Title
LICOMCEN INC. vs. FOUNDATION SPECIALISTS, INC.
Case
G.R. No. 167022
Decision Date
Aug 31, 2007
LICOMCEN suspended CITIMALL construction, leading to FSI's arbitration claim. CIAC ruled contract terminated, awarding FSI material costs but denying standby and profit claims; LICOMCEN faulted for improper suspension.
construction company
arbitration
construction contract
A

Case Digest (G.R. No. 190837)

Facts:

  • Background of the Parties and the Project
    • LICOMCEN Incorporated is a corporation engaged in operating shopping malls.
    • In March 1997, the City Government of Legaspi leased a lot in its Central District to LICOMCEN under a Build-Operate-Transfer scheme for the development of LCC City Mall (CITIMALL).
    • LICOMCEN engaged E.S. De Castro and Associates (ESCA) as the engineering consultant for the project.
  • Contractual Arrangements and Agreements
    • On September 1, 1997, LICOMCEN and Foundation Specialists, Inc. (FSI) entered into a Construction Agreement for the bored pile foundation of CITIMALL.
    • The Construction Agreement incorporated:
      • The Bid Documents and the General Conditions of Contract (GCC) prepared by ESCA.
      • Provisions such as GC-05, which granted ESCA and LICOMCEN the authority to suspend work; and GC-61, which set a procedure for dispute resolution via referral to LICOMCEN before resorting to arbitration at the Construction Industry Arbitration Commission (CIAC).
  • Construction, Design Revisions, and Immediate Events
    • FSI commenced work immediately upon receipt of the notice to proceed and was to complete the work within ninety (90) days in accordance with approved plans and specifications.
    • Adjustments to the project occurred when LICOMCEN revised the CITIMALL design, reducing the number and length of bored piles.
      • ESCA informed FSI of the revision on December 16, 1997 and ordered the withholding of steel bar delivery pending design approval.
      • FSI indicated that the steel bars had already been shipped, prompting ESCA’s suggestion to partially deliver the material while storing the balance.
  • Suspension and Termination of the Construction
    • On January 15, 1998, LICOMCEN ordered suspension of all construction activities following a protest by the Albay Accredited Constructions Association (AACA) concerning the Contract of Lease award and the filing of criminal complaints.
      • LICOMCEN also requested that FSI not unload the arriving steel bars.
    • Despite the order, on January 17, 1998, steel bars arrived and were unloaded, with portions delivered to both the jobsite and FSI’s batching compound.
    • Subsequent orders by LICOMCEN on January 19, 1998 and February 17, 1998 led to a demobilization of materials and ultimately an indefinite suspension of the project.
  • Dispute and Claims Arising Therefrom
    • FSI demanded payment totaling approximately P22.67 million for:
      • Work accomplishments,
      • Material costs,
      • Standby costs for equipment, and other expenses.
    • LICOMCEN, after the dismissal of the Ombudsman’s cases on October 12, 1998 (later affirmed), did not resume the project.
    • LICOMCEN subsequently hired Designtech Consultants, which led to rebidding of the bored piling works, further aggravating the dispute over payment obligations.
  • Arbitration Proceedings
    • FSI filed a petition for arbitration with the CIAC (CIAC Case No. 37-2002) after LICOMCEN’s refusal to pay.
    • LICOMCEN denied FSI’s claims based on several grounds:
      • Lack of jurisdiction of CIAC under the arbitration clause in the GCC; and
      • The argument that the dispute did not arise out of the execution of works but rather from an alleged breach of contract under a different clause (GC-05).
    • During preliminary conferences, both parties agreed to submit to arbitration and signed a Terms of Reference (TOR), thereby affirmatively invoking the CIAC’s jurisdiction.
  • Judicial and Arbitral Developments
    • The CIAC rendered a Decision in favor of FSI awarding sums for:
      • Material costs at the site,
      • Equipment and labor standby costs,
      • Unrealized profit; and
      • The unpaid balance of FSI’s billing.
      • LICOMCEN was also ordered to bear the arbitration costs.
    • LICOMCEN elevated the CIAC Decision to the Court of Appeals (CA).
      • The CA modified the CIAC award by reducing the sum for material costs and deleting the awards for equipment and labor standby costs as well as for unrealized profit.
      • Motions for partial reconsideration by both parties were denied by subsequent CA Resolutions in February and September 2005.
    • Due to the involvement of the same parties, issues, and decision, the cases were consolidated for review by the Supreme Court.
  • Issues Raised by the Parties
    • LICOMCEN contended:
      • Whether the project was merely suspended and not terminated.
      • Whether the CIAC had proper jurisdiction over the dispute.
      • Whether FSI was entitled to claim any amount of damages.
      • Whether LICOMCEN was at fault.
    • FSI asserted:
      • That the CA erred for not awarding the full amount of material costs at site,
      • Denying its claims for equipment and labor standby costs,
      • Denying its claim for unrealized profit, and
      • Rendering a mere minute resolution in denying its motion for partial reconsideration.

Issues:

  • Jurisdiction of the CIAC
    • Whether the CIAC acquired exclusive jurisdiction over the dispute through the arbitration clause (GC-61) in the GCC.
    • Whether FSI complied with the condition precedent required by the arbitration clause.
  • Nature of the Construction Disruption
    • Whether the suspension of construction by LICOMCEN amounted to an indefinite suspension or a termination of the contract.
    • Whether LICOMCEN’s actions and subsequent rebidding evidenced contract termination rather than a temporary suspension.
  • Entitlement to Damages and Claims
    • Whether FSI is entitled to recovery of:
      • Material costs at site in full;
      • Equipment and labor standby costs; and
      • Unrealized profit as claimed.
    • The evidentiary basis and proper contractual interpretation for compensation under GC-42 regarding contract termination.
  • Impact of Procedural Issues
    • Whether LICOMCEN’s active participation in the arbitration proceedings precluded its later challenge to the CIAC’s jurisdiction.
    • Whether the alleged delay (laches) in filing the arbitration claim was unreasonable or barred FSI’s claims.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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