ADR CASES 2ND SET 1

G.R. No. 179628 January 16, 2013 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 Decision 26 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 suretys 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 suretys 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 petitioners 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. Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction. THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND

THE MANILA INSURANCE COMPANY, INC., Petitioner, vs. SPOUSES ROBERTO and AIDA AMURAO, Respondents. DECISION 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 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 ofP2,760,000.00 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 respondentspouses 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 Crossclaim,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

ADR CASES 2ND SET 2

EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34 Petitioners 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 codebtor.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.42Petitioner 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 latters 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 suretys 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 suretys liability to the obligee is nevertheless direct, primary, and absolute.52 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 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. 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.

ADR CASES 2ND SET 3

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.1wphi1 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 BRION, J.: 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 respondentspouses 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. 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, 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 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. DECISION

ADR CASES 2ND SET 4

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-ADM1-97-0622).11 On January 19, 1998, ESCA formalized the suspension of construction activities and ordered the constructions 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 FSIs 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 LICOMCENs fault. FSI rejected ESCAs 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 FSIs 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. 37-2002.19In the arbitration petition, FSI demanded payment of the following amounts: a. Unpaid accomplished work billings. b. Material costs at site.. c. Equipment and labor standby costs.. d. Unrealized gross profit.. e. Attorneys fees.. f. Interest expenses ... proceedings until the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs 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 CIACs 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. b. Material costs at site c. Equipment and labor standby costs d. Unrealized gross profit

P 1,264,404.12 14,643,638.51 2,957,989.94 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 CIACs decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a) reducing LICOMCENs 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 CAs Decision; LICOMCENs motion was denied in the CAs February 4, 2005 Resolution, while FSIs motion was denied in the CAs September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari before the Court.25 LICOMCENs Arguments

P 1,264,404.12 15,143,638.51 3,058,984.34 9,023,575.29 300,000.00 equivalent to 15% of the total claim

LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs 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 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 CIACs jurisdiction, contending that FSIs 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 CIACs 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 FSIs petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration

ADR CASES 2ND SET 5

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 FSIs 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, which has 30 days to resolve it. If within a period of 30 days from receipt of LICOMCENs 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 LICOMCENs 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 FSIs claims, but declares that FSIs 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 FSIs April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSIs 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 FSIs delays in asserting its claims, LICOMCEN also contends that FSIs 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 PagAsa Steel Works, Inc.. P 799,506.83 Reinforcing steel bars purchased from ARCA Industrial Sales (total net weight of 744,197.66 kilograms) 50% of net amount due. 5,395,433.04 Subtotal. 6,194,939.87 Less Purchase cost of steel bars by Ramon Quinquileria.. (500,000.00) TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT SITE... 5,694,939.87 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 FSIs 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 ESCAs 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 LICOMCENs 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 LICOMCENs 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 LICOMCENs "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 FSIs 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 FSIs 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

ADR CASES 2ND SET 6

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 ESCAs 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 LICOMCENs 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 FSIs 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 LICOMCENs 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 LICOMCENs intent to ease out FSI.41 Thus, FSI states that LICOMCENs bad faith in indefinitely suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC41 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 COURTS 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 tribunals 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 GC61. The CIACs jurisdiction cannot be limited by the parties stipulation that only disputes in connection with or arising out of the physical construction activities (execution of the works) are arbitrable before it. 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

ADR CASES 2ND SET 7

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. Attorneys 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 CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition precedent. GC61 requires a party disagreeing with LICOMCENs decision to "officially give notice to contest such decision through arbitration" within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never mentioned FSIs plan to submit the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding FSIs failure to make a proper and timely notice, LICOMCENs 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 bodys decision final and binding. The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed. The validity of the indefinite suspension of the works on the Citimall project Before the Court rules on each of FSIs contractual monetary claims, we deem it important to discuss the validity of LICOMCENs 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 xxxx 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

ADR CASES 2ND SET 8

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 LICOMCENs 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-1-970622), as cited in LICOMCENs January 15, 1998 letter and ESCAs 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 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 LICOMCENs 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 CIACs 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 LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCENs 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 FSIs 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 LICOMCENs 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 CAs finding. Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs 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.

