Title
Busan Universal Rail, Inc. vs. Department of Transportation-Metro Rail Transit 3
Case
G.R. No. 235878
Decision Date
Feb 26, 2020
BURI challenged DOTr-MRT3's contract termination, seeking interim protection. SC upheld RTC's denial, citing RA 8975's prohibition on injunctions for gov't projects, directing arbitration.
interim measures of protection
termination of contract
jurisdiction

Case Summary (G.R. No. 235878)

Nature of the Contract and the Origin of the Dispute

Respondent and the joint venture, later incorporated as BURI, entered into the MRT3 Contract for DOTC-MRT3 System Maintenance Provider, 43 LRV General Overhaul and Total Replacement of the Signaling System. The total contract amount was P3,809,128,888.00, allocated into four packages: Package 1 (maintenance of the MRT3 system, paid in fixed monthly sums, with petitioner to deliver available trains during specified periods), Package 2 (general overhauling of forty-three LRVs within thirty-six months from the issuance of the Notice to Proceed), Package 3 (total replacement of the MRT3 signaling system), and Package 4 (additional maintenance works).

After petitioner commenced performance under Package 1, respondent paid monthly payments corresponding to Billing Nos. 1 to 8. On October 26, 2016, petitioner issued Billing No. 9. Respondent did not fully settle it. In a Memorandum dated November 17, 2016, DOTr Undersecretary for Railways Cesar B. Chavez (Usec. Chavez) required petitioner to submit additional supporting documents and ordered the withholding of certain amounts. Petitioner responded by letter, yet Billing No. 9 remained unpaid. In subsequent exchanges, Usec. Chavez directed petitioner to explain why the contract should not be terminated due to a series of serious incidents. Petitioner invoked the contract’s Subsection 20 on Settlement of Disputes and requested mutual consultation. When no consultation was acceded to, petitioner informed respondent of its intention to commence arbitration and later issued a formal Notice of Arbitration.

RTC Petition for Interim Measures and Its Denial

On October 6, 2017, petitioner filed before the RTC a Petition for the Issuance of Interim Measures of Protection, with prayer for a Temporary Order of Protection under the Special ADR Rules, seeking to maintain the status quo and prevent respondent from terminating the MRT3 Contract. In an Order dated October 13, 2017, the RTC denied the petition. The RTC noted, among others, petitioner’s lawyer’s manifestation that the matter had already been referred to the Philippine Dispute Resolution Center, Inc. for arbitration.

After the RTC’s denial, respondent issued a Notice to Terminate the MRT3 Contract dated October 16, 2017. Petitioner filed an omnibus motion for partial reconsideration of the October 13, 2017 RTC Order. Meanwhile, respondent issued a Decision dated November 3, 2017 terminating the MRT3 Contract. On December 11, 2017, the RTC denied petitioner’s omnibus motion.

The RTC held that, citing RA 8975 (an act prohibiting lower courts from issuing TROs, preliminary injunctions, or preliminary mandatory injunctions against government infrastructure projects), it had no jurisdiction over the petition. It further concluded that the issues raised were arbitrable, and therefore should be threshed out in the agreed arbitral forum rather than through court-issued interim injunctive relief.

Petitioner’s Position on Jurisdiction and the Availability of Interim Protection

Petitioner anchored its argument on the arbitration structure incorporated into the contract. It contended that the RTC could issue interim measures of protection because the dispute was proper for arbitration under the procurement contract and the applicable statutory regime. Petitioner argued that the prohibition in Section 3(d) of RA 8975 should not apply because the arbitration clause contained in the GCC—an integral part of the MRT3 Contract—was anchored on RA 9184. Petitioner maintained that RA 9285 provides for interim protection by a party either from the courts or the arbitral tribunal, once the arbitral tribunal is constituted, and that therefore interim measures were an incident of the binding arbitration clause.

Petitioner also invoked the GCC provision on Settlement of Disputes, which required mutual consultation and then arbitration upon a proper notice of intention, expressly providing that, for disputes between the procuring entity and the supplier, resolution would proceed in accordance with RA 9285. Petitioner further cited Section 59, Rule XVIII of the Revised Implementing Rules and Regulations of RA 9184, which required disputes to be submitted to arbitration in the Philippines pursuant to the Arbitration Law and RA 9285, and incorporated the arbitration