint that any such crewmembers may have against the COMPANY, as well as complaint which the COMPANY may have against such crewmembers shall be brought to the attention of the GRIEVANCE COMMITTEE before either party takes any action, legal or otherwise.

Sec. 7. The COMMITTEE shall resolve any dispute within seven (7) days from and after the same is submitted to it for resolution and if the same cannot be settled by the COMMITTEE or if the COMMITTEE fails to act on the dispute within the 7-day period herein provided, the same shall be referred to a VOLUNTARY ARBITRATION COMMITTEE.

An "impartial arbitrator" will be appointed by mutual choice and consent of the UNION and the COMPANY who shall hear and decide the dispute or issue presented to him and his decision shall be final and unappealable x x x x1

As found by the Labor Arbiter -

Complainant was hired by respondent as Chief Officer of the vessel "M.V. Sunny Prince" on 10 June 1994 under the terms and conditions, to wit:

Duration of Contract - - - - 10 months

Basic Monthly Salary - - - - US $1,100.00

Hours of Work - - - - 44 hrs./week

Overtime - - - - 495 lump O.T.

Vacation leave with pay - - - - US $220.00/mo.

On grounds of very poor performance and conduct, refusal to perform his job, refusal to report to the Captain or the vessel’s Engineers or cooperate with other ship officers about the problem in cleaning the cargo holds or of the shipping pump and his dismal relations with the Captain of the vessel, complainant was repatriated on 15 July 1994.

On 01 August 1994, complainant filed a complaint for illegal dismissal at Associated Marine Officers’ and Seaman’s Union of the Philippines (AMOSUP) of which complainant was a member. Pursuant to Article XII of the Collective Bargaining Agreement, grievance proceedings were conducted; however, parties failed to reach and settle the dispute amicably, thus, on 28

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November 1994, complainant filed [a] complaint with the Philippine Overseas Employment Administration (POEA).2

The law in force at the time petitioner filed his Complaint with the POEA was EO No. 247.3

While the case was pending before the POEA, private respondents filed a Motion to Dismiss on the ground that the POEA had no jurisdiction over the case considering petitioner Vivero's failure to refer it to a Voluntary Arbitration Committee in accordance with the CBA between the parties. Upon the enactment of RA 8042, the Migrant Workers and Overseas Filipinos Act of 1995, the case was transferred to the Adjudication Branch of the National Labor Relations Commission.

On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on the basis of the pleadings and documents available on record, rendered a decision dismissing the Complaint for want of jurisdiction.4 According to the Labor Arbiter, since the CBA of the parties provided for the referral to a Voluntary Arbitration Committee should the Grievance Committee fail to settle the dispute, and considering the mandate of Art. 261 of the Labor Code on the original and exclusive jurisdiction of Voluntary Arbitrators, the Labor Arbiter clearly had no jurisdiction over the case.5

Petitioner (complainant before the Labor Arbiter) appealed the dismissal of his petition to the NLRC. On 28 May 1998 the NLRC set aside the decision of the Labor Arbiter on the ground that the record was clear that petitioner had exhausted his remedy by submitting his case to the Grievance Committee of AMOSUP. Considering however that he could not obtain any settlement he had to ventilate his case before the proper forum, i.e., the Philippine Overseas Employment Administration.6 The NLRC further held that the contested portion in the CBA providing for the intercession of a Voluntary Arbitrator was not binding upon petitioner since both petitioner and private respondents had to agree voluntarily to submit the case before a Voluntary Arbitrator or Panel of Voluntary Arbitrators. This would entail expenses as the Voluntary Arbitrator chosen by the parties had to be paid. Inasmuch however as petitioner chose to file his Complaint originally with POEA, then the Labor Arbiter to whom the case was transferred would have to take cognizance of the case.7

The NLRC then remanded the case to the Labor Arbiter for further proceedings. On 3 July 1998 respondents filed a Motion for Reconsideration which was denied by the NLRC on 23 July 1998.

Thus, private respondents raised the case to the Court of Appeals contending that the provision in the CBA requiring a dispute which remained unresolved by the Grievance Committee to be referred to a Voluntary Arbitration Committee, was mandatory in character in view of the CBA between the parties. They stressed that "since it is a policy of the state to promote voluntary arbitration as a mode of settling labor disputes, it is clear that the public respondent gravely abused its discretion in taking cognizance of a case which was still within the mantle of the Voluntary Arbitration Commitee’s jurisdiction."8

On the other hand, petitioner argued -

(A)s strongly suggested by its very title, referral of cases of this nature to the Voluntary Arbitration Committee is voluntary in nature. Otherwise, the committee would not have been called Voluntary Arbitration Committee but rather, a Compulsory Arbitration Committee. Moreover, if the referral of cases of similar nature to the Voluntary Arbitration Committee would be deemed mandatory by virtue of the provisions in the CBA, the [NLRC] would then be effectively deprived of its jurisdiction to try, hear and decide termination disputes, as provided for under Article 217 of the Labor Code. Lastly, [respondents] ought to be deemed to have waived their right to question the procedure followed by [petitioner], considering that they have already filed their Position Paper before belatedly filing a Motion to Dismiss x x x x 9

But the Court of Appeals ruled in favor of private respondents. It held that the CBA "is the law between the parties and compliance therewith is mandated by the express policy of the law."10 Hence, petitioner should have followed the provision in the CBA requiring the submission of the dispute to the Voluntary Arbitration Committee once the Grievance Committee failed to settle the controversy.11 According to the Court of Appeals, the parties did not have the choice to "volunteer" to refer the dispute to the Voluntary Arbitrator or a Panel of Arbitrators when there was already an agreement requiring them to do so. "Voluntary Arbitration" means that it is binding because of a prior agreement or contract, while "Compulsory Arbitration" is when the law declares the dispute subject to arbitration, regardless of the consent or desire of the parties.12

The Court of Appeals further held that the Labor Code itself enumerates the original and exclusive jurisdiction of the Voluntary Arbitrator or Panel of Voluntary Arbitrators, and prohibits the NLRC and the Regional Directors of

the Department of Labor and Employment (DOLE) from entertaining cases falling under the same.13 Thus, the fact that private respondents filed their Position Paper first before filing their Motion to Dismiss was immaterial and did not operate to confer jurisdiction upon the Labor Arbiter, following the well-settled rule that jurisdiction is determined by law and not by consent or agreement of the parties or by estoppel.14

Finally, the appellate court ruled that a case falling under the jurisdiction of the Labor Arbiter as provided under Art. 217 of the Labor Code may be lodged instead with a Voluntary Arbitrator because the law prefers, or gives primacy, to voluntary arbitration instead of compulsory arbitration.15

Consequently, the contention that the NLRC would be deprived of its jurisdiction to try, hear and decide termination disputes under Art. 217 of the Labor Code, should the instant dispute be referred to the Voluntary Arbitration Committee, is clearly bereft of merit.16 Besides, the Voluntary Arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasi-judicial agency independent of, and apart from, the NLRC since his decisions are not appealable to the latter.17

Celestino Vivero, in his petition for review assailing the Decision of the Court of Appeals, alleges that the appellate court committed grave abuse of discretion in holding that a Voluntary Arbitrator or Panel of Voluntary Arbitrators, and not the Adjudication Branch of the NLRC, has jurisdiction over his complaint for illegal dismissal. He claims that his complaint for illegal dismissal was undeniably a termination dispute and did not, in any way, involve an "interpretation or implementation of collective bargaining agreement" or "interpretation" or "enforcement" of company personnel policies. Thus, it should fall within the original and exclusive jurisdiction of the NLRC and its Labor Arbiter, and not with a Voluntary Arbitrator, in accordance with Art. 217 of the Labor Code.

Private respondents, on the other hand, allege that the case is clearly one "involving the proper interpretation and implementation of the Grievance Procedure found in the Collective Bargaining Agreement (CBA) between the parties"18 because of petitioner’s allegation in his claim/assistance request form submitted to the Union, to wit:

NATURE OF COMPLAINT

3. Illegal Dismissal - Reason: (1) That in this case it was the master of M.V. SUNNY PRINCE Capt. Andersen who created the trouble with physical injury and stating false allegation; (2) That there was no proper procedure of grievance; (3) No proper notice of dismissal.

Is there a Notice of dismissal? _x_ Yes or ____ No

What date? 11 July 1994

Is there a Grievance Procedure observed? ____ Yes or _x_ No19

Private respondents further allege that the fact that petitioner sought the assistance of his Union evidently shows that he himself was convinced that his Complaint was within the ambit of the jurisdiction of the grievance machinery and subsequently by a Panel of Voluntary Arbitrators as provided for in their CBA, and as explicitly mandated by Art. 261 of the Labor Code.20

Thus, the issue is whether the NLRC is deprived of jurisdiction over illegal dismissal cases whenever a CBA provides for grievance machinery and voluntary arbitration proceedings. Or, phrased in another way, does the dismissal of an employee constitute a "grievance between the parties," as defined under the provisions of the CBA, and consequently, within the exclusive original jurisdiction of the Voluntary Arbitrators, thereby rendering the NLRC without jurisdiction to decide the case?

On the original and exclusive jurisdiction of Labor Arbiters, Art. 217 of the Labor Code provides -

Art. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: (1) Unfair labor practice cases; (2) Termination disputes; (3) If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; (4) Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations; (5) Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and, (6) Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos

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(P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements (emphasis supplied).

However, any or all of these cases may, by agreement of the parties, be submitted to a Voluntary Arbitrator or Panel of Voluntary Arbitrators for adjudication. Articles 261 and 262 of the Labor Code provide -

Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. - The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective Bargaining Agreement.

Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks (emphasis supplied).

Private respondents attempt to justify the conferment of jurisdiction over the case on the Voluntary Arbitrator on the ground that the issue involves the proper interpretation and implementation of the Grievance Procedure found in the CBA. They point out that when petitioner sought the assistance of his Union to avail of the grievance machinery, he in effect submitted himself to the procedure set forth in the CBA regarding submission of unresolved grievances to a Voluntary Arbitrator.

The argument is untenable. The case is primarily a termination dispute. It is clear from the claim/assistance request form submitted by petitioner to AMOSUP that he was challenging the legality of his dismissal for lack of cause and lack of due process. The issue of whether there was proper interpretation and implementation of the CBA provisions comes into play only because the grievance procedure provided for in the CBA was not observed after he sought his Union’s assistance in contesting his termination. Thus, the question to be resolved necessarily springs from the primary issue of whether there was a valid termination; without this, then there would be no reason to invoke the need to interpret and implement the CBA provisions properly.

In San Miguel Corp. v. National Labor Relations Commission21 this Court held that the phrase "all other labor disputes" may include termination disputes provided that the agreement between the Union and the Company states "in unequivocal language that [the parties] conform to the submission of termination disputes and unfair labor practices to voluntary arbitration."22

Ergo, it is not sufficient to merely say that parties to the CBA agree on the principle that "all disputes" should first be submitted to a Voluntary Arbitrator. There is a need for an express stipulation in the CBA that illegal termination disputes should be resolved by a Voluntary Arbitrator or Panel of Voluntary Arbitrators, since the same fall within a special class of disputes that are generally within the exclusive original jurisdiction of Labor Arbiters by express provision of law. Absent such express stipulation, the phrase "all disputes" should be construed as limited to the areas of conflict traditionally within the jurisdiction of Voluntary Arbitrators, i.e., disputes relating to contract-interpretation, contract-implementation, or interpretation or enforcement of company personnel policies. Illegal termination disputes - not falling within any of these categories - should then be considered as a special area of interest governed by a specific provision of law.

In this case, however, while the parties did agree to make termination disputes the proper subject of voluntary arbitration, such submission remains discretionary upon the parties. A perusal of the CBA provisions shows that

Sec. 6, Art. XII (Grievance Procedure) of the CBA is the general agreement of the parties to refer grievances, disputes or misunderstandings to a grievance committee, and henceforth, to a voluntary arbitration committee. The requirement of specificity is fulfilled by Art. XVII (Job Security) where the parties agreed -

Sec. 1. Promotion, demotion, suspension, dismissal or disciplinary action of the seaman shall be left to the discretion of the Master, upon consultation with the Company and notification to the Union. This notwithstanding, any and all disciplinary action taken on board the vessel shall be provided for in Appendix "B" of this Agreement x x x x 23

Sec. 4. x x x x Transfer, lay-off or discipline of seamen for incompetence, inefficiency, neglect of work, bad behavior, perpetration of crime, drunkenness, insubordination, desertion, violation of x x x regulations of any port touched by the Company’s vessel/s and other just and proper causes shall be at Master’s discretion x x x in the high seas or foreign ports. The Master shall refer the case/dispute upon reaching port and if not satisfactorily settled, the case/dispute may be referred to the grievance machinery or procedure hereinafter provided (emphasis supplied).24

The use of the word "may" shows the intention of the parties to reserve the right to submit the illegal termination dispute to the jurisdiction of the Labor Arbiter, rather than to a Voluntary Arbitrator. Petitioner validly exercised his option to submit his case to a Labor Arbiter when he filed his Complaint before the proper government agency.