ADR CASES 2ND SET 9

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 ESCAs December 16, 1997 notice may not have been categorical in ordering the suspension of the works, FSIs 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 ESCAs 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 FSIs argument and the CIACs 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 LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50% of the costs of the steel bars delivered. The claim for equipment and labor standby costs The Court upholds the CAs 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 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, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT xxxx 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

ADR CASES 2ND SET 10

Nonetheless, on account of our earlier discussion of LICOMCENs 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 plaintiffs 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 CIACs determination of which of the parties shall eventually shoulder the amount.70The 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 LICOMCENs 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 CAG.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. G.R. No. 172438 July 4, 2012

METROPOLITAN CEBU WATER DISTRICT, Petitioner, vs. MACTAN ROCK INDUSTRIES, INC., Respondent. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 assailing the February 20, 2006 Decision1 and the March 30, 2006 Resolution2 of the Court of Appeals (CA) in CAG.R. CEB SP. No. 00623. THE FACTS Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled corporation (GOCC)created pursuant to Presidential Decree (PD) No. 198,3 as amended, with its principal office address at the MCWD Building, Magallanes corner Lapu-Lapu Streets, Cebu City.4 It is mandated to supply water within its service area in the cities of Cebu, Talisay, Mandaue, and LapuLapu and the municipalities of Compostela, Liloan, Consolacion, and Cordova in the Province of Cebu.5 Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal office address at the 2nd Level of the Waterfront Cebu Hotel and Casino, Lahug, Cebu City.6 On May 19, 1997, MCWD entered into a Water Supply Contract7 (the Contract) with MRII wherein it was agreed that the latter would supply MCWD with potable water, in accordance with the World Health Organization (WHO)standard or the Philippine national standard, with a minimum guaranteed annual volume.8 On March 15, 2004, MRII filed a Complaint9 against MCWD with the Construction Industry Arbitration Commission (CIAC), citing the arbitration clause (Clause 18)10 of the Contract. The case was docketed as CIAC Case No. 12-2004. In the said complaint, MRII sought the reformation of Clause 17 of the Contract, or the Price Escalation/De-Escalation Clause, in order to include Capital Cost Recovery in the price escalation formula, and to have such revised formula applied from 1996 when the bidding was conducted, instead of from the first day when MRII started selling water to MCWD. It also sought the payment of the unpaid price escalation/adjustment, and the payment of unpaid variation/extra work order and interest/cost of money up to December 31, 2003.11 On May 7, 2002, MCWD filed its Answer12 dated April 27, 2004, which included a motion to dismiss the complaint on the ground that the CIAC had no jurisdiction over the case, as the Contract was not one for construction or infrastructure. The CIAC thereafter issued an order13 denying MCWDs motion to dismiss, and calling the parties to a preliminary conference for the review and signing of the Terms of Reference.14 MCWD, thus, filed a petition for certiorari15 under Rule 65 with the CA, questioning the jurisdiction of the CIAC. The petition was docketed as CA-G.R. SP. No. 85579 (First Petition).

ADR CASES 2ND SET 11

Meanwhile, the CIAC proceeded with the preliminary conference scheduled on June 10 and July 22, 2004 which MWCD opted not to attend. MRII and the CIAC both signed the Terms of Reference. Pursuant to the Terms of Reference and the CIAC Order dated July 22, 2004, MRII submitted its documentary evidence and affidavits of its witnesses.16 On August 27, 2004, MRII submitted its Formal Offer of Evidence and its memorandum of arguments in the form of a proposed/draft decision. MCWD did not attend the hearings. It did not submit evidence other than those annexed to its Answer. Neither did it file a formal offer of evidence, or a memorandum of legal arguments. 17 Decision of the CIAC The CIAC promulgated its Decision18 on April 14, 2005, the dispositive portion of which reads: WHEREFORE[,] premises considered, judgment is hereby rendered as follows: 1. Ordering the reformation of Clause 17 of the Water Supply Contract to read: 17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula: 17.1 Power Rate Price Adjustment/Power Cost Adjustment Current Power Rate - Base Power Rate Base Power Rate 17.2 Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment: Current CPI Base CPI Base CPI 17.3 Capital Cost Recovery Adjustment: Current Peso to Base Peso to US$ US$ Exchange Rate Exchange Rate Base Peso to US $ Exchange Rate 2. Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan Rock Industries, Inc[.] under the reformed Clause 17 of the Water Supply Contract, the net amount of Php12,126,296.70 plus legal interest of six percent (6%) per annum from the (sic) March 15, 2004, the date of filling (sic) of the case with the Construction Industry Arbitration Commission, the rate increased to twelve percent (12%) per annum from the date the herein Decision have (sic) become final and executory until the foregoing amounts shall have been fully paid[.] 3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall share equally the cost of arbitration. SO ORDERED.19 Decision of the CA in CA-G.R. SP No. 85579 - Petition for certiorari under Rule 65 with the Court of Appeals questioning the jurisdiction of the CIAC Meanwhile, on October 28, 2005, the CA in its decision 20 in the First Petition upheld the jurisdiction of the CIAC over the case. The CA held that when parties agree to settle their disputes arising from or connected with construction contracts, the CIAC acquires primary jurisdiction.21 Citing Philrock Inc. v. Construction Industry Arbitration Commission,22 the CA stated that the CIAC may resolve not only the merits of such controversies, but may also award damages, interest, attorneys fees, and expenses of litigation, when appropriate.23 Second, the CA held that the claims in question fall under the jurisdiction of the CIAC. Thus: Xxx Section 4 of Executive Order No. 1008, otherwise known as the Construction Industry Arbitration Law delineates CIACs jurisdiction as "original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes arise before or after the completion of the contract, or after abandonment thereof." Moreover, Section 5 (k) of Republic Act No. 9184 otherwise known as [the] Government Procurement Reform Act expressly defines "infrastructure project" as including "water supply[,]" construction, rehabilitation[,] demolition, repair, restoration and maintenance. Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration. It is to be highlighted that the dispute in the case at bar arose from the parties incongruent positions with regard to clause 17 of the Water Supply Contract[,] specifically the price escalation/adjustment. The instant case involves technical discrepancies that are better left to an arbitral body that has expertise in those areas. Nevertheless, in any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still judicially reviewable under certain conditions.24 (Citations omitted.) MCWDs motion for reconsideration of the decision in the First Petition was still pending when it filed the petition for review25 under Rule 43 (Second Petition) appealing the decision of the CIAC. The

