Case Digest (G.R. No. 202305)
Facts:
Cagayan de Oro City Water District (COWD) sued to annul Orders of the Regional Trial Court, Branch 38, Cagayan de Oro City directing it and Rio Verde Water Consortium, Inc. (Rio Verde) to submit to arbitration under the Bulk Water Supply Agreement (BWSA) dated December 23, 2004, as amended by the Supplemental Agreement dated January 21, 2005. COA issued audit findings and a Notice of Disallowance regarding payments made at P11.52 per cubic meter and later recommended filing criminal and civil actions for nullity of the contracts; the RTC, by Orders dated March 23, 2012 and May 3, 2012, granted Rio Verde’s petition to compel arbitration under Article 19 of the BWSA.Issues:
- May the RTC’s directive to arbitrate be properly challenged by certiorari to the Supreme Court?
- Did the RTC gravely abuse its discretion in directing arbitration despite the ongoing COA audit and recommendations?
- Does COA’s recommendation to file criminal and civil nullity actions preclude submission to
Case Digest (G.R. No. 202305)
Facts:
- Creation of Cagayan de Oro City Water District and procurement framework
- Cagayan de Oro City Water District (COWD) was created pursuant to Presidential Decree No. 198 and City Council Resolution No. 35 dated July 11, 1973.
- COWD conducted public bidding for its Bulk Water Supply Project (BWSP) using a Model Contract as part of the bidding documents.
- Award of contract and formation of agreements
- By Resolution No. 222, Series of 2004 dated December 9, 2004, the COWD Board awarded the BWSP contract to Rio Verde Water Consortium, Inc. (Rio Verde).
- COWD and Rio Verde executed the Bulk Water Supply Agreement (BWSA) dated December 23, 2004, under which Rio Verde agreed to supply bulk water at a starting rate of P10.45 per cubic meter for a required production capacity of 50,000–150,000 cubic meters per day for twenty-five years.
- By Resolution No. 238, Series of 2004, COWD was authorized to negotiate a water price adjustment formula; after two meetings, the Board approved a revised parametric formula embodied in the Supplemental Agreement dated January 21, 2005.
- Performance, billing dispute, and internal review
- Rio Verde commenced bulk water delivery in January 2007 at 40,000 cubic meters daily but billed COWD at P11.52 per cubic meter citing Article 9 of the BWSA as amended by the Supplemental Agreement.
- On June 27, 2007, COWD Acting General Manager Engineer Bienvenido V. Batar, Jr. submitted observations noting substantial deviations between the BWSA and the Model Contract.
- COWD sought legal advice from the Office of the Government Corporate Counsel (OGCC). OGCC Opinion No. 003, Series of 2008 advised immediate reformation of the BWSA, as amended, to revert to the Model Contract and opined that the Supplemental Agreement lacked LWUA conformity.
- Despite objections, Rio Verde received payment totaling P132,414,165.40 for bulk water billed at P11.52 per cubic meter.
- COA audit, findings, and COWD actions
- On September 23, 2008, the Commission on Audit (COA) issued Notice of Disallowance No. COWD-2008-51 (Calendar Year 2007) disallowing the P132,414,165.40 disbursement and finding Rio Verde a non-responsive bidder per Bids and Award Committee Resolution No. 003, Series of 2004.
- By Resolution No. 063, Series of 2009 dated July 1, 2009, COWD resolved to continue payments citing the paramount public need for uninterrupted water supply.
- COWD filed an Appeal Memorandum with COA on July 14, 2009, contesting the ND and the finding of non-responsiveness.
- At the request of the Office of the Ombudsman for Mindanao, COA formed a Special Audit Team. Under Fraud Audit and Investigation Office Audit Observation Memorandum (FAIO-AOM) 2009-0019 dated November 9, 2009, COA reported that:
- Bidding failed to comply with Republic Act No. 9184.
- Rio Verde was a newly organized consortium lacking three-year audited financial statements and BIR registration, rendering it a non-responsive bidder.
- The BWSA deviated substantially from the Model Contract and favored Rio Verde.
- The Supplemental Agreement increased the water rate formula to Rio Verde’s advantage by P1.46 per cubic meter.
- Fraud attended the execution of the contracts, in line with OGCC opinion.
- COA Director IV Leonor D. Boado affirmed the findings on October 22, 2010; COWD sought her inhibition.
- COWD and Rio Verde later agreed to be bound by the Model Contract and Rio Verde charged P10.45 per cubic meter thereafter.
- By Letter dated March 15, 2011, Rio Verde requested a water price adjustment of P2.6961 per cubic meter to a total of P13.1461 effective April 2011; COWD denied the request citing FAIO-AOM 2009-0019. Rio Verde then sought to resolve differences through arbitration; COWD did not respond.
- COA FAIO Report No. 2013-002 and recommendations
- COA FAIO published Report No. 2013-002 recommending:
- Filing charges against members of the COWD Board and Rio Verde for violation of Section 3(e), Republic Act No. 3019.
- Initiation of annulment of the BWSA.
- Disallowance of P47,963,217.05 as unnecessary and irregular expenditures.
- Rio Verde subsequently argued before the Court that COA’s report was irrelevant to the arbitration petition.
- Proceedings before the Regional Trial Court
- In Special Proceedings No. 2011-190 (In re: Petition to Compel Arbitration, Rio Verde Water Consortium, Inc. v. Cagayan de Oro Water District), Rio Verde filed a petition to compel arbitration invoking Article 19 of the BWSA and Section 6 of Republic Act No. 876.
- Article 19 of the BWSA provided for:
- Regular meetings and amicable settlement procedures.
- That unresolved disputes shall be finally settled by arbitration in accordance with the Arbitration Law of the Philippines and that arbitral awards may be enforced in any competent court in Manila. ...(Subscriber-Only)
Issues:
- Proper challenge of an order to arbitrate
- May the RTC’s directive to arbitrate be properly challenged via the present petition for certiorari?
- Alleged grave abuse in directing arbitration amid COA audit
- Did the trial court gravely abuse its discretion when it directed COWD and Rio Verde to arbitrate despite the ongoing COA investigation into the award and execution of the BWSA?
- Effect of COA recommendations on arbitration
- Does COA’s recommendation to file c...(Subscriber-Only)
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)