Private respondents invoke Navarro III v. Damasco25 wherein the Court held that "it is the policy of the state to promote voluntary arbitration as a mode of settling disputes."26 It should be noted, however, that in Navarro III all the parties voluntarily submitted to the jurisdiction of the Voluntary Arbitrator when they filed their respective position papers and submitted documentary evidence before him. Furthermore, they manifested during the initial conference that they were not questioning the authority of the Voluntary Arbitrator.27 In the case at bar, the dispute was never brought to a Voluntary Arbitrator for resolution; in fact, petitioner precisely requested the Court to recognize the jurisdiction of the Labor Arbiter over the case. The Court had held in San Miguel Corp. v. NLRC28 that neither officials nor tribunals can assume jurisdiction in the absence of an express legal conferment. In the same manner, petitioner cannot arrogate into the powers of Voluntary Arbitrators the original and exclusive jurisdiction of Labor Arbiters over unfair labor practices, termination disputes, and claims for damages, in the absence of an express agreement between the parties in order for Art. 262 of the Labor Code to apply in the case at bar. In other words, the Court of Appeals is correct in holding that Voluntary Arbitration is mandatory in character if there is a specific agreement between the parties to that effect. It must be stressed however that, in the case at bar, the use of the word "may" shows the intention of the parties to reserve the right of recourse to Labor Arbiters.

The CBA clarifies the proper procedure to be followed in situations where the parties expressly stipulate to submit termination disputes to the jurisdiction of a Voluntary Arbitrator or Panel of Voluntary Arbitrators. For when the parties have validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly observed.1âwphi1 Non-compliance therewith cannot be excused, as petitioner suggests, by the fact that he is not well-versed with the "fine prints" of the CBA. It was his responsibility to find out, through his Union, what the provisions of the CBA were and how they could affect his rights. As provided in Art. 241, par. (p), of the Labor Code -

(p) It shall be the duty of any labor organization and its officers to inform its members on the provisions of its constitution and by-laws, collective bargaining agreement, the prevailing labor relations system and all their rights and obligations under existing labor laws.

In fact, any violation of the rights and conditions of union membership is a "ground for cancellation of union registration or expulsion of officer from office, whichever is appropriate. At least thirty percent (30%) of all the members of a union or any member or members especially concerned may report such violation to the Bureau [of Labor Relations] x x x x"29

It may be observed that under Policy Instruction No. 56 of the Secretary of Labor, dated 6 April 1993, "Clarifying the Jurisdiction Between Voluntary Arbitrators and Labor Arbiters Over Termination Cases and Providing Guidelines for the Referral of Said Cases Originally Filed with the NLRC to the NCMB," termination cases arising in or resulting from the interpretation and implementation of collective bargaining agreements and interpretation and enforcement of company personnel policies which were initially processed at the various steps of the plant-level Grievance Procedures under the parties' collective bargaining agreements fall within the original and exclusive jurisdiction of the voluntary arbitrator pursuant to Art. 217 (c) and Art. 261 of the Labor Code; and, if filed before the Labor Arbiter, these cases shall be dismissed by the Labor Arbiter for lack of jurisdiction and referred to the concerned NCMB Regional Branch for appropriate action towards an

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expeditious selection by the parties of a Voluntary Arbitrator or Panel of Arbitrators based on the procedures agreed upon in the CBA.

As earlier stated, the instant case is a termination dispute falling under the original and exclusive jurisdiction of the Labor Arbiter, and does not specifically involve the application, implementation or enforcement of company personnel policies contemplated in Policy Instruction No. 56. Consequently, Policy Instruction No. 56 does not apply in the case at bar. In any case, private respondents never invoked the application of Policy Instruction No. 56 in their Position Papers, neither did they raise the question in their Motion to Dismiss which they filed nine (9) months after the filing of their Position Papers. At this late stage of the proceedings, it would not serve the ends of justice if this case is referred back to a Voluntary Arbitrator considering that both the AMOSUP and private respondents have submitted to the jurisdiction of the Labor Arbiter by filing their respective Position Papers and ignoring the grievance procedure set forth in their CBA.

After the grievance proceedings have failed to bring about a resolution, AMOSUP, as agent of petitioner, should have informed him of his option to settle the case through voluntary arbitration. Private respondents, on their part, should have timely invoked the provision of their CBA requiring the referral of their unresolved disputes to a Voluntary Arbitrator once it became apparent that the grievance machinery failed to resolve it prior to the filing of the case before the proper tribunal. The private respondents should not have waited for nine (9) months from the filing of their Position Paper with the POEA before it moved to dismiss the case purportedly for lack of jurisdiction. As it is, private respondents are deemed to have waived their right to question the procedure followed by petitioner, assuming that they have the right to do so. Under their CBA, both Union and respondent companies are responsible for selecting an impartial arbitrator or for convening an arbitration committee;30 yet, it is apparent that neither made a move towards this end. Consequently, petitioner should not be deprived of his legitimate recourse because of the refusal of both Union and respondent companies to follow the grievance procedure.

WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and the case is remanded to the Labor Arbiter to dispose of the case with dispatch until terminated considering the undue delay already incurred.

SO ORDERED.

SECOND DIVISION

G.R. No. 169632 March 28, 2006

UNIVERSITY OF SAN AGUSTIN EMPLOYEES’ UNION-FFW (USAEU-FFW), and individual union officers THEODORE NEIL LASOLA, MERLYN JARA, JULIUS MARIO, FLAVIANO MANALO, RENE CABALUM, HERMINIGILDO CALZADO, MA. LUZ CALZADO, RAY ANTHONY ZUÑIGA, RIZALENE VILLANUEVA, RUDANTE DOLAR, ROVER JOHN TAVARRO, RENA LETE, ALFREDO GORIONA, RAMON VACANTE and MAXIMO MONTERO, Petitioners, vs.THE COURT OF APPEALS and UNIVERSITY OF SAN AGUSTIN, Respondents.

D E C I S I O N

GARCIA, J.:

By this petition for review on certiorari, petitioners University of San Agustin Employees’ Union-FFW (Union) and its officers seek to reverse and set aside the Partially Amended Decision1 of the Court of Appeals (CA) dated August 23, 2005 in CA-G.R.SP No. 85317, reversing the Decision and Resolution of the Secretary of Labor and Employment (SOLE) dated April 6, 2004 and May 24, 2004, respectively. The assailed CA decision declared the strike conducted by the petitioner Union, illegal, and consequently, the co-petitioner union officers were deemed to have lost their employment status. It further vacated the SOLE’s resolution of the economic issues involved in the case and directed the parties to resort to voluntary arbitration in accordance with the grievance machinery as embodied in their existing collective bargaining agreement (CBA).

The facts:

Respondent University of San Agustin (University) is a non-stock, non-profit educational institution which offers both basic and higher education courses. Petitioner Union is the duly recognized collective bargaining unit for teaching and non-teaching rank-and-file personnel of the University while the other individual petitioners are its officers.

On July 27, 2000, the parties entered into a 5-year CBA2 which, among other things, provided that the economic provisions thereof shall have a period of three (3) years or up to 2003. Complementary to said provisions is Section 3

of Article VIII of the CBA providing for salary increases for School Years (SY) 2000-2003, such increase to take the form of either a lump sum or a percentage of the tuition incremental proceeds (TIP).

The CBA contained a "no strike, no lockout" clause and a grievance machinery procedure to resolve management-labor disputes, including a voluntary arbitration mechanism should the grievance committee fail to satisfactorily settle such disputes.

Pursuant to the CBA, the parties commenced negotiations for the economic provisions for the remaining two years, i.e., SY2003-2004 and SY2004-2005. During the negotiations, the parties could not agree on the manner of computing the TIP, thus the need to undergo preventive mediation proceedings before the National Conciliation and Mediation Board (NCMB), Iloilo City.

The impasse respecting the computation of TIP was not resolved. This development prompted the Union to declare a bargaining deadlock grounded on the parties’ failure to arrive at a mutually acceptable position on the manner of computing the seventy percent (70%) of the net TIP to be allotted for salary and other benefits for SY2003-2004 and SY2004-2005.

Thereafter, the Union filed a Notice of Strike before the NCMB which was expectedly opposed by the University in a Motion to Strike Out Notice of Strike and to Refer the Dispute to Voluntary Arbitration,3 invoking the "No strike, no lockout" clause4 of the parties’ CBA. The NCMB, however, failed to resolve the University’s motion.

The parties then made a joint request for the SOLE to assume jurisdiction over the dispute. The labor dispute was docketed as OS-AJ-0032-2003. On September 18, 2003, an Assumption of Jurisdiction Order5 (AJO) was issued by the SOLE, thus:

WHEREFORE, this Office hereby ASSUMES JURISDICTION over the labor dispute at the UNIVERSITY OF SAN AGUSTIN, pursuant to Article 263(g) of the Labor Code, as amended.

ACCORDINGLY, any strike or lockout whether actual or intended, is hereby strictly enjoined and the parties are directed to cease and desist from committing any act that might exacerbate the situation.

Finally, to expedite resolution of the dispute, the parties are directed to submit their respective position papers and evidence to this Office within TEN (10) calendar days from receipt hereof, with proof of service to the other party. REPLY thereto shall be submitted with proof of service to the other party, within five (5) calendar days from receipt of the other party’s POSITION PAPER.

On September 19, 2003, the Union staged a strike. At 6:45 a.m. of the same day, Sheriffs Francisco L. Reyes and Rocky M. Francisco had arrived at San Agustin University to serve the AJO on the Union. At the main entrance of the University, the sheriffs saw some elements of the Union at the early stages of the strike. There they met Merlyn Jara, the Union’s vice president, upon whom the sheriffs tried to serve the AJO, but who, after reading it, refused to receive the same, citing Union Board Resolution No. 3 naming the union president as the only person authorized to do so. The sheriffs explained to Ms. Jara that even if she refused to acknowledge receipt of the AJO, the same would be considered served. Sheriff Reyes further informed the Union that once the sheriffs post the AJO, it would be considered received by the Union.6

At approximately 8:45 a.m., the sheriffs posted copies of the AJO at the main gate of San Agustin University, at the main entrance of its buildings and at the Union’s office inside the campus. At 9:20 a.m., the sheriffs served the AJO on the University.

Notwithstanding the sheriffs’ advice as to the legal implication of the Union’s refusal to be served with the AJO, the Union went ahead with the strike.

At around 5:25 p.m., the Union president arrived at the respondent University’s premises and received the AJO from the sheriffs.

On September 24, 2003, the University filed a Petition to Declare Illegal Strike and Loss of Employment Status7 at the National Labor Relations Commission (NLRC) Sub-regional Arbitration Branch No. VI in Iloilo City. The case was docketed as NLRC SRAB Case No. 06-09-50370-03, which the University later on requested to be consolidated with OS-AJ-0032-2003 pending before the SOLE. The motion for consolidation was granted by the Labor Arbiter in an Order dated November 7, 2003.8

On April 6, 2004, the SOLE rendered a Decision9 resolving the various economic issues over which the parties had a deadlock in the collective

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bargaining, including the issue of legality/illegality of the September 19, 2003 strike. Dispositively, the decision reads:

WHEREFORE, the parties are hereby directed to conclude a memorandum of agreement embodying the foregoing dispositions to be appended to the current CBA. The petition to declare the strike illegal is hereby DISMISSED for want of legal and factual basis. Consequently, there is no basis whatsoever to declare loss of employment status on the part of any of the striking union members.

SO ORDERED.

The University moved for a reconsideration of the said decision but its motion was denied by the SOLE in a Resolution10 of May 24, 2004.

In time, the University elevated the matter to the CA by way of a petition for certiorari, thereat docketed as CA-G.R. SP No. 85317.