x 30% of base selling price of water

x 40% of base selling price of water

x 30% of base selling price of water

Price escalation shall be reckoned from January 1999 when the water was first delivered by Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The base CPI, base US$ Exchange Rate and the Base Power Rate shall be the prevailing rate in January 1999, while the Base Selling Price of water shall mean the 1996 rate per cubic meter of water as provided for in the Water Supply Contract.

ADR CASES 2ND SET 12

motion for reconsideration was eventually denied in a Resolution26 dated May 3, 2006. MCWD did not appeal from the denial of the motion. It, thus, became final and executory. 27 Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition for review under Rule 43 appealing the decision of the CIAC Aggrieved by the CIAC Decision, MCWD filed a petition for review under Rule 43 with the CA which was docketed as CA-G.R. CEB SP. No. 00623. The CA, however, dismissed the petition in its Decision dated February 20, 2006. The Court therein stated that the issue of jurisdiction had already been resolved by the 18th Division in the First Petition, where the CA upheld the jurisdiction of the CIAC over Arbitration Case No. 12-2004. Citing jurisprudence, the CA also ruled that there being an arbitration clause in the Contract, the action for reformation of contract instituted by MRII in this case fell squarely within the jurisdiction of the CIAC, not the courts. In relation to this, the CA noted that the present rule is that courts will look with favor upon amicable agreements to settle disputes through arbitration, and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. MCWD being a signatory and a party to the Water Supply Contract, it cannot escape its obligation under the arbitration clause. 28 The CA also held that the CIAC did not err in finding that the Water Supply Contract is clear on the matter of the reckoning period for the computation of the escalation cost from January 9, 1999, or the first day of delivery of water. Moreover, the CA found that the CIAC did not err in ruling that the contract be reformed to include Capital Cost Recovery in the parametric formula for price escalation. Neither did it err in holding that the Capital Cost Recovery shall be 30% of the Base Selling Price of water as a consequence of the reformation of Clause 17. Finally, the CA stressed that "factual findings of administrative agencies which are deemed to have acquired expertise in matters within their respective jurisdictions are generally accorded not only respect but even finality when supported by substantial evidence."29 MCWD filed a motion for reconsideration but it was denied in the CA Resolution dated March 30, 2006. Thus, this petition. ISSUES MCWD raises the following issues in its petition for review: MAY THE CONSTRUCTION INDUSTRY [ARBITRATION] COMMISSION EXERCISE JURISDICTION OVER DISPUTES ARISING FROM A WATER SUPPLY CONTRACT? MAY A PARTY, WHO IS A SIGNATORY TO THE WATER SUPPLY CONTRACT[,] IN EFFECT SUBMITTING ITSELF TO THE JURISDICTION OF THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, QUESTION THE JURISDICTION OF [THE] CIAC? DOES THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION HAVE THE (SIC) JURISDICTION OVER A COMPLAINT PRAYING FOR A REFORMATION OF A WATER SUPPLY CONTRACT? MAY THE COURT OF APPEALS REFUSE TO RENDER A [SIC] JUDGMENT ON AN ISSUE BECAUSE THIS HAS BEEN ALREADY SETTLED IN A DECISION RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS IN A PETITION FOR CERTIORARI, EVEN IF THE SAID DECISION HAS NOT YET BEEN (SIC) FINAL DUE TO A TIMELY FILING OF A MOTION FOR RECONSIDERATION?30 RULING OF THE COURT Creation of the CIAC The Construction Industry Arbitration Commission (CIAC) was created in 1985 under Executive Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the Philippine Construction Industry), in recognition of the need to establish an arbitral machinery that would expeditiously settle construction industry disputes. The prompt resolution of problems arising from, or connected to, the construction industry was considered necessary and vital for the fulfillment of national development goals, as the construction industry provided employment to a large segment of the national labor force, and was a leading contributor to the gross national product. 31 Under Section 4 of E.O. No. 1008, the CIACs jurisdiction was specifically delineated as follows: SECTION 4. Jurisdiction - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes arise 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 provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost. Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines. (Underscoring supplied) The jurisdiction of the CIAC as a quasi-judicial body is confined to construction disputes,32 that is, those arising from, or connected to, contracts involving "all on-site works on buildings or altering structures from land clearance through completion including excavation, erection and assembly and installation of components and equipment."33 The CIAC has jurisdiction over all such disputes whether the dispute arises before or after the completion of the contract.34 Whether the CIAC has jurisdiction over the dispute

