Case Digest (G.R. No. 101028)
Facts:
This case involves the Philippine Charity Sweepstakes Office (PCSO) as the petitioner and DFNN, Inc. (DFNNI) as the respondent. On April 9, 2003, PCSO and DFNNI entered into an Equipment Lease Agreement (ELA) whereby DFNNI would design, develop, and upgrade a lotto betting platform using Personal Communication Devices (PCD). The lease was for the exclusive use of DFNNI’s hardware, software, and technical expertise to implement the PCD lotto system in the Philippines. The contract included an arbitration clause mandating disputes to be resolved through arbitration.
PCSO rescinded the ELA on March 9, 2005, citing DFNNI's failure to implement the system within six months and inability to secure cooperation from major telecommunications companies, among other reasons. PCSO issued Board Resolution No. 080, series of 2005, to effect this rescission, asserting that the system was not feasible, environmentally risky, and contrary to laws and public policy.
PCSO communicated the res
Case Digest (G.R. No. 101028)
Facts:
- Contractual Relationship and Arbitration Clause
- On April 9, 2003, the Philippine Charity Sweepstakes Office (PCSO), petitioner, and DFNN, Inc. (DFNNI), respondent, entered into an Equipment Lease Agreement (ELA).
- The ELA involved the exclusive lease from DFNNI of hardware, software, and technical expertise to design, develop, and upgrade a lotto betting platform via Personal Communication Devices (PCD).
- The contract contained an arbitration clause mandating disputes be settled by arbitration.
- Unilateral Rescission by PCSO
- On March 9, 2005, PCSO unilaterally rescinded the ELA via Board Resolution No. 080, citing DFNNI’s failure to secure cooperation from major telecom companies (Globe and Smart) and inability to implement the project within six months.
- Additional cited reasons included technical risks to PCSO's existing lottery system posed by interfacing issues, feasibility concerns due to limited cooperation, doubts on legality due to lack of public bidding, and questioned authority of DFNNI.
- PCSO notified DFNNI of the rescission on April 5, 2005.
- DFNNI’s Request and Arbitration Filing
- DFNNI requested a mutually acceptable solution in 2005 and sought voluntary proceedings in 2007, both denied by PCSO.
- DFNNI then filed a Request for Arbitration claiming liquidated damages totaling PhP1,913,948,850.00, including temperate damages, attorney’s fees, and litigation costs.
- The arbitration panel, composed of appointed arbitrators, was constituted to hear the dispute.
- Arbitration Proceedings and Award
- DFNNI claimed PCSO had no legitimate ground to rescind and sought reinstatement of the ELA or, alternatively, full liquidated damages.
- PCSO defended the rescission as valid based on non-performance, lack of cooperation from telecoms, and delay in delivery.
- The Arbitration Panel ruled on May 21, 2015, that the rescission was improper, awarding DFNNI PhP27,000,000.00 as liquidated damages and return of equipment, but denied rental payments and 2% monthly penalty interest for lack of commercial system launch and sufficient evidence.
- The Panel highlighted the speculative nature of DFNNI’s projections and absence of supporting witnesses.
- Subsequent Court Proceedings
- PCSO filed a Petition for Confirmation of the Arbitral Award before the RTC-Mandaluyong (Civil Case No. MC15-9557) on June 25, 2015.
- The next day, DFNNI filed a Petition for Correction of the same award before the RTC-Makati (Special Proceedings No. M-7844), seeking correction to include the 2% penalty interest, temperate damages, and attorney’s fees.
- The RTC-Makati granted the Petition for Correction on February 17, 2016, increasing the award to PhP310,095,149.70 plus 6% interest per annum. PCSO’s motion for reconsideration was denied.
- PCSO appealed via the Court of Appeals under Rule 19.12 of the Special ADR Rules (CA-G.R. SP No. 145983), which affirmed the RTC-Makati ruling on November 17, 2016. PCSO’s motion for reconsideration was denied August 31, 2017.
- Concurrently, DFNNI moved for consolidation of the Civil Case before RTC-Mandaluyong with its own Special Proceedings before RTC-Makati. RTC-Mandaluyong denied consolidation.
- The RTC-Mandaluyong confirmed the original Arbitral Award on January 5, 2017, rejecting DFNNI’s claim of evident miscalculation.
- The Court of Appeals reversed, ordering consolidation of the two cases before RTC-Makati on February 20, 2017, citing premature filing of PCSO’s petition for confirmation and the relatedness of the cases.
- PCSO filed petitions for review on certiorari (G.R. Nos. 232801 and 234193) before the Supreme Court to challenge the Court of Appeals’ rulings.
Issues:
- In G.R. No. 232801:
- In G.R. No. 234193:
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)