Title
Supreme Court
Bases Conversion Development Authority vs. DMCI Project Developers, Inc.
Case
G.R. No. 173137
Decision Date
Jan 11, 2016
A dispute arose over a P300M deposit in a railroad project JVA; SC ruled DMCI-PDI, as nominee, could compel arbitration, binding non-signatory Northrail under the arbitration clause.

Case Summary (G.R. No. 173137)

Relevant Agreements and Their Purposes

On June 10, 1995, BCDA, Philippine National Railways (PNR), and foreign corporations entered into the JVA to establish a railroad system, with BCDA tasked to create Northrail to construct, operate, and manage this system. The JVA detailed the project's scope, parties’ equity shares, and contained an arbitration clause under Article XVI, prescribing arbitration in Metro Manila in case of disputes unresolved by mutual accord.

The JVA was amended on February 8, 1996, to include D.M. Consunji, Inc. and/or its nominee as a party, adjusting the equity participation to 20% for D.M. Consunji, Inc. Concurrently, a Memorandum of Agreement (MOA) was executed on the same date to set the mechanics for raising seed capitalization for Northrail’s privatization, outlining financial commitments by the parties, including DMCI’s intended share of P200 million, later increased to P300 million, which was deposited into Northrail’s bank account by DMCI-PDI as “Deposits For Future Subscription.”

Arbitration Clause and Its Application to Subsequent Documents

The arbitration clause in the original JVA states that unresolved disputes between parties at the time of occurrence must be referred to arbitration, following the Philippine Arbitration Law (Republic Act No. 876). The trial court ruled that this arbitration clause extended to subsequent documents—the amended JVA and MOA—because these agreements constitute one continuous contract aimed at establishing and funding Northrail. As such, the arbitration provision is applicable not only to the original signatories but also to those included in subsequent related agreements.

DMCI-PDI's Status: Nominee vs. Assignee and Party to the Contracts

DMCI-PDI was not an original signatory to the JVA but was named as the nominee of D.M. Consunji, Inc. through letters dated April 4, 1997, thereby assuming all rights and obligations of D.M. Consunji, Inc. under the JVA and MOA. The JVA’s Article XVII prohibits assignment or transfer of rights without prior consent but explicitly distinguishes assignment from nomination. Nomination involves designation to act on behalf of the nominator and is recognized as creating binding obligations under the agreement, whereas assignment entails transferring rights which require consent.

The Supreme Court held that the appointment of DMCI-PDI as nominee did not contravene the JVA’s prohibition on assignment since nomination is a separate legal concept permitting DMCI-PDI to be considered a party to the agreements, including the arbitration clause. Therefore, DMCI-PDI may invoke the arbitration clause as a party by nomination.

Northrail’s Binding Status to Arbitration Despite Non-Signatory Position

Although Northrail was neither a signatory to the contracts nor a debtor under the original agreements, its establishment, capitalization, and obligations were rooted in and derived from the JVA and its amendments. Northrail accepted funds from D.M. Consunji, Inc. and participated in the project under the terms of these agreements. Under contract law principles, it is bound by the agreements’ provisions, including the arbitration clause, as a third-party beneficiary and a principal beneficiary of the agreements’ purpose.

The Court underscored the policy against multiplicity of suits and judicial economy, highlighting that compelling all involved parties to arbitrate ensures consolidation of disputes and avoids fragmentary litigation.

Policy Towards Arbitration and Legal Basis

The decision rests on the strong state policy favoring arbitration as an effective alternative dispute resolution (ADR) mechanism, as embodied in the 1987 Philippine Constitution and Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004). The law encourages party autonomy and liberally interprets arbitration agreements to facilitate arbitration unless there is a clear basis to preclude it.

The Court cited jurisprudence affirming that arbitration clauses are to be broadly construed to encompass disputes that the parties intended to arbitrate. It further clarified that non-signatories may be bound by arbitration clauses when they are n

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