ADR CASES 2ND SET 13

As earlier stated, following the denial of its motion to dismiss by CIAC, MCWD filed the First Petition with the CA, which decided in favor of MRII and upheld the jurisdiction of the CIAC. Not being in conformity, MCWD filed a motion for reconsideration. While the said motion was pending with the CA, MCWD filed the Second Petition with the same court. Eventually, the motion was denied, and MCWD never appealed the case. Thus, the decision of the CA in the First Petition became final and executory. The question now is whether such final and executory decision is binding such that courts are generally precluded from passing judgment on the issue of jurisdiction in the present petition. The Court finds in the affirmative. This Court has held time and again that a final and executory judgment, no matter how erroneous, cannot be changed, even by this Court. Nothing is more settled in law than that once a judgment attains finality, it thereby becomes immutable and unalterable. It may no longer be modified in any respect, even if such modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land.35 In its Decision in the First Petition, the CA affirmed the arbitral bodys finding in CIAC Case No. 12-2004 that the case was within its jurisdiction. Such decision having become final, it is beyond the jurisdiction of this Court, or any court or body, for that matter, to review or modify, even supposing for the sake of argument, that it is indeed erroneous. Also, the parties apparently characterized the Contract as one involving construction, as its arbitration clause specifically refers disputes, controversies or claims arising out of or relating to the Contract or the breach, termination or validity thereof, if the same cannot be settled amicably, to an arbitration tribunal, in accordance with E.O. No. 1008, or the Construction Industry Arbitration Law: V. DISPUTES AND JURISDICTION: 18. Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination or invalidity thereof, if the same cannot be settled amicably, may be submitted for arbitration to an Arbitration Tribunal in accordance with Executive Order No. 1008 dated 4 February 1985, otherwise known as the Construction Industry Arbitration Law and the place of arbitration shall be the City of Cebu, Philippines, otherwise said dispute or controversy arising out of the contract or breach thereof shall be submitted to the court of law having jurisdiction thereof in the city where MCWD is located.36 Had the parties been of the mutual understanding that the Contract was not of construction, they could have instead referred the matter to arbitration citing Republic Act (R.A.) No. 876, or The Arbitration Law. Having been passed into law in 1953, the said statute was already in existence at the time the contract was entered into, and could have been applied to arbitration proceedings other than those specifically within the arbitral jurisdiction of the CIAC. Whether the CA erred in refusing to render judgment on the issue of jurisdiction ___________ On a related matter, MWCD also raises the issue of whether the 19th Division of the CA, Cebu City, erred in refusing to render judgment on the issue of jurisdiction raised in the Second Petition on the ground that it had already been settled by the 18th Division in its decision in the First Petition, even if the 18th Division decision had not yet become final due to a timely filing of a motion for reconsideration. The Court rules in the negative. The 19th Division was correct in refusing to render judgment on the issue of jurisdiction as, at that time, the issue was still pending before another division of the CA. Litis pendentia is predicated on the principle that a party should not be allowed to vex another more than once regarding the same subject matter and for the same cause of action. It is founded on the public policy that the same subject matter should not be the subject of controversy in courts more than once, in order that possible conflicting judgments may be avoided for the sake of the stability of the rights and status of persons, and also to avoid the costs and expenses incident to numerous suits. 37 With the two petitions then pending before the CA, all the elements of litis pendentia were present, that is, identity of the parties in the two actions, substantial identity in the causes of action and in the reliefs sought by the parties, and identity between the two actions such that any judgment that may be rendered in one case, regardless of which party is successful, would amount to res judicata in the other.38 In both cases, MCWD was the petitioner and MRII, the respondent. Although they differ in form, in essence, the two cases involved a common issue, that is, MCWDs challenge to the jurisdiction of the CIAC over the arbitration proceedings arising from the Water Supply Contract between the petitioner and respondent. To determine whether there is identity of the rights asserted and reliefs prayed for, grounded on the same facts and bases, the following tests may be utilized: (1) whether the same evidence would support and sustain both the first and the second causes of action, also known as the "same evidence" test; or (2) whether the defenses in one case may be used to substantiate the complaint in the other.39 Also fundamental is the test of determining whether the cause of action in the second case existed at the time of the filing of the first case.40 In the First Petition, MCWD argued that the CIACs issuance of its Order41 dated May 28, 2004 was tainted with grave abuse of discretion amounting to excess or lack of jurisdiction. Thus, MCWD stated in its prayer: WHEREFORE, in light of the premises laid down, petitioner most respectfully prays: 1. Upon the filing of this Petition, a Writ of Preliminary Injunction or restraining order be issued forthwith, enjoining the respondent from proceeding with the hearing of the case until further orders from the Honorable Court of Appeals;