On March 4, 2005, the CA rendered a Decision11 partially granting the University’s petition. While the CA affirmed the rest of the SOLE’s decision on the economic issues, particularly the formula to be used in computing the share of the employees in the tuition fee increase for Academic Year 2003-2004, it, however, reversed the SOLE’s ruling as to the legality of the September 19, 2003 strike, to wit:

WHEREFORE, the foregoing premises considered, the petition is hereby partially GRANTED. The assailed Decision of the public respondent SOLE is hereby MODIFIED to the effect that the strike held by the [petitioners] on September 19, 2003 is illegal. Hence, the union officers are deemed to have lost their employment status.

The assailed Decision however, is AFFIRMED in all other respects.

SO ORDERED. (Word in bracket added).

Both parties filed their respective motions for partial reconsideration of the aforestated decision, the University excepting from the CA’s decision insofar as the latter affirmed the SOLE’s resolution of the economic issues. On the other hand, the Union sought reconsideration of the CA’s finding of illegality of the September 19, 2003 strike.

In the meantime, on April 7, 2005, the University served notices of termination to the union officers who were declared by the CA as deemed to have lost their employment status.

On the same day – April 7, 2005 – in response to the University’s action, the Union filed with the NCMB a second notice of strike, this time on ground of alleged union busting.

On April 22, 2005, the parties again took initial steps to negotiate the new CBA but said attempts proved futile. Hence, on April 25, 2005, the Union went on strike. In reaction, the University notified the Union that it was pulling out of the negotiations because of the strike.

On August 23, 2005, the CA, acting on the parties’ respective motions for reconsideration, promulgated the herein challenged Partially Amended Decision.12 Finding merit in the respondent University’s motion for partial reconsideration, the CA ruled that the SOLE abused its discretion in resolving the economic issues on the ground that said issues were proper subject of the grievance machinery as embodied in the parties’ CBA. Consequently, the CA directed the parties to refer the economic issues of the CBA to voluntary arbitration. The CA, however, stood firm in its finding that the strike conducted by the petitioner Union was illegal and its officers were deemed to have lost their employment status. Dispositively, the decision reads:

WHEREFORE, in view of all the foregoing premises, an amended judgment is hereby rendered by us GRANTING the petition for certiorari, SETTING ASIDE our original decision in this case which was promulgated on March 4, 2005, SETTING ASIDE also the Decision rendered by the public respondent SOLE on April 6, 2004 and DECLARING the strike held on September 19, 2003 by the [petitioner] Union as ILLEGAL. The union officers are therefore deemed to have lost their employment status.

The parties are hereby DIRECTED to refer the economic issues of the CBA to VOLUNTARY ARBITRATION, where the computation and determination of the TIP shall be in the manner directed in the body of this Decision.

SO ORDERED.

On September 20, 2005, the Union and its dismissed officers filed the instant petition raising the following basic issues:

I

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECLARING ILLEGAL THE STRIKE OF THE PETITIONERS ON SEPTEMBER 19, 2003 AND IN DECLARING THE UNION OFFICERS AS DEEMED TO HAVE LOST THEIR EMPLOYMENT STATUS FOR THE ALLEGED FAILURE OF THE PETITIONERS TO IMMEDIATELY RETURN TO THEIR WORK WHEN THE ASSUMPTION OF JURISDICTION ORDER WAS DEEMED SERVED UPON THEM BY THE DOLE SHERIFFS AS OF 8:45 IN THE MORNING OF THAT DATE, WHEN, IN CASES WHERE THE STRIKE HAS ALREADY COMMENCED, THE SECRETARY OF LABOR AND EMPLOYMENT (SOLE) ALWAYS GIVES TWENTY-FOUR HOURS TO THE STRIKING WORKERS WITHIN WHICH TO RETURN TO WORK, AND TAKING INTO CONSIDERATION THE TOTALITY OF THE CONDUCT OF THE STRIKERS, AS WHAT THE SOLE HAD DONE, THE PETITIONERS HAVE NOT MANIFESTED NAKED DISPLAY OF RECALCITRANCE NOR SHOWN BAD FAITH TO THE RESPONDENT UNIVERSITY.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DIRECTING TO REFER THE ECONOMIC ISSUES OF THE LABOR DISPUTE TO VOLUNTARY ARBITRATION WHEN IT IS SETTLED BY JURISPRUDENCE THAT "THE LABOR SECRETARY’S AUTHORITY TO ASSUME JURISDICTION OVER A LABOR DISPUTE MUST INCLUDE AND EXTEND TO ALL QUESTIONS AND CONTROVERSIES ARISING THEREFROM, EVEN INCLUDING CASES OVER WHICH THE LABOR ARBITER HAS EXCLUSIVE JURISDICTION."

Prefatorily, we restate the time-honored principle that in petitions for review under Rule 45 of the Rules of Court, only questions of law may be raised. It is not our function to analyze or weigh all over again evidence already considered in the proceedings below, our jurisdiction being limited to reviewing only errors of law that may have been committed by the lower court.13 The resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect. A question of law which we may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.14

Here, however, the findings of fact of the CA are not in accord with the conclusions made by the SOLE regarding the legality of the subject strike. Consequently, we are compelled to make our own assessment of the evidence on record insofar as the strike issue is concerned.

We find the CA’s conclusions to be well supported by evidence, particularly the Sheriff’s Report.15 As we see it, the SOLE was remiss in disregarding the sheriff’s report. It bears stressing that said report is an official statement by the sheriff of his acts under the writs and processes issued by the court, in this case, the SOLE, in obedience to its directive and in conformity with law. In the absence of contrary evidence, a presumption exists that a sheriff has regularly performed his official duty. To controvert the presumption arising therefrom, there must be clear and convincing evidence.

The sheriff’s report unequivocally stated the union officers’ refusal to receive the AJO when served on them in the morning of September 19, 2003. The September 16, 2003 Union’s Board Resolution No. 3 which gave sole authority to its president to receive the AJO must not be allowed to circumvent the standard operating procedure of the Office of the Undersecretary for Labor Relations which considers AJOs as duly served upon posting of copies thereof on designated places. The procedure was adopted in order to prevent the thwarting of AJOs by the simple expedient of refusal of the parties to receive the same, as in this case. The Union cannot feign ignorance of this procedure because its counsel Atty. Mae M. Gellecanao-Laserna was a former Regional Director of the Department of Labor and Employment (DOLE).

To be sure, the Union was not able to sufficiently dispute the truth of the narration of facts contained in the sheriff’s report. Hence, it was not unreasonable for the CA to conclude that there was a deliberate intent by the Union and its officers to disregard the AJO and proceed with their strike, which, by their act of disregarding said AJO made said strike illegal. The AJO was issued by the SOLE pursuant to Article 263(g) of the Labor Code, which reads:

Art. 263. Strikes, picketing, and lockouts. - … (g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest, the Secretary of Labor and Employment may assume jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory arbitration. Such assumption or certification shall have the effect of automatically enjoining the intended or impending strike or lockout as specified in the assumption or certification

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order. If one has already taken place at the time of assumption or certification, all striking or locked out employees shall immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike or lockout. The Secretary of Labor and Employment or the Commission may seek the assistance of law enforcement agencies to ensure compliance with this provision as well as with such orders as he may issue to enforce the same. (Emphasis supplied).

Conclusively, when the SOLE assumes jurisdiction over a labor dispute in an industry indispensable to national interest or certifies the same to the NLRC for compulsory arbitration, such assumption or certification shall have the effect of automatically enjoining the intended or impending strike or lockout. Moreover, if one had already taken place, all striking workers shall immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike or lockout. In Trans-Asia Shipping Lines, Inc., et al. vs. CA, et al.,16 the Court declared that when the Secretary exercises these powers, he is granted great breadth of discretion in order to find a solution to a labor dispute. The most obvious of these powers is the automatic enjoining of an impending strike or lockout or the lifting thereof if one has already taken place. Assumption of jurisdiction over a labor dispute, or the certification of the same to the NLRC for compulsory arbitration, always co-exists with an order for workers to return to work immediately and for employers to readmit all workers under the same terms and conditions prevailing before the strike or lockout.

In this case, the AJO was served at 8:45 a.m. of September 19, 2003. The strikers then should have returned to work immediately. However, they persisted with their refusal to receive the AJO and waited for their union president to receive the same at 5:25 p.m. The Union’s defiance of the AJO was evident in the sheriff’s report:

We went back to the main gate of the University and there NCMB Director Dadivas introduced us to the Union lawyer, Atty. Mae Lacerna a former DOLE Regional Director. Atty. Lacerna however refused to be officially served the Order again pointing to Board Resolution No. 3 passed by the Union officers. Atty. Lacerna then informed the undersigned Sheriffs that the Union president will accept the Order at around 5:00 o’clock in the afternoon. Atty. Lacerna told the undersigned Sheriff that only when the Union president receives the Order at 5:00 p.m. shall the Union recognize the Secretary of Labor as having assumed jurisdiction over the labor dispute.17

Thus, we see no reversible error in the CA’s finding that the strike of September 19, 2003 was illegal. Consequently, the Union officers were deemed to have lost their employment status for having knowingly participated in said illegal act.

The Union’s assertion of a well settled practice that the SOLE always gives twenty-four hours (24) to the striking workers within which to return to work, offers no refuge. Aside from the fact that this alleged well settled practice has no basis in law and jurisprudence, Article 263(g) of the Labor Code, supra, is explicit that if a strike has already taken place at the time of assumption of jurisdiction or certification, all striking or locked out employees shall immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike or lock-out. This is compounded further by this Court’s rulings which have never interpreted the phrase "immediately return to work" found in Article 263(g) to mean "within twenty four (24) hours." On the other hand, the tenor of these ponencias 18

indicates an almost instantaneous or automatic compliance for a striker to return to work once an AJO has been duly served.

We likewise find logic in the CA’s directive for the herein parties to proceed with voluntary arbitration as provided in their CBA. As we see it, the issue as to the economic benefits, which included the issue on the formula in computing the TIP share of the employees, is one that arises from the interpretation or implementation of the CBA. To be sure, the parties’ CBA provides for a grievance machinery to resolve any "complaint or dissatisfaction arising from the interpretation or implementation of the CBA and those arising from the interpretation or enforcement of company personnel policies."19 Moreover, the same CBA provides that should the grievance machinery fail to resolve the grievance or dispute, the same shall be "referred to a Voluntary Arbitrator for arbitration and final resolution." 20

However, through no fault of the University these processes were not exhausted. It must be recalled that while undergoing preventive mediation proceedings before the NCMB, the Union declared a bargaining deadlock, filed a notice of strike and thereafter, went on strike. The University filed a Motion to Strike Out Notice of Strike and to Refer the Dispute to Voluntary Arbitration21 but the motion was not acted upon by the NCMB. As borne by the records, the University has been consistent in its position that the Union must exhaust the grievance machinery provisions of the CBA which ends in voluntary arbitration.

The University’s stance is consistent with Articles 261 and 262 of the Labor Code, as amended which respectively provide:

ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. - The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the collective bargaining agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a collective bargaining agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the collective bargaining agreement. For purposes of this Article, gross violations of collective bargaining agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators and shall immediately dispose and refer the same to the grievance machinery or voluntary arbitration provided in the collective bargaining agreement.

ART. 262. Jurisdiction over other labor disputes. - The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

The grievance machinery and no strike, no lockout22 provisions of the CBA forged by the University and the Union are founded on Articles 261 and 262 quoted above. The parties agreed that practically all disputes – including bargaining deadlocks – shall be referred to the grievance machinery which ends in voluntary arbitration. Moreover, no strike or no lockout shall ensue while the matter is being resolved.

The University filed a Motion to Strike Out Notice of Strike and Refer the Dispute to Voluntary Arbitration23 precisely to call the attention of the NCMB and the Union to the fact that the CBA provides for a grievance machinery and the parties’ obligation to exhaust and honor said mechanism. Accordingly, the NCMB should have directed the Union to honor its agreement with the University to exhaust administrative grievance measures and bring the alleged deadlock to voluntary arbitration. Unfortunately, the NCMB did not resolve the University’s motion thus paving the way for the strike on September 19, 2003 and the deliberate circumvention of the CBA’s grievance machinery and voluntary arbitration provisions.