ADR CASES 2ND SET 14

2. After consideration, petitioner also prays that the Order dated May 28, 2004, denying petitioners motion to dismiss be declared without force and effect; 3. Petitioner also prays that the Construction Industry Arbitration Commission be barred from hearing the case filed by Mactan Rock Industries, Inc., private respondent herein. Other measures of relief, which are just and equitable under the foregoing premise are also prayed for.42 The Second Petition, on the other hand, raised the following issues: a. Whether or not the Arbitral Tribunal of CIAC gravely erred in taking and exercising jurisdiction over the complaint filed by the respondent; b. Whether or not the Arbitral Tribunal of CIAC gravely erred in reforming Clause 17 of the Contract; c. Whether or not the same tribunal gravely committed an error in considering Capital Cost Recovery Adjustment in awarding in favor of the complainant, when the same is extraneous to the provisions of the contract;43 Thus, it prayed: WHEREFORE, PREMISES CONSIDERED, it is most respectfully prayed of the Honorable Court that a Judgment be issued reversing the findings of the Arbitral Tribunal of the Construction Industry Arbitration Commission in its Decision dated April 14, 2005, as far as the order of reformation of the water supply contract and in granting the monetary award. It is further prayed that the decision rendered by the Arbitral Tribunal be declared invalid for want of jurisdiction to arbitrate and to order the reformation of the water supply contract; It is also prayed that the decision awarding money to the respondent be strike (sic) down as erroneous and without legal basis for lack of jurisdiction by the Arbitral Tribunal, which rendered the Decision. It is also prayed that a Temporary Restraining Order and a Writ of Preliminary Injunction be issued at the outset, ordering the stay of execution pending the resolution of the issues raised in the Petition. Other measures of relief, which are just and equitable, are also prayed for.44 In both cases, the parties also necessarily relied on the same laws and arguments in support of their respective positions on the matter of jurisdiction. In the First Petition, in support of its argument, that the CIAC had no jurisdiction to arbitrate the causes of action raised by MRII, MCWD cited the portions of the Contract on the obligations of the water supplier, E.O. No. 1008 (specifically Section 4 on jurisdiction), the Rules of Procedure Governing Construction Arbitration (Section 1, Article III). It also alleged that in issuing the order denying its motion to dismiss, the CIAC misread the provisions of LOI No. 1186 and R.A. No. 9184 on the definition of an infrastructure project. 45 MRII, however, opined that the CIAC had jurisdiction over the complaint and, therefore, correctly denied petitioners motion to dismiss. MRII argued that certiorari was not a proper remedy in case of denial of a motion to dismiss and that the claims fell squarely under CIACs original and exclusive jurisdiction. MRII, in support of its position, cited Section 1 of LOI No. 1186 and Section 5(k) of R.A. No. 9184. MRII further proposed that, as shown by MCWDs pro forma Water Supply Contract, Specifications, Invitation to Submit Proposal, Pre-Bid Conference minutes, Addendum No. 1, and MRIIs Technical and Financial Proposals, the undertaking contemplated by the parties is one of infrastructure and of works, rather than one of supply or mere services.46 In the Second Petition, in support of the issue of jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008 and Section 1, Article III of the Rules of Procedure Governing Construction Arbitration. It also brought to fore the alleged faulty conclusion of MRII that a water supply contract is subsumed under the definition of an infrastructure project under LOI 1186.47 In its Comment, MRII reiterated and adopted its arguments before the CIAC, and insisted that the undertaking contemplated by the parties was one of infrastructure and of works, as distinguished from "mere supply from off-the-shelf or from mere services."48 Section 1 of LOI No. 1186, to define "infrastructure" and Section 5(k) of R.A. No. 9184 to include "water supply," were again cited. In support of its arguments, MRII cited anew MCWDs pro-forma Water Supply Contract, Specifications (in its Invitation to Submit Proposal), pronouncements at the Pre-Bid Conference, Addendum No. 1, and MRIIs Technical and Financial Proposals. MRII further extensively reproduced the content of the joint affidavit of Messrs. Antonio P. Tompar and Lito R. Maderazo, MRIIs President/CEO and Financial Manager, respectively.49 Given that the same arguments were raised on the matter of CIAC jurisdiction, the parties thus relied on substantially the same evidence in both petitions. MCWD annexed to both petitions copies of the Water Supply Contract, the complaint filed by MRII with the CIAC, and its Answer to the said complaint. On the other hand, MRII presented Addendum No. 1 to the Water Supply Contract and its Technical and Financial Proposals. Moreover, the first cause of action in the Second Petition, that is, the CIACs having assumed jurisdiction, allegedly unlawfully, over the dispute arising from the Water Supply Contract, obviously existed at the time the First Petition was filed, as the latter case dealt with the jurisdiction of the CIAC over the complaint filed. Finally, any judgment that may be rendered in the First Petition on the matter of whether the CIAC has jurisdiction over the arbitration proceedings, regardless of which party was successful, would amount to res judicata in the Second Petition, insofar as the issue of jurisdiction is concerned. In fact, what MCWD should have done was to appeal to the Court after the denial of its motion for reconsideration in the First Petition. For not having done so, the decision therein became final and, therefore, immutable. Thus, following the above discussion, the 19th Division was correct in refusing to render judgment on the issue of jurisdiction in the Second Petition. Whether the CIAC had jurisdiction to order the reformation of the Water Supply Contract

ADR CASES 2ND SET 15

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.50 It cannot be fixed by the will of the parties to the dispute, nor can it be expanded or diminished by stipulation or agreement. 51The text of Section 4 of E.O. No. 1008 is broad enough to cover any dispute arising from, or connected with, construction contracts, whether these involve mere contractual money claims or execution of the works. This jurisdiction cannot be altered by stipulations restricting the nature of construction disputes, appointing another arbitral body, or making that bodys decision final and binding.52 Thus, unless specifically excluded, all incidents and matters relating to construction contracts are deemed to be within the jurisdiction of the CIAC. Based on the previously cited provision outlining the CIACs jurisdiction, it is clear that with regard to contracts over which it has jurisdiction, the only matters that have been excluded by law are disputes arising from employer-employee relationships, which continue to be governed by the Labor Code of the Philippines. Moreover, this is consistent with the policy against split jurisdiction. In fact, in National Irrigation Administration v. Court of Appeals,53 it was held that the CIAC had jurisdiction over the dispute, and not the contract. Therefore, even if the contract preceded the existence of the CIAC, since the dispute arose when the CIAC had already been constituted, the arbitral board was exercising current, and not retroactive, jurisdiction. In the same case, it was held that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute to the CIAC because this right has been vested upon each party by law. This is consistent with the principle that when an administrative agency or body is conferred quasi-judicial functions, all controversies relating to the subject matter pertaining to its specialization are deemed to be included within its jurisdiction since the law does not sanction a split of jurisdiction, as stated in Pea v. Government Service Insurance System.54 In Pea, the Court held that although the complaint for specific performance, annulment of mortgage, and damages filed by the petitioner against the respondent included title to, possession of, or interest in, real estate, it was well within the jurisdiction of the Housing and Land Use Regulatory Board (HLURB), a quasi-judicial body, as it involved a claim against the subdivision developer, Queens Row Subdivision, Inc., as well as the Government Service Insurance System (GSIS). This case was later cited in Badillo v. Court of Appeals,55 where the Court concluded that the HLURB had jurisdiction over complaints for annulment of title. The Court also held that courts will not determine a controversy where the issues for resolution demand the exercise of sound administrative discretion, such as that of the HLURB, the sole regulatory body for housing and land development. It was further pointed out that the extent to which an administrative agency may exercise its powers depends on the provisions of the statute creating such agency. The ponencia further quoted from C.T. Torres Enterprises, Inc. v. Hibionada:56 The argument that only courts of justice can adjudicate claims resoluble under the provisions of the Civil Code is out of step with the fast-changing times. There are hundreds of administrative bodies now performing this function by virtue of a valid authorization from the legislature. This quasi-judicial function, as it is called, is exercised by them as an incident of the principal power entrusted to them of regulating certain activities falling under their particular expertise. In the Solid Homes case for example the Court affirmed the competence of the Housing and Land Use Regulatory Board to award damages although this is an essentially judicial power exercisable ordinarily only by the courts of justice. This departure from the traditional allocation of governmental powers is justified by expediency, or the need of the government to respond swiftly and competently to the pressing problems of the modern world. In Bagunu v. Spouses Aggabao,57 the Court ruled that the RTC must defer the exercise of its jurisdiction on related issues involving the same subject matter properly within its jurisdiction, such as the distinct cause of action for reformation of contracts involving the same property, since the DENR assumed jurisdiction over the lot in question, pursuant to its mandate. In National Housing Authority v. First United Constructors Corporation,58 the Court held that there was no basis for the exclusion of claims for business losses from the jurisdiction of the CIAC because E.O. No. 1008 "excludes from the coverage of the law only those disputes arising from employer-employee relationships which are covered by the Labor Code, conveying an intention to encompass a broad range of arbitrable issues within the jurisdiction of CIAC."59 Section 4 provides that "(t)he jurisdiction of the CIAC may include but is not limited to x x x," underscoring the expansive character of the CIACs jurisdiction. Very clearly, the CIAC has jurisdiction over a broad range of issues and claims arising from construction disputes, including but not limited to claims for unrealized profits and opportunity or business losses. What E.O. No. 1008 emphatically excludes is only disputes arising from employeremployee relationships.60 Where the law does not delineate, neither should we. Neither the provisions of the Civil Code on reformation of contracts nor the law creating the CIAC exclude the reformation of contracts from its jurisdiction. Jurisprudence further dictates that the grant of jurisdiction over related and incidental matters is implied by law. Therefore, because the CIAC has been held to have jurisdiction over the Contract, it follows that it has jurisdiction to order the reformation of the Contract as well. Whether MCWD can validly refuse to participate in the arbitration proceedings In light of the finality of the CA decision on the matter of jurisdiction, the only remaining issue to be disposed of is whether the CIAC could proceed with the case even if the MCWD refused to participate in the arbitration proceedings. The Court rules in the affirmative. Though one party can refuse to participate in the arbitration proceedings, thiscannot prevent the CIAC from proceeding with the case and issuing an award in favor of one of the parties. Section 4.2 of the Revised Rules of Procedure Governing Construction Arbitration (CIAC Rules) specifically provides that where the jurisdiction of the CIAC is properly invoked by the filing of a Request for Arbitration in accordance with CIAC Rules, the