As we see it, the failure or refusal of the NCMB and thereafter the SOLE to recognize, honor and enforce the grievance machinery and voluntary arbitration provisions of the parties’ CBA unwittingly rendered said provisions, as well as, Articles 261 and 262 of the Labor Code, useless and inoperative. As here, a union can easily circumvent the grievance machinery and a previous agreement to resolve differences or conflicts through voluntary arbitration through the simple expedient of filing a notice of strike. On the other hand, management can avoid the grievance machinery and voluntary arbitration provisions of its CBA by simply filing a notice of lockout.

In Liberal Labor Union vs. Philippine Can Company,24 the Court viewed that the main purpose of management and labor in adopting a procedure in the settlement of their disputes is to prevent a strike or lockout. Thus, this procedure must be followed in its entirety if it is to achieve its objective. Accordingly, the Court in said case held:

The authorities are numerous which hold that strikes held in violation of the terms contained in a collective bargaining agreement are illegal, specially when they provide for conclusive arbitration clauses. These agreements must be strictly adhered to and respected if their ends have to be achieved.

It is noteworthy that in Liberal, management refused to submit names in connection with the formation of the grievance committee. Yet, the Court ruled in that case that labor still had no right to declare a strike, for its duty is to exhaust all available means within its reach before resorting to force. In the case at bench, the University, in filing its Motion to Strike Out Notice of Strike and to Refer the Dispute to Voluntary Arbitration before the NCMB, was insisting that the Union abide by the parties’ CBA’s grievance machinery and voluntary arbitration provisions. With all the more reasons then should the Union be directed to proceed to voluntary arbitration.

We are not unmindful of the Court’s ruling in International Pharmaceuticals, Inc. vs. Secretary of Labor, et al.,25 that the SOLE’ s jurisdiction over labor disputes must include and extend to all questions and controversies arising therefrom, including cases over which the Labor Arbiter has exclusive jurisdiction. However, we are inclined to treat the present case as an exception to that holding. For, the NCMB’s inaction on the University’s motion to refer the dispute to voluntary arbitration veritably forced the hand

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of the University to seek and accordingly submit to the jurisdiction of the SOLE. Considering that the CBA contained a no strike, no lockout and grievance machinery and voluntary arbitration clauses, the NCMB, under its very own Manual of Procedures in the Settlement and Disposition of Conciliation and Preventive Mediation Cases, should have declared as not duly filed the Union’s Notice of Strike and thereafter, should have referred the labor dispute to voluntary arbitration pursuant to Article 261, supra, of the Labor Code. For sure, Section 6(c)(i), Rule VI, of the NCMB’s Manual specifically provides:

Section 6. Action on non-strikeable issues - A strike or lockout notice anchored on grounds involving (1) inter-union or intra-union disputes (2) violation of labor standard laws (3) pending cases at the DOLE Regional Offices, BLR, NLRC and its appropriate Regional Branches, NWPC and its Regional Wage Boards, Office of the Secretary, Voluntary Arbitrator, Court of Appeals and the Supreme Court (4) execution and enforcement of final orders, decisions, resolutions or awards of no. (3) above shall be considered not duly filed and the party so filing shall be notified of such finding in writing by the Regional Branch Director. On his part, the Conciliator-Mediator shall convince the party concerned to voluntarily withdraw the notice without prejudice to further conciliation proceedings. Otherwise, he shall recommend to the Regional Branch Director that the notice be treated as a preventive mediation case.

xxx xxx xxx

xxx xxx xxx

c. Action on Notices Involving Issues Cognizable by the Grievance Machinery, Voluntary Arbitration or the National Labor Relations Commission.

i) Disputes arising from the interpretation or implementation of a collective bargaining agreement or from the interpretation or enforcement of company personnel policies shall be referred to the grievance machinery as provided for under Art. 261 of the Labor Code xxx (Emphasis supplied).

As quoted earlier, Article 261 of the Labor Code mentioned in the aforequoted Section 6(c)(i), Rule VI of the NCMB Manual refers to the jurisdiction of voluntary arbitrator or panel of voluntary arbitrators "to hear and decide all unresolved grievances arising from the interpretation or implementation of the CBA and those arising from the interpretation or enforcement of company personnel policies," hence "violations of a CBA, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the CBA." The same Article further states that the "Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment (DOLE) shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the CBA."

As it were, Article 261 of the Labor Code, in relation to Section 6(c)(i), Rule VI of the NCMB Manual, provides the manner in which the NCMB must resolve notices of strike that involve non-strikeable issues. And whether the notice of strike or lockout involves inter-union or intra-union disputes, violation of labor standards laws or issues cognizable by the grievance machinery, voluntary arbitration or the NLRC, the initial step is for the NCMB to consider the notice of strike as not duly filed.

Centering on disputes arising from the interpretation or implementation of a CBA or from the interpretation or enforcement of company personnel policies, following Section 6(c)(i), Rule VI, supra, of the NCMB Manual, after the declaration that the notice of strike is "not duly filed," the labor dispute is to be referred to voluntary arbitration pursuant to Article 261, supra, of the Labor Code.

In short, the peculiar facts of the instant case show that the University was deprived of a remedy that would have enjoined the Union strike and was left without any recourse except to invoke the jurisdiction of the SOLE.

Following Liberal, this Court will not allow the no strike, no lockout, grievance machinery and voluntary arbitration clauses found in CBAs to be circumvented by the simple expedient of filing of a notice of strike or lockout. A similar circumvention made possible by the inaction of the NCMB on the University’s Motion to Strike Out Notice of Strike and to Refer the Dispute to Voluntary Arbitration will not be countenanced. To rule otherwise would render meaningless Articles 261 and 262 of the Labor Code, as amended, as well as the voluntary arbitration clauses found in CBAs.

All told, we find no reversible error committed by the CA in rendering its assailed decision.

WHEREFORE, the petition is DENIED. The Partially Amended Decision dated August 23, 2005 of the Court of Appeals in CA-G.R. SP No. 85317 is AFFIRMED.

SO ORDERED.

THIRD DIVISION

G.R. No. 169704 November 17, 2010

ALBERT TENG, doing business under the firm name ALBERT TENG FISH TRADING, and EMILIA TENG-CHUA, Petitioners, vs.ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO P. LAYESE, HERNAN Y. BADILLES and ROGER S. PAHAGAC, Respondents.

D E C I S I O N

BRION, J.:

Before this Court is a Petition for Review on Certiorari1 filed by petitioners Albert Teng Fish Trading, its owner Albert Teng, and its manager Emilia Teng-Chua, to reverse and set aside the September 21, 2004 decision2 and the September 1, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 78783. The CA reversed the decision of the Voluntary Arbitrator (VA), National Conciliation and Mediation Board (NCMB), Region IX, Zamboanga City, and declared that there exists an employer-employee relationship between Teng and respondents Hernan Badilles, Orlando Layese, Eddie Nipa, Alfredo Pahagac, and Roger Pahagac (collectively, respondent workers). It also found that Teng illegally dismissed the respondent workers from their employment.

BACKGROUND FACTS

Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose, owns boats (basnig), equipment, and other fishing paraphernalia. As owner of the business, Teng claims that he customarily enters into joint venture agreements with master fishermen (maestros) who are skilled and are experts in deep sea fishing; they take charge of the management of each fishing venture, including the hiring of the members of its complement. He avers that the maestros hired the respondent workers as checkers to determine the volume of the fish caught in every fishing voyage.4

On February 20, 2003, the respondent workers filed a complaint for illegal dismissal against Albert Teng Fish Trading, Teng, and Chua before the NCMB, Region Branch No. IX, Zamboanga City.

The respondent workers alleged that Teng hired them, without any written employment contract, to serve as his "eyes and ears" aboard the fishing boats; to classify the fish caught by bañera; to report to Teng via radio communication the classes and volume of each catch; to receive instructions from him as to where and when to unload the catch; to prepare the list of the provisions requested by the maestro and the mechanic for his approval; and, to procure the items as approved by him.5 They also claimed that they received regular monthly salaries, 13th month pay, Christmas bonus, and incentives in the form of shares in the total volume of fish caught.

They asserted that sometime in September 2002, Teng expressed his doubts on the correct volume of fish caught in every fishing voyage.6 In December 2002, Teng informed them that their services had been terminated.7

In his defense, Teng maintained that he did not have any hand in hiring the respondent workers; the maestros, rather than he, invited them to join the venture. According to him, his role was clearly limited to the provision of the necessary capital, tools and equipment, consisting of basnig, gears, fuel, food, and other supplies.8

The VA rendered a decision9 in Teng’s favor and declared that no employer-employee relationship existed between Teng and the respondent workers. The dispositive portion of the VA’s May 30, 2003 decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant complaint for lack of merit.

It follows also, that all other claims are likewise dismissed for lack of merit.10

The respondent workers received the VA’s decision on June 12, 2003.11 They filed a motion for reconsideration, which was denied in an order dated June 27, 2003 and which they received on July 8, 2003.12 The VA reasoned out that Section 6, Rule VII of the 1989 Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings (1989 Procedural Guidelines) does not

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provide the remedy of a motion for reconsideration to the party adversely affected by the VA’s order or decision.13 The order states:

Under Executive Order No. 126, as amended by Executive Order No. 251, and in order to implement Article 260-262 (b) of the Labor Code, as amended by R.A. No. 6715, otherwise known as the Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings, inter alia:

An award or the Decision of the Voluntary Arbitrators becomes final and executory after ten (10) calendar days from receipt of copies of the award or decision by the parties (Sec. 6, Rule VII).

Moreover, the above-mentioned guidelines do not provide the remedy of a motion for reconsideration to the party adversely affected by the order or decision of voluntary arbitrators.14

On July 21, 2003, the respondent-workers elevated the case to the CA. In its decision of September 21, 2004, the CA reversed the VA’s decision after finding sufficient evidence showing the existence of employer-employee relationship:

WHEREFORE, premises considered, the petition is granted. The questioned decision of the Voluntary Arbitrator dated May 30, 2003 is hereby REVERSED and SET ASIDE by ordering private respondent to pay separation pay with backwages and other monetary benefits. For this purpose, the case is REMANDED to the Voluntary Arbitrator for the computation of petitioner’s backwages and other monetary benefits. No pronouncement as to costs.

SO ORDERED.15

Teng moved to reconsider the CA’s decision, but the CA denied the motion in its resolution of September 1, 2005.16 He, thereafter, filed the present Petition for Review on Certiorari under Rule 45 of the Rules of Court, claiming that:

a. the VA’s decision is not subject to a motion for reconsideration; and

b. no employer-employee relationship existed between Teng and the respondent workers.

Teng contends that the VA’s decision is not subject to a motion for reconsideration in the absence of any specific provision allowing this recourse under Article 262-A of the Labor Code.17 He cites the 1989 Procedural Guidelines, which, as the VA declared, does not provide the remedy of a motion for reconsideration.18 He claims that after the lapse of 10 days from its receipt, the VA’s decision becomes final and executory unless an appeal is taken.19 He argues that when the respondent workers received the VA’s decision on June 12, 2003,20 they had 10 days, or until June 22, 2003, to file an appeal. As the respondent workers opted instead to move for reconsideration, the 10-day period to appeal continued to run; thus, the VA’s decision had already become final and executory by the time they assailed it before the CA on July 21, 2003.21

Teng further insists that the VA was correct in ruling that there was no employer-employee relationship between him and the respondent workers. What he entered into was a joint venture agreement with the maestros, where Teng’s role was only to provide basnig, gears, nets, and other tools and equipment for every fishing voyage.22

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

Article 262-A of the Labor Code does not prohibit the filing of a motion for reconsideration.

On March 21, 1989, Republic Act No. 671523 took effect, amending, among others, Article 263 of the Labor Code which was originally worded as:

Art. 263 x x x Voluntary arbitration awards or decisions shall be final, unappealable, and executory.

As amended, Article 263 is now Article 262-A, which states:

Art. 262-A. x x x [T]he award or decision x x x shall contain the facts and the law on which it is based. It shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties.