ADR CASES 2ND SET 16

failure of a respondent to appear, which amounts to refusal to arbitrate, will not stay the proceedings, notwithstanding the absence of the respondent or the lack of participation of such party. In such cases, the CIAC is mandated to appoint the arbitrator/s in accordance with the Rules, and the arbitration proceedings shall continue. The award shall then be made after receiving the evidence of the claimant. In such a case, all is not lost for the party who did not participate. Even after failing to appear, a respondent is still given the opportunity, under the CIAC Rules, to have the proceedings reopened and be allowed to present evidence, although with the qualification that this is done before an award is issued: 4.2.1 In the event that, before award, the Respondent who had not earlier questioned the jurisdiction of the Tribunal, appears and offers to present his evidence, the Arbitral Tribunal may, for reasons that justifies (sic) the failure to appear, reopen the proceedings, require him to file his answer with or without counterclaims, pay the fees, where required under these Rules, and allow him to present his evidence, with limited right to cross examine witnesses already in the discretion of the Tribunal. Evidence already admitted shall remain. The Tribunal shall decide the effect of such controverting evidence presented by the Respondent on evidence already admitted prior to such belated appearance. Thus, under the CIAC Rules, even without the participation of one of the parties in the proceedings, the CIAC is still required to proceed with the hearing of the construction dispute.61 This Court has held that the CIAC has jurisdiction over a dispute arising from a construction contract even though only one of the parties requested for arbitration.62 In fact, in Philrock, Inc. v. Construction Industry Arbitration Commission,63 the Court held that the CIAC retained jurisdiction even if both parties had withdrawn their consent to arbitrate. In this case, there being a valid arbitration clause mutually stipulated by the parties, they are both contractually bound to settle their dispute through arbitration before the CIAC. MCWD refused to participate, but this should not affect the authority of the CIAC to conduct the proceedings, and, thereafter, issue an arbitral award. Now, with the CIAC decision being questioned by MCWD, the Court takes a cursory reading of the said decision. It reveals that the conclusions arrived at by CIAC are supported by facts and the law. Article 1359 of the Civil Code states that when there has been a meeting of the minds of the parties to a contract, but their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. The CIAC, in this case, found that the parametric formula for price escalation reflected in the Water Supply Contract involved two items: Power Rate Price Adjustment (30% of the base selling price of water) and Consumer Price Index Adjustment (40% of the base selling price of water). The remaining 30% of the selling price of water, which should have been for Capital Cost Recovery, was inadvertently left out in this parametric formula. Thus, the Contract should be reformed accordingly to reflect the intention of the parties to include in the price escalation formula the Capital Cost Recovery Adjustment. These conclusions were affirmed by the CA in the assailed decision of February 20, 2006. As noted by MCWD in its reply, however, the dispositive portion of the CIAC decision reforming the price escalation formula is inconsistent with what was stated in the body of the decision. The formula contained in the body of the decision is as follows: PRICE ADJUSTMENT COMPUTATION Based on Reformed Clause 17 of the Water Supply Contract 1. Power Cost Adjustment: xxx Current Power Rate Base Power Rate x 30% of Base Selling Price of water Base Power Rate xxx 2. Operating Cost Adjustment - Local xxx Current CPI Base CPI x 30% of 40% of Base Selling Price of Water Base CPI xxx 3. Operating Cost Adjustment Foreign xxx Current Forex Base Forex x 70% of 40% of Base Selling Price of Water Base Forex xxx 4. Capital Cost Adjustment Local xxx Current CPI Base CPI x 30% of 30% of Base Selling Price of Water Base CPI xxx 5. Capital Cost Adjustment Foreign xxx

ADR CASES 2ND SET 17

Current Forex Base Forex x 70% of 30% of Base Selling Price of Water Base Forex xxx64 The dispositive portion of the decision, however, reads: WHEREFORE[,] premises considered, judgment is hereby rendered as follows: 1. Ordering the reformation of Clause 17 of the Water Supply Contract to read: 17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula: 17.1 Power Rate Price Adjustment/Power Cost Adjustment Current Power Rate Base Power Rate Base Power Rate 17.2 Consumer Price Index (CPI) Adjustment/Operatiing (sic) Cost Adjustment: Current CPI Base CPI x 40% of Base Selling Price of Water Base CPI 17.3 Capital Cost Recovery Adjustment: Current Peso to Base Peso to US$ US$ Exchange Rate Exchange Rate Base Peso to US $ Exchange Rate In turn, the second componentOperating Cost Adjustmentis computed based on Local Operating Cost Adjustment (30%), and Foreign Operating Cost Adjustment (70%). Capital Cost Adjustment, on the other hand, is composed of Local Capital Cost Adjustment (30%), and Foreign Capital Cost Adjustment (70%). This is consistent with the formula set forth in the body of the CIAC decision. If the formula in the dispositive portion were to be followed, Operating Cost Adjustment would be computed with the Local Operating Cost Adjustment representing the entire 40% of the base selling price of water instead of just 30% of the Operating Cost Adjustment. Moreover, if the Capital Cost Recovery Adjustment were to be computed based solely on Foreign Capital Cost Recovery Adjustment, it would represent the entire 30% of the base selling price of water, and not just 70% of the Capital Cost Recovery Adjustment. The omission of the marked portions of the formula as stated in the body of the CIAC decision represents substantial changes to the formula for price escalation. It is thus clear that the formula as stated in the body of the decision should govern. WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No. 00623 are AFFIRMED with the modification that the formula for the computation of the Capital Cost Recovery Adjustment in the fallo of the CIAC decision should be amended to read as follows: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Ordering the reformation of Clause 17 of the Water Supply Contract to read: 17. Price Escalation and/or De-Escalation shall be based on the parametric formula: 17.1. Power Rate Price Adjustment/Power Cost Adjustment Current Power Rate - Base Power Rate x 30% of base selling price of water Base Power Rate x 30% of base selling price of water 17.2 Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment: Current CPI Base CPI Base CPI 17.3 Capital Cost Recovery Adjustment: Current Peso to Base Peso to US$ US$ Exchange Rate Exchange Rate x 70% of 30% of base selling price of water Base Peso to US $

x 30% of Base Selling Price of water

The general rule is that where there is a conflict between the fallo, or the dispositive part, and the body of the decision or order, the fallo prevails on the theory that the fallo is the final order and becomes the subject of execution, while the body of the decision merely contains the reasons or conclusions of the court ordering nothing. However, where one can clearly and unquestionably conclude from the body of the decision that there was a mistake in the dispositive portion, the body of the decision will prevail.65 Following the reasoning of the CIAC in this case, there are three components to price adjustment: (1) Power Cost Adjustment (30% of the base selling price of water); (2) Operating Cost Adjustment (40% of the base selling price of water); and (3) Capital Cost Adjustment (30% of the base selling price of water).

x 30% of 40% of base selling price of water

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Exchange Rate Price escalation shall be reckoned from January 1999 when the water was first delivered by Mactan Rock Industries, Inc.1awp++i1 to the MCWD facilities in Mactan. The base CPI, base US$ Exchange Rate and the Base Power Rate shall be the prevailing rate in January 1999, while the Base Selling Price of water shall mean the 1996 rate per cubic meter of water as provided for in the Water Supply Contract. 2. Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan Rock Industries, Inc. under the reformed Clause 17 of the Water Supply Contract, the net amount of Php12,126,296.70 plus legal interest of six percent (6%) per annum from March 15, 2004, the date of filing of the case with the Construction Industry Arbitration Commission, and twelve percent (12%) per annum from the date this Decision becomes final and executory, until the foregoing amounts shall have been fully paid. 3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall share the cost of arbitration equally. SO ORDERED.