Notably, Article 262-A deleted the word "unappealable" from Article 263. The deliberate selection of the language in the amendatory act differing from that of the original act indicates that the legislature intended a change in the law, and the court should endeavor to give effect to such intent.24 We recognized the intent of the change of phraseology in Imperial Textile Mills, Inc. v. Sampang,25 where we ruled that:

It is true that the present rule [Art. 262-A] makes the voluntary arbitration award final and executory after ten calendar days from receipt of the copy of the award or decision by the parties. Presumably, the decision may still be reconsidered by the Voluntary Arbitrator on the basis of a motion for reconsideration duly filed during that period.26

In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-Balais v. Coca-Cola Bottlers Philippines, Inc.,27 we likewise ruled that the VA’s decision may still be reconsidered on the basis of a motion for reconsideration seasonably filed within 10 days from receipt thereof.28 The seasonable filing of a motion for reconsideration is a mandatory requirement to forestall the finality of such decision.29 We further cited the 1989 Procedural Guidelines which implemented Article 262-A, viz:30

[U]nder Section 6, Rule VII of the same guidelines implementing Article 262-A of the Labor Code, this Decision, as a matter of course, would become final and executory after ten (10) calendar days from receipt of copies of the decision by the parties x x x unless, in the meantime, a motion for reconsideration or a petition for review to the Court of Appeals under Rule 43 of the Rules of Court is filed within the same 10-day period. 31

These rulings fully establish that the absence of a categorical language in Article 262-A does not preclude the filing of a motion for reconsideration of the VA’s decision within the 10-day period. Teng’s allegation that the VA’s decision had become final and executory by the time the respondent workers filed an appeal with the CA thus fails. We consequently rule that the respondent workers seasonably filed a motion for reconsideration of the VA’s judgment, and the VA erred in denying the motion because no motion for reconsideration is allowed.

The Court notes that despite our interpretation that Article 262-A does not preclude the filing of a motion for reconsideration of the VA’s decision, a contrary provision can be found in Section 7, Rule XIX of the Department of Labor’s Department Order (DO) No. 40, series of 2003:32

Rule XIX

Section 7. Finality of Award/Decision. – The decision, order, resolution or award of the voluntary arbitrator or panel of voluntary arbitrators shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties and it shall not be subject of a motion for reconsideration.

Presumably on the basis of DO 40-03, the 1989 Procedural Guidelines was revised in 2005 (2005 Procedural Guidelines),33 whose pertinent provisions provide that:

Rule VII – DECISIONS

Section 6. Finality of Decisions. – The decision of the Voluntary Arbitrator shall be final and executory after ten (10) calendar days from receipt of the copy of the decision by the parties.

Section 7. Motions for Reconsideration. – The decision of the Voluntary Arbitrator is not subject of a Motion for Reconsideration.

We are surprised that neither the VA nor Teng cited DO 40-03 and the 2005 Procedural Guidelines as authorities for their cause, considering that these were the governing rules while the case was pending and these directly and fully supported their theory. Had they done so, their reliance on the provisions would have nevertheless been unavailing for reasons we shall now discuss.

In the exercise of its power to promulgate implementing rules and regulations, an implementing agency, such as the Department of Labor, 34 is restricted from going beyond the terms of the law it seeks to implement; it should neither modify nor improve the law. The agency formulating the rules and guidelines cannot exceed the statutory authority granted to it by the legislature.35

By allowing a 10-day period, the obvious intent of Congress in amending Article 263 to Article 262-A is to provide an opportunity for the party adversely affected by the VA’s decision to seek recourse via a motion for reconsideration or a petition for review under Rule 43 of the Rules of Court filed with the CA. Indeed, a motion for reconsideration is the more

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appropriate remedy in line with the doctrine of exhaustion of administrative remedies. For this reason, an appeal from administrative agencies to the CA via Rule 43 of the Rules of Court requires exhaustion of available remedies36

as a condition precedent to a petition under that Rule.

The requirement that administrative remedies be exhausted is based on the doctrine that in providing for a remedy before an administrative agency, every opportunity must be given to the agency to resolve the matter and to exhaust all opportunities for a resolution under the given remedy before bringing an action in, or resorting to, the courts of justice.37 Where Congress has not clearly required exhaustion, sound judicial discretion governs,38

guided by congressional intent.39

By disallowing reconsideration of the VA’s decision, Section 7, Rule XIX of DO 40-03 and Section 7 of the 2005 Procedural Guidelines went directly against the legislative intent behind Article 262-A of the Labor Code. These rules deny the VA the chance to correct himself40 and compel the courts of justice to prematurely intervene with the action of an administrative agency entrusted with the adjudication of controversies coming under its special knowledge, training and specific field of expertise. In this era of clogged court dockets, the need for specialized administrative agencies with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or intricate questions of facts, subject to judicial review, is indispensable.41 In Industrial Enterprises, Inc. v. Court of Appeals,42 we ruled that relief must first be obtained in an administrative proceeding before a remedy will be supplied by the courts even though the matter is within the proper jurisdiction of a court.43

There exists an employer-employee relationship between Teng and the respondent workers.

We agree with the CA’s finding that sufficient evidence exists indicating the existence of an employer-employee relationship between Teng and the respondent workers.

While Teng alleged that it was the maestros who hired the respondent workers, it was his company that issued to the respondent workers identification cards (IDs) bearing their names as employees and Teng’s signature as the employer. Generally, in a business establishment, IDs are issued to identify the holder as a bona fide employee of the issuing entity.

For the 13 years that the respondent workers worked for Teng, they received wages on a regular basis, in addition to their shares in the fish caught.44 The worksheet showed that the respondent workers received uniform amounts within a given year, which amounts annually increased until the termination of their employment in 2002.45 Teng’s claim that the amounts received by the respondent workers are mere commissions is incredulous, as it would mean that the fish caught throughout the year is uniform and increases in number each year.

More importantly, the element of control – which we have ruled in a number of cases to be a strong indicator of the existence of an employer-employee relationship – is present in this case. Teng not only owned the tools and equipment, he directed how the respondent workers were to perform their job as checkers; they, in fact, acted as Teng’s eyes and ears in every fishing expedition.

Teng cannot hide behind his argument that the respondent workers were hired by the maestros. To consider the respondent workers as employees of the maestros would mean that Teng committed impermissible labor-only contracting. As a policy, the Labor Code prohibits labor-only contracting:

ART. 106. Contractor or Subcontractor – x x x The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor.

x x x x

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Section 5 of the DO No. 18-02,46 which implements Article 106 of the Labor Code, provides:

Section 5. Prohibition against labor-only contracting. – Labor-only contracting is hereby declared prohibited. For this purpose, labor-only

contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or

(ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee.

In the present case, the maestros did not have any substantial capital or investment.1avvphi1 Teng admitted that he solely provided the capital and equipment, while the maestros supplied the workers. The power of control over the respondent workers was lodged not with the maestros but with Teng. As checkers, the respondent workers’ main tasks were to count and classify the fish caught and report them to Teng. They performed tasks that were necessary and desirable in Teng’s fishing business. Taken together, these incidents confirm the existence of a labor-only contracting which is prohibited in our jurisdiction, as it is considered to be the employer’s attempt to evade obligations afforded by law to employees.

Accordingly, we hold that employer-employee ties exist between Teng and the respondent workers. A finding that the maestros are labor-only contractors is equivalent to a finding that an employer-employee relationship exists between Teng and the respondent workers. As regular employees, the respondent workers are entitled to all the benefits and rights appurtenant to regular employment.

The dismissal of an employee, which the employer must validate, has a twofold requirement: one is substantive, the other is procedural.47 Not only must the dismissal be for a just or an authorized cause, as provided by law; the rudimentary requirements of due process – the opportunity to be heard and to defend oneself – must be observed as well.48 The employer has the burden of proving that the dismissal was for a just cause; failure to show this, as in the present case, would necessarily mean that the dismissal was unjustified and, therefore, illegal.49

The respondent worker’s allegation that Teng summarily dismissed them on suspicion that they were not reporting to him the correct volume of the fish caught in each fishing voyage was never denied by Teng. Unsubstantiated suspicion is not a just cause to terminate one’s employment under Article 28250 of the Labor Code. To allow an employer to dismiss an employee based on mere allegations and generalities would place the employee at the mercy of his employer, and would emasculate the right to security of tenure.51 For his failure to comply with the Labor Code’s substantive requirement on termination of employment, we declare that Teng illegally dismissed the respondent workers.

WHEREFORE, we DENY the petition and AFFIRM the September 21, 2004 decision and the September 1, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 78783. Costs against the petitioners.

SO ORDERED.

FIRST DIVISION

G.R. No. 182295 June 26, 2013

7K CORPORATION, Petitioner, vs.EDDIE ALBARICO, Respondent.

D E C I S I O N

SERENO, CJ.:

This is a Petition for Review on Certiorari filed under Rule 45 of the Revised Rules of Court, asking the Court to determine whether a voluntary arbitrator in a labor dispute exceeded his jurisdiction in deciding issues not specified in the submission agreement of the parties. It assails the Decision1 dated 18 September 2007 and the Resolution2 dated 17 March 2008 of the Court of Appeals (CA).3

FACTS

When he was dismissed on 5 April 1993, respondent Eddie Albarico (Albarico) was a regular employee of petitioner 7K Corporation, a company

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selling water purifiers. He started working for the company in 1990 as a salesman.4 Because of his good performance, his employment was regularized. He was also promoted several times: from salesman, he was promoted to senior sales representative and then to acting team field supervisor. In 1992, he was awarded the President’s Trophy for being one of the company’s top water purifier specialist distributors.

In April of 1993, the chief operating officer of petitioner 7K Corporation terminated Albarico’s employment allegedly for his poor sales performance.5

Respondent had to stop reporting for work, and he subsequently submitted his money claims against petitioner for arbitration before the National Conciliation and Mediation Board (NCMB). The issue for voluntary arbitration before the NCMB, according to the parties’ Submission Agreement dated 19 April 1993, was whether respondent Albarico was entitled to the payment of separation pay and the sales commission reserved for him by the corporation.6

While the NCMB arbitration case was pending, respondent Albarico filed a Complaint against petitioner corporation with the Arbitration Branch of the National Labor Relations Commission (NLRC) for illegal dismissal with money claims for overtime pay, holiday compensation, commission, and food and travelling allowances.7 The Complaint was decided by the labor arbiter in favor of respondent Albarico, who was awarded separation pay in lieu of reinstatement, backwages and attorney’s fees.8

On appeal by petitioner, the labor arbiter’s Decision was vacated by the NLRC for forum shopping on the part of respondent Albarico, because the NCMB arbitration case was still pending.9 The NLRC Decision, which explicitly stated that the dismissal was without prejudice to the pending NCMB arbitration case,10 became final after no appeal was taken.

On 17 September 1997, petitioner corporation filed its Position Paper in the NCMB arbitration case.11 It denied that respondent was terminated from work, much less illegally dismissed. The corporation claimed that he had voluntarily stopped reporting for work after receiving a verbal reprimand for his sales performance; hence, it was he who was guilty of abandonment of employment. Respondent made an oral manifestation that he was adopting the position paper he submitted to the labor arbiter, a position paper in which the former claimed that he had been illegally dismissed.12

On 12 January 2005, almost 12 years after the filing of the NCMB case, both parties appeared in a hearing before the NCMB.13 Respondent manifested that he was willing to settle the case amicably with petitioner based on the decision of the labor arbiter ordering the payment of separation pay in lieu of reinstatement, backwages and attorney’s fees. On its part, petitioner made a counter-manifestation that it was likewise amenable to settling the dispute. However, it was willing to pay only the separation pay and the sales commission according to the Submission Agreement dated 19 April 1993.14

The factual findings of the voluntary arbitrator, as well as of the CA, are not clear on what happened afterwards. Even the records are bereft of sufficient information.

On 18 November 2005, the NCMB voluntary arbitrator rendered a Decision finding petitioner corporation liable for illegal dismissal.15 The termination of respondent Albarico, by reason of alleged poor performance, was found invalid.16 The arbitrator explained that the promotions, increases in salary, and awards received by respondent belied the claim that the latter was performing poorly.17 It was also found that Albarico could not have abandoned his job, as the abandonment should have been clearly shown. Mere absence was not sufficient, according to the arbitrator, but must have been accompanied by overt acts pointing to the fact that the employee did not want to work anymore. It was noted that, in the present case, the immediate filing of a complaint for illegal dismissal against the employer, with a prayer for reinstatement, showed that the employee was not abandoning his work. The voluntary arbitrator also found that Albarico was dismissed from his work without due process.

However, it was found that reinstatement was no longer possible because of the strained relationship of the parties.18 Thus, in lieu of reinstatement, the voluntary arbitrator ordered the corporation to pay separation pay for two years at P4,456 for each year, or a total amount of P8,912.

Additionally, in view of the finding that Albarico had been illegally dismissed, the voluntary arbitrator also ruled that the former was entitled to backwages in the amount of P90,804.19 Finally, the arbitrator awarded attorney’s fees in respondent’s favor, because he had been compelled to file an action for illegal dismissal.20

Petitioner corporation subsequently appealed to the CA, imputing to the voluntary arbitrator grave abuse of discretion amounting to lack or excess of jurisdiction for awarding backwages and attorney’s fees to respondent Albarico based on the former’s finding of illegal dismissal.21 The arbitrator contended that the issue of the legality of dismissal was not explicitly

included in the Submission Agreement dated 19 April 1993 filed for voluntary arbitration and resolution. It prayed that the said awards be set aside, and that only separation pay of P8,912.00 and sales commission of P4,787.60 be awarded.

The CA affirmed the Decision of the voluntary arbitrator, but eliminated the award of attorney’s fees for having been made without factual, legal or equitable justification.22 Petitioner’s Motion for Partial Reconsideration was denied as well.23

Hence, this Petition.

ISSUE

The issue before the Court is whether the CA committed reversible error in finding that the voluntary arbitrator properly assumed jurisdiction to decide the issue of the legality of the dismissal of respondent as well as the latter’s entitlement to backwages, even if neither the legality nor the entitlement was expressedly claimed in the Submission Agreement of the parties.

The Petition is denied for being devoid of merit.

DISCUSSION

Preliminarily, we address petitioner’s claim that under Article 217 of the Labor Code, original and exclusive jurisdiction over termination disputes, such as the present case, is lodged only with the labor arbiter of the NLRC.24

Petitioner overlooks the proviso in the said article, thus:

Art. 217. Jurisdiction of the Labor Arbiters and the Commission.

a. Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or nonagricultural:

x x x x

2. Termination disputes;

x x x x

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. (Emphases supplied)

Thus, although the general rule under the Labor Code gives the labor arbiter exclusive and original jurisdiction over termination disputes, it also recognizes exceptions. One of the exceptions is provided in Article 262 of the Labor Code. In San Jose v. NLRC,25 we said:

The phrase "Except as otherwise provided under this Code" refers to the following exceptions:

A. Art. 217. Jurisdiction of Labor Arbiters . . .

x x x x

(c) Cases arising from the interpretation or implementation of collective bargaining agreement and those arising from the interpretation or enforcement of company procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitrator as may be provided in said agreement.

B. Art. 262. Jurisdiction over other labor disputes. The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks. (Emphasis supplied)

We also said in the same case that "the labor disputes referred to in the same Article 262 of the Labor Code can include all those disputes mentioned in Article 217 over which the Labor Arbiter has original and exclusive jurisdiction."26

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From the above discussion, it is clear that voluntary arbitrators may, by agreement of the parties, assume jurisdiction over a termination dispute such as the present case, contrary to the assertion of petitioner that they may not.

We now resolve the main issue. Petitioner argues that, assuming that the voluntary arbitrator has jurisdiction over the present termination dispute, the latter should have limited his decision to the issue contained in the Submission Agreement of the parties – the issue of whether respondent Albarico was entitled to separation pay and to the sales commission the latter earned before being terminated.27 Petitioner asserts that under Article 262 of the Labor Code, the jurisdiction of a voluntary arbitrator is strictly limited to the issues that the parties agree to submit. Thus, it contends that the voluntary arbitrator exceeded his jurisdiction when he resolved the issues of the legality of the dismissal of respondent and the latter’s entitlement to backwages on the basis of a finding of illegal dismissal.

According to petitioner, the CA wrongly concluded that the issue of respondent’s entitlement to separation pay was necessarily based on his allegation of illegal dismissal, thereby making the issue of the legality of his dismissal implicitly submitted to the voluntary arbitrator for resolution.28

Petitioner argues that this was an erroneous conclusion, because separation pay may in fact be awarded even in circumstances in which there is no illegal dismissal.

We rule that although petitioner correctly contends that separation pay may in fact be awarded for reasons other than illegal dismissal, the circumstances of the instant case lead to no other conclusion than that the claim of respondent Albarico for separation pay was premised on his allegation of illegal dismissal. Thus, the voluntary arbitrator properly assumed jurisdiction over the issue of the legality of his dismissal.

True, under the Labor Code, separation pay may be given not only when there is illegal dismissal. In fact, it is also given to employees who are terminated for authorized causes, such as redundancy, retrenchment or installation of labor-saving devices under Article 28329 of the Labor Code. Additionally, jurisprudence holds that separation pay may also be awarded for considerations of social justice, even if an employee has been terminated for a just cause other than serious misconduct or an act reflecting on moral character.30 The Court has also ruled that separation pay may be awarded if it has become an established practice of the company to pay the said benefit to voluntarily resigning employees31 or to those validly dismissed for non-membership in a union as required in a closed-shop agreement.32

The above circumstances, however, do not obtain in the present case.1âwphi1 There is no claim that the issue of entitlement to separation pay is being resolved in the context of any authorized cause of termination undertaken by petitioner corporation. Neither is there any allegation that a consideration of social justice is being resolved here. In fact, even in instances in which separation pay is awarded in consideration of social justice, the issue of the validity of the dismissal still needs to be resolved first. Only when there is already a finding of a valid dismissal for a just cause does the court then award separation pay for reason of social justice. The other circumstances when separation pay may be awarded are not present in this case.

The foregoing findings indisputably prove that the issue of separation pay emanates solely from respondent’s allegation of illegal dismissal. In fact, petitioner itself acknowledged the issue of illegal dismissal in its position paper submitted to the NCMB.

Moreover, we note that even the NLRC was of the understanding that the NCMB arbitration case sought to resolve the issue of the legality of the dismissal of the respondent. In fact, the identity of the issue of the legality of his dismissal, which was previously submitted to the NCMB, and later submitted to the NLRC, was the basis of the latter’s finding of forum shopping and the consequent dismissal of the case before it. In fact, petitioner also implicitly acknowledged this when it filed before the NLRC its Motion to Dismiss respondent’s Complaint on the ground of forum shopping. Thus, it is now estopped from claiming that the issue before the NCMB does not include the issue of the legality of the dismissal of respondent. Besides, there has to be a reason for deciding the issue of respondent’s entitlement to separation pay. To think otherwise would lead to absurdity, because the voluntary arbitrator would then be deciding that issue in a vacuum. The arbitrator would have no basis whatsoever for saying that Albarico was entitled to separation pay or not if the issue of the legality of respondent’s dismissal was not resolve first.

Hence, the voluntary arbitrator correctly assumed that the core issue behind the issue of separation pay is the legality of the dismissal of respondent. Moreover, we have ruled in Sime Darby Pilipinas, Inc. v. Deputy Administrator Magsalin33 that a voluntary arbitrator has plenary jurisdiction and authority to interpret an agreement to arbitrate and to determine the scope of his own authority when the said agreement is vague — subject only, in a proper case, to the certiorari jurisdiction of this Court.

Having established that the issue of the legality of dismissal of Albarico was in fact necessarily – albeit not explicitly – included in the Submission Agreement signed by the parties, this Court rules that the voluntary arbitrator rightly assumed jurisdiction to decide the said issue.

Consequently, we also rule that the voluntary arbitrator may award backwages upon a finding of illegal dismissal, even though the issue of entitlement thereto is not explicitly claimed in the Submission Agreement. Backwages, in general, are awarded on the ground of equity as a form of relief that restores the income lost by the terminated employee by reason of his illegal dismissal.34

In Sime Darby we ruled that although the specific issue presented by the parties to the voluntary arbitrator was only "the issue of performance bonus," the latter had the authority to determine not only the issue of whether or not a performance bonus was to be granted, but also the related question of the amount of the bonus, were it to be granted. We explained that there was no indication at all that the parties to the arbitration agreement had regarded "the issue of performance bonus" as a two-tiered issue, of which only one aspect was being submitted to arbitration. Thus, we held that the failure of the parties to limit the issues specifically to that which was stated allowed the arbitrator to assume jurisdiction over the related issue.

Similarly, in the present case, there is no indication that the issue of illegal dismissal should be treated. as a two-tiered issue whereupon entitlement to backwages must be determined separately. Besides, "since arbitration is a final resort for the adjudication of disputes," the voluntary arbitrator in the present case can assume that he has the necessary power to make a final settlement.35 Thus, we rule that the voluntary arbitrator correctly assumed jurisdiction over the issue of entitlement of respondent Albarico to backwages on the basis of the former's finding of illegal dismissal.

WHEREFORE, premises considered, the instant Petition is DENIED. The 18 September 2007 Decision and 17 March 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 92526, are hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 197309 October 10, 2012

ACE NAVIGATION CO., INC., VELA INTERNATIONAL MARINE LTD., and/or RODOLFO PAMINTUAN, Petitioners, vs.TEODORICO FERNANDEZ, assisted by GLENITA FERNANDEZ, Respondent.

D E C I S I O N

BRION, J.:

For resolution is the petition for review on certiorari1 which seeks to nullify the decision2 dated September 22, 2010 and the resolution3 dated May 26,2011 ofthe Court of Appeals (CA) in CA-G.R. SP No. 112081.

The Antecedents

On October 9, 2008, seaman Teodorico Fernandez (Fernandez), assisted by his wife, Glenita Fernandez, filed with the National Labor Relations Commission (NLRC) a complaint for disability benefits, with prayer for moral and exemplary damages, plus attorney’s fees, against Ace Navigation Co., Inc., Vela International Marine Ltd., and/or Rodolfo Pamintuan (petitioners).

The petitioners moved to dismiss the complaint,4 contending that the labor arbiter had no jurisdiction over the dispute. They argued that exclusive original jurisdiction is with the voluntary arbitrator or panel of voluntary arbitrators, pursuant to Section 29 of the POEA Standard Employment Contract (POEA-SEC), since the parties are covered by the AMOSUP-TCC or AMOSUP-VELA (as later cited by the petitioners) collective bargaining agreement (CBA). Under Section 14 of the CBA, a dispute between a seafarer and the company shall be settled through the grievance machinery and mandatory voluntary arbitration.

Fernandez opposed the motion.5 He argued that inasmuch as his complaint involves a money claim, original and exclusive jurisdiction over the case is vested with the labor arbiter.

The Compulsory Arbitration Rulings

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On December 9, 2008, Labor Arbiter Romelita N. Rioflorido denied the motion to dismiss, holding that under Section 10 of Republic Act (R.A.) No. 8042, the Migrant Workers and Overseas Filipinos Act of 1995, the labor arbiter has original and exclusive jurisdiction over money claims arising out of an employer-employee relationship or by virtue of any law or contract, notwithstanding any provision of law to the contrary.6

The petitioners appealed to the NLRC, but the labor agency denied the appeal. It agreed with the labor arbiter that the case involves a money claim and is within the jurisdiction of the labor arbiter, in accordance with Section 10 of R.A. No. 8042. Additionally, it declared that the denial of the motion to dismiss is an interlocutory order which is not appealable. Accordingly, it remanded the case to the labor arbiter for further proceedings. The petitioners moved for reconsideration, but the NLRC denied the motion, prompting the petitioners to elevate the case to the CA through a petition for certiorari under Rule 65 of the Rules of Court.

The CA Decision

Through its decision of September 22, 2010,7 the CA denied the petition on procedural and substantive grounds.

Procedurally, it found the petitioners to have availed of the wrong remedy when they challenged the labor arbiter’s denial of their motion to dismiss by way of an appeal to the NLRC. It stressed that pursuant to the NLRC rules, 8 an order denying a motion to dismiss is interlocutory and is not subject to appeal.

On the merits of the case, the CA believed that the petition cannot also prosper. It rejected the petitioners’ submission that the grievance and voluntary arbitration procedure of the parties’ CBA has jurisdiction over the case, to the exclusion of the labor arbiter and the NLRC. As the labor arbiter and the NLRC did, it opined that under Section 10 of R.A. No. 8042, the labor arbiter has the original and exclusive jurisdiction to hear Fernandez’s money claims.

Further, the CA clarified that while the law9 allows parties to submit to voluntary arbitration other labor disputes, including matters falling within the original and exclusive jurisdiction of the labor arbiters under Article 217 of the Labor Code as this Court recognized in Vivero v. Court of Appeals,10 the parties’ submission agreement must be expressed in unequivocal language. It found no such unequivocal language in the AMOSUP/TCC CBA that the parties agreed to submit money claims or, more specifically, claims for disability benefits to voluntary arbitration.

The CA also took note of the POEA-SEC11 which provides in its Section 29 that in cases of claims and disputes arising from a Filipino seafarer’s employment, the parties covered by a CBA shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators. The CA explained that the relevant POEA-SEC provisions should likewise be qualified by the ruling in the Vivero case, the Labor Code, and other applicable laws and jurisprudence.

In sum, the CA stressed that the jurisdiction of voluntary arbitrators is limited to the seafarers’ claims which do not fall within the labor arbiter’s original and exclusive jurisdiction or even in cases where the labor arbiter has jurisdiction, the parties have agreed in unmistakable terms (through their CBA) to submit the case to voluntary arbitration.

The petitioners moved for reconsideration of the CA decision, but the appellate court denied the motion, reiterating its earlier pronouncement that on the ground alone of the petitioners’ wrong choice of remedy, the petition must fail.

The Petition

The petitioners are now before this Court praying for a reversal of the CA judgment on the following grounds:

1. The CA committed a reversible error in disregarding the Omnibus Implementing Rules and Regulations (IRR) of the Migrant Workers and Overseas Filipinos Act of 1995,12 as amended by R.A. No. 10022,13 mandating that "For OFWs with collective bargaining agreements, the caseshall be submitted for voluntary arbitration in accordance with Articles 261 and 262 of the Labor Code."14

The petitioners bewail the CA’s rejection of the above argument for the reason that the remedy they pursued was inconsistent with the 2005 Revised Rules of Procedure of the NLRC. Citing Municipality of Sta. Fe v. Municipality of Aritao,15 they argue that the "dismissal of a case for lack of jurisdiction may be raised at any stage of the proceedings."

In any event, they posit that the IRR of R.A. No. 10022 is in the nature of an adjective or procedural law which must be given retroactive effect and which should have been applied by the CA in resolving the present case.

2. The CA committed a reversible error in ruling that the AMOSUP-VELA CBA does not contain unequivocal wordings for the mandatory referral of Fernandez’s claim to voluntary arbitration.

The petitioners assail the CA’s failure to explain the basis "for ruling that no explicit or unequivocal wordings appeared on said CBA for the mandatory referral of the disability claim to arbitration."16 They surmise that the CA construed the phrase "either party may refer the case to a MANDATORY ARBITRATION COMMITTEE" under Section 14.7(a) of the CBA as merely permissive and not mandatory because of the use of the word "may." They contend that notwithstanding the use of the word "may," the parties unequivocally and unmistakably agreed to refer the present disability claim to mandatory arbitration.

3. The CA committed a reversible error in disregarding the NLRC memorandum prescribing the appropriate action for complaints and/or proceedings which were initially processed in the grievance machinery of existing CBAs. In their motion for reconsideration with the CA, the petitioners manifested that the appellate court’s assailed decision had been modified by the following directive of the NLRC:

As one of the measures being adopted by our agency in response to the Platform and Policy Pronouncements on Labor Employment, you are hereby directed to immediately dismiss the complaint and/or terminate proceedings which were initially processed in the grievance machinery as provided in the existing Collective Bargaining Agreements (CBAs) between parties, through the issuance of an Order of Dismissal and referral of the disputes to the National Conciliation Mediation Board (NCMB) for voluntary arbitration.

FOR STRICT COMPLIANCE.17

4. On July 31, 2012,18 the petitioners manifested before the Court that on June 13, 2012, the Court’s Second Division issued a ruling in G.R. No. 172642, entitled Estate of Nelson R. Dulay, represented by his wife Merridy Jane P. Dulay v. Aboitiz Jebsen Maritime, Inc., and General Charterers, Inc., upholding the jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators over a seafarer’s money claim. They implore the Court that since the factual backdrop and the issues involved in the case are similar to the present dispute, the Dulay ruling should be applied to this case and which should accordingly be referred to the National Conciliation and Mediation Board for voluntary arbitration.

The Case for Fernandez

In compliance with the Court’s directive,19 Fernandez filed on October 7, 2011 his Comment20 (on the Petition) with the plea that the petition be dismissed for lack of merit. Fernandez presents the following arguments:

1. The IRR of the Migrant Workers and Overseas Filipinos Act of 1995 (R.A. No. 8042), as amended by R.A. No. 10022,21 did not divest the labor arbiters of their original and exclusive jurisdiction over money claims arising from employment, for nowhere in said IRR is there such a divestment.

2. The voluntary arbitrators do not have jurisdiction over the present controversy as can be deduced from Articles 261 and 262 of the Labor Code. Fernandez explains that his complaint does not involve any "unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement [nor] from the interpretation or enforcement of company personnel policies[.]"22 As he never referred his claim to the grievance machinery, there is no "unresolved grievance" to speak of. His complaint involves a claim for compensation and damages which is outside the voluntary arbitrator’s jurisdiction under Article 261. Further, only disputes involving the union and the company shall be referred to the grievance machinery and to voluntary arbitration, as the Court held in Sanyo Philippines Workers Union-PSSLU v. Cañizares23 and Silva v. CA.24

3. The CA correctly ruled that no unequivocal wordings appear in the CBA for the mandatory referral of Fernandez’s disability claim to a voluntary arbitrator.

The Court’s Ruling

We first rule on the procedural question arising from the labor arbiter’s denial of the petitioners’ motion to dismiss the complaint. On this point,

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Section 6, Rule V of The 2005 Revised Rules of Procedure of the NLRC provides:

On or before the date set for the mandatory conciliation and mediation conference, the respondent may file a motion to dismiss. Any motion to dismiss on the ground of lack of jurisdiction, improper venue, or that the cause of action is barred by prior judgment, prescription, or forum shopping, shall be immediately resolved by the Labor Arbiter through a written order. An order denying the motion to dismiss, or suspending its resolution until the final determination of the case, is not appealable. [underscoring ours]

Corollarily, Section 10, Rule VI of the same Rules states:

Frivolous or Dilatory Appeals. – No appeal from an interlocutory order shall be entertained. To discourage frivolous or dilatory appeals, including those taken from interlocutory orders, the Commission may censure or cite in contempt the erring parties and their counsels, or subject them to reasonable fine or penalty.

In Indiana Aerospace University v. Comm. on Higher Educ.,25 the Court declared that "[a]n order denying a motion to dismiss is interlocutory"; the proper remedy in this situation is to appeal after a decision has been rendered. Clearly, the denial of the petitioners’ motion to dismiss in the present case was an interlocutory order and, therefore, not subject to appeal as the CA aptly noted.

The petition’s procedural lapse notwithstanding, the CA proceeded to review the merits of the case and adjudged the petition unmeritorious. We find the CA’s action in order. The Labor Code itself declares that "it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process."26

We now address the focal question of who has the original and exclusive jurisdiction over Fernandez’s disability claim — the labor arbiter under Section 10 of R.A. No. 8042, as amended, or the voluntary arbitration mechanism as prescribed in the parties’ CBA and the POEA-SEC?

The answer lies in the State’s labor relations policy laid down in the Constitution and fleshed out in the enabling statute, the Labor Code. Section 3, Article XIII (on Social Justice and Human Rights) of the Constitution declares:

x x x x

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

Article 260 of the Labor Code (Grievance machinery and voluntary arbitration) states:

The parties to a Collective Bargaining Agreement shall include therein provisions that will ensure the mutual observance of its terms and conditions. They shall establish a machinery for the adjustment and resolution of grievances arising from the interpretation or implementation of their Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies.

Article 261 of the Labor Code (Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators), on the other hand, reads in part:

The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies[.]

Article 262 of the Labor Code (Jurisdiction over other labor disputes) declares:

The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

Further, the POEA-SEC, which governs the employment of Filipino seafarers, provides in its Section 29 on Dispute Settlement Procedures:

In cases of claims and disputes arising from this employment, the parties covered by a collective bargaining agreement shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators. If the parties are not covered by a collective bargaining agreement, the parties may at their option submit the claim or dispute to either the original and exclusive jurisdiction of the National Labor Relations Commission (NLRC), pursuant to Republic Act (RA) 8042 otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995 or to the original and exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators. If there is no provision as to the voluntary arbitrators to be appointed by the parties, the same shall be appointed from the accredited voluntary arbitrators of the National Conciliation and Mediation Board of the Department of Labor and Employment. [emphasis ours]

We find merit in the petition.

Under the above-quoted constitutional and legal provisions, the voluntary arbitrator or panel of voluntary arbitrators has original and exclusive jurisdiction over Fernandez’s disability claim. There is no dispute that the claim arose out of Fernandez’s employment with the petitioners and that their relationship is covered by a CBA — the AMOSUP/TCC or the AMOSUP-VELA CBA. The CBA provides for a grievance procedure for the resolution of grievances or disputes which occur during the employment relationship and, like the grievance machinery created under Article 261 of the Labor Code, it is a two-tiered mechanism, with voluntary arbitration as the last step.1âwphi1

Contrary to the CA’s reading of the CBA’s Article 14, there is unequivocal or unmistakable language in the agreement which mandatorily requires the parties to submit to the grievance procedure any dispute or cause of action they may have against each other. The relevant provisions of the CBA state:

14.6 Any Dispute, grievance, or misunderstanding concerning any ruling, practice, wages or working conditions in the COMPANY or any breach of the Contract of Employment, or any dispute arising from the meaning or application of the provisions of this Agreement or a claim of violation thereof or any complaint or cause of action that any such Seaman may have against the COMPANY, as well as complaints which the COMPANY may have against such Seaman shall be brought to the attention of the GRIEVANCE RESOLUTION COMMITTEE before either party takes any action, legal or otherwise. Bringing such a dispute to the Grievance Resolution Committee shall be unwaivable prerequisite or condition precedent for bringing any action, legal or otherwise, in any forum and the failure to so refer the dispute shall bar any and all legal or other actions.

14.7a) If by reason of the nature of the Dispute, the parties are unable to amicably settle the dispute, either party may refer the case to a MANDATORY ARBITRATION COMMITTEE. The MANDATORY ARBITRATION COMMITTEE shall consist of one representative to be designated by the UNION, and one representative to be designated by the COMPANY and a third member who shall act as Chairman and shall be nominated by mutual choice of the parties. xxx

h) Referral of all unresolved disputes from the Grievance Resolution Committee to the Mandatory Arbitration Committee shall be unwaivable prerequisite or condition precedent for bringing any action, claim, or cause of action, legal or otherwise, before any court, tribunal, or panel in any jurisdiction. The failure by a party or seaman to so refer and avail oneself to the dispute resolution mechanism contained in this action shall bar any legal or other action. All parties expressly agree that the orderly resolution of all claims in the prescribed manner served the interests of reaching settlements or claims in an orderly and uniform manner, as well as preserving peaceful and harmonious labor relations between seaman, the Union, and the Company.27 (emphases ours)

What might have caused the CA to miss the clear intent of the parties in prescribing a grievance procedure in their CBA is, as the petitioners’ have intimated, the use of the auxiliary verb "may" in Article 14.7(a) of the CBA which, to reiterate, provides that "if by reason of the nature of the Dispute, the parties are unable to amicably settle the dispute, either party may refer the case to a MANDATORY ARBITRATION COMMITTEE."28

While the CA did not qualify its reading of the subject provision of the CBA, it is reasonable to conclude that it viewed as optional the referral of a dispute to the mandatory arbitration committee when the parties are unable to amicably settle the dispute.

We find this a strained interpretation of the CBA provision. The CA read the provision separately, or in isolation of the other sections of Article 14, especially 14.7(h), which, in clear, explicit language, states that the "referral of all unresolved disputes from the Grievance Resolution Committee to the Mandatory Arbitration Committee shall be unwaivable prerequisite or condition precedent for bringing any action, claim, or cause of action, legal

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or otherwise, before any court, tribunal, or panel in any jurisdiction"29 and that the failure by a party or seaman to so refer the dispute to the prescribed dispute resolution mechanism shall bar any legal or other action.

Read in its entirety, the CBA’s Article 14 (Grievance Procedure) unmistakably reflects the parties’ agreement to submit any unresolved dispute at the grievance resolution stage to mandatory voluntary arbitration under Article 14.7(h) of the CBA. And, it should be added that, in compliance with Section 29 of the POEA-SEC which requires that in cases of claims and disputes arising from a seafarer’s employment, the parties covered by a CBA shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators.

Since the parties used unequivocal language in their CBA for the submission of their disputes to voluntary arbitration (a condition laid down in Vivero for the recognition of the submission to voluntary arbitration of matters within the original and exclusive jurisdiction of labor arbiters), we find that the CA committed a reversible error in its ruling; it disregarded the clear mandate of the CBA between the parties and the POEA-SEC for submission of the present dispute to voluntary arbitration.

Consistent with this finding, Fernandez’s contention — that his complaint for disability benefits is a money claim that falls within the original and exclusive jurisdiction of the labor arbiter under Section 10 of R.A. No. 8042 — is untenable. We likewise reject his argument that he never referred his claim to the grievance machinery (so that no unresolved grievance exists as required under Article 261 of the Labor Code), and that the parties to the case are not the union and the employer.30 Needless to state, no such distinction exists in the parties’ CBA and the POEA-SEC.

It bears stressing at this point that we are upholding the jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators over the present dispute, not only because of the clear language of the parties’ CBA on the matter; more importantly, we so uphold the voluntary arbitrator’s jurisdiction, in recognition of the State’s express preference for voluntary modes of dispute settlement, such as conciliation and voluntary arbitration as expressed in the Constitution, the law and the rules.

In this light, we see no need to further consider the petitioners’ submission regarding the IRR of the Migrant Workers and Overseas Filipinos Act of 1995, as amended by R.A. No. 10022, except to note that the IRR lends further support to our ruling.

In closing, we quote with approval a most recent Court pronouncement on the same issue, thus –

It is settled that when the parties have validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly observed.31 (emphasis ours)

WHEREFORE, premises considered, the petition is GRANTED. The assailed decision and resolution of the Court of Appeals are SET ASIDE. Teodorico Fernandez's disability claim is REFERRED to the Grievance Resolution Committee of the parties' collective bargaining agreement and/or the Mandatory Arbitration Committee, if warranted.

SO ORDERED.

THIRD DIVISION

G.R. No. 172642 June 13, 2012

ESTATE OF NELSON R. DULAY, represented by his wife MERRIDY JANE P. DULAY, Petitioner, vs.ABOITIZ JEBSEN MARITIME, INC. and GENERAL CHARTERERS, INC., Respondents.

D E C I S I O N

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the Decision1 and Resolution2

dated July 11, 2005 and April 18, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 76489.

The factual and procedural antecedents of the case, as summarized by the CA, are as follows:

Nelson R. Dulay (Nelson, for brevity) was employed by [herein respondent] General Charterers Inc. (GCI), a subsidiary of co-petitioner [herein co-respondent] Aboitiz Jebsen Maritime Inc. since 1986. He initially worked as an ordinary seaman and later as bosun on a contractual basis. From September 3, 1999 up to July 19, 2000, Nelson was detailed in petitioners’ vessel, the MV Kickapoo Belle.

On August 13, 2000, or 25 days after the completion of his employment contract, Nelson died due to acute renal failure secondary to septicemia. At the time of his death, Nelson was a bona fide member of the Associated Marine Officers and Seaman’s Union of the Philippines (AMOSUP), GCI’s collective bargaining agent. Nelson’s widow, Merridy Jane, thereafter claimed for death benefits through the grievance procedure of the Collective Bargaining Agreement (CBA) between AMOSUP and GCI. However, on January 29, 2001, the grievance procedure was "declared deadlocked" as petitioners refused to grant the benefits sought by the widow.

On March 5, 2001, Merridy Jane filed a complaint with the NLRC Sub-Regional Arbitration Board in General Santos City against GCI for death and medical benefits and damages.

On March 8, 2001, Joven Mar, Nelson’s brother, received P20,000.00 from [respondents] pursuant to article 20(A)2 of the CBA and signed a "Certification" acknowledging receipt of the amount and releasing AMOSUP from further liability. Merridy Jane contended that she is entitled to the aggregate sum of Ninety Thousand Dollars ($90,000.00) pursuant to [A]rticle 20 (A)1 of the CBA x x x

x x x x

Merridy Jane averred that the P20,000.00 already received by Joven Mar should be considered advance payment of the total claim of US$90,000.[00].

[Herein respondents], on the other hand, asserted that the NLRC had no jurisdiction over the action on account of the absence of employer-employee relationship between GCI and Nelson at the time of the latter’s death. Nelson also had no claims against petitioners for sick leave allowance/medical benefit by reason of the completion of his contract with GCI. They further alleged that private respondent is not entitled to death benefits because petitioners are only liable for such "in case of death of the seafarer during the term of his contract pursuant to the POEA contract" and the cause of his death is not work-related. Petitioners admitted liability only with respect to article 20(A)2 [of the CBA]. x x x

x x x x

However, as petitioners stressed, the same was already discharged.

The Labor Arbiter ruled in favor of private respondent. It took cognizance of the case by virtue of Article 217 (a), paragraph 6 of the Labor Code and the existence of a reasonable causal connection between the employer-employee relationship and the claim asserted. It ordered the petitioner to pay P4,621,300.00, the equivalent of US$90,000.00 less P20,000.00, at the time of judgment x x x

x x x x

The Labor Arbiter also ruled that the proximate cause of Nelson’s death was not work-related.

On appeal, [the NLRC] affirmed the Labor Arbiter’s decision as to the grant of death benefits under the CBA but reversed the latter’s ruling as to the proximate cause of Nelson’s death.3

Herein respondents then filed a special civil action for certiorari with the CA contending that the NLRC committed grave abuse of discretion in affirming the jurisdiction of the NLRC over the case; in ruling that a different provision of the CBA covers the death claim; in reversing the findings of the Labor Arbiter that the cause of death is not work-related; and, in setting aside the release and quitclaim executed by the attorney-in-fact and not considering the P20,000.00 already received by Merridy Jane through her attorney-in-fact.

On July 11, 2005, the CA promulgated its assailed Decision, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the case is REFERRED to the National Conciliation and Mediation Board for the designation of the Voluntary Arbitrator or the constitution of a panel of Voluntary Arbitrators for the appropriate resolution of the issue on the matter of the applicable CBA provision.

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SO ORDERED.4

The CA ruled that while the suit filed by Merridy Jane is a money claim, the same basically involves the interpretation and application of the provisions in the subject CBA. As such, jurisdiction belongs to the voluntary arbitrator and not the labor arbiter.

Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution of April 18, 2006.

Hence, the instant petition raising the sole issue of whether or not the CA committed error in ruling that the Labor Arbiter has no jurisdiction over the case.

Petitioner contends that Section 10 of Republic Act (R.A.) 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, vests jurisdiction on the appropriate branches of the NLRC to entertain disputes regarding the interpretation of a collective bargaining agreement involving migrant or overseas Filipino workers. Petitioner argues that the abovementioned Section amended Article 217 (c) of the Labor Code which, in turn, confers jurisdiction upon voluntary arbitrators over interpretation or implementation of collective bargaining agreements and interpretation or enforcement of company personnel policies.

The pertinent provisions of Section 10 of R.A. 8042 provide as follows:

SEC. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages.

Article 217(c) of the Labor Code, on the other hand, states that:

x x x x

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements.

On their part, respondents insist that in the present case, Article 217, paragraph (c) as well as Article 261 of the Labor Code remain to be the governing provisions of law with respect to unresolved grievances arising from the interpretation and implementation of collective bargaining agreements. Under these provisions of law, jurisdiction remains with voluntary arbitrators.

Article 261 of the Labor Code reads, thus:

ARTICLE 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. – The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective Bargaining Agreement.

The petition is without merit.

It is true that R.A. 8042 is a special law governing overseas Filipino workers. However, a careful reading of this special law would readily show that there is no specific provision thereunder which provides for jurisdiction over disputes or unresolved grievances regarding the interpretation or implementation of a CBA. Section 10 of R.A. 8042, which is cited by petitioner, simply speaks, in general, of "claims arising out of an employer-

employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages." On the other hand, Articles 217(c) and 261 of the Labor Code are very specific in stating that voluntary arbitrators have jurisdiction over cases arising from the interpretation or implementation of collective bargaining agreements. Stated differently, the instant case involves a situation where the special statute (R.A. 8042) refers to a subject in general, which the general statute (Labor Code) treats in particular.5 In the present case, the basic issue raised by Merridy Jane in her complaint filed with the NLRC is: which provision of the subject CBA applies insofar as death benefits due to the heirs of Nelson are concerned. The Court agrees with the CA in holding that this issue clearly involves the interpretation or implementation of the said CBA. Thus, the specific or special provisions of the Labor Code govern.

In any case, the Court agrees with petitioner's contention that the CBA is the law or contract between the parties. Article 13.1 of the CBA entered into by and between respondent GCI and AMOSUP, the union to which petitioner belongs, provides as follows:

The Company and the Union agree that in case of dispute or conflict in the interpretation or application of any of the provisions of this Agreement, or enforcement of Company policies, the same shall be settled through negotiation, conciliation or voluntary arbitration. The Company and the Union further agree that they will use their best endeavor to ensure that any dispute will be discussed, resolved and settled amicably by the parties hereof within ninety (90) days from the date of filing of the dispute or conflict and in case of failure to settle thereof any of the parties retain their freedom to take appropriate action.6 (Emphasis supplied)

From the foregoing, it is clear that the parties, in the first place, really intended to bring to conciliation or voluntary arbitration any dispute or conflict in the interpretation or application of the provisions of their CBA. It is settled that when the parties have validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly observed.7

It may not be amiss to point out that the abovequoted provisions of the CBA are in consonance with Rule VII, Section 7 of the present Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022, which states that "[f]or OFWs with collective bargaining agreements, the case shall be submitted for voluntary arbitration in accordance with Articles 261 and 262 of the Labor Code." The Court notes that the said Omnibus Rules and Regulations were promulgated by the Department of Labor and Employment (DOLE) and the Department of Foreign Affairs (DFA) and that these departments were mandated to consult with the Senate Committee on Labor and Employment and the House of Representatives Committee on Overseas Workers Affairs.

In the same manner, Section 29 of the prevailing Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean Going Vessels, promulgated by the Philippine Overseas Employment Administration (POEA), provides as follows:

Section 29. Dispute Settlement Procedures. − In cases of claims and disputes arising from this employment, the parties covered by a collective bargaining agreement shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators. If the parties are not covered by a collective bargaining agreement, the parties may at their option submit the claim or dispute to either the original and exclusive jurisdiction of the National Labor Relations Commission (NLRC), pursuant to Republic Act (RA) 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995 or to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators. If there is no provision as to the voluntary arbitrators to be appointed by the parties, the same shall be appointed from the accredited voluntary arbitrators of the National Conciliation and Mediation Board of the Department of Labor and Employment.

The Philippine Overseas Employment Administration (POEA) shall exercise original and exclusive jurisdiction to hear and decide disciplinary action on cases, which are administrative in character, involving or arising out of violations of recruitment laws, rules and regulations involving employers, principals, contracting partners and Filipino seafarers. (Emphasis supplied)

It is clear from the above that the interpretation of the DOLE, in consultation with their counterparts in the respective committees of the Senate and the House of Representatives, as well as the DFA and the POEA is that with respect to disputes involving claims of Filipino seafarers wherein the parties are covered by a collective bargaining agreement, the dispute or claim should be submitted to the jurisdiction of a voluntary arbitrator or panel of arbitrators. It is only in the absence of a collective bargaining agreement that parties may opt to submit the dispute to either the NLRC or to voluntary arbitration. It is elementary that rules and regulations issued by administrative bodies to interpret the law which they are entrusted to

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enforce, have the force of law, and are entitled to great respect.8 Such rules and regulations partake of the nature of a statute and are just as binding as if they have been written in the statute itself.9 In the instant case, the Court finds no cogent reason to depart from this rule.1âwphi1

The above interpretation of the DOLE, DFA and POEA is also in consonance with the policy of the state to promote voluntary arbitration as a mode of settling labor disputes.10

No less than the Philippine Constitution provides, under the third paragraph, Section 3, Article XIII, thereof that "[t]he State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace."

Consistent with this constitutional provision, Article 211 of the Labor Code provides the declared policy of the State "[t]o promote and emphasize the primacy of free collective bargaining and negotiations, including voluntary arbitration, mediation and conciliation, as modes of settling labor or industrial disputes."

On the basis of the foregoing, the Court finds no error in the ruling of the CA that the voluntary arbitrator has jurisdiction over the instant case.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 76489 dated July 11, 2005 and April 18, 2006, respectively, are AFFIRMED.

SO ORDERED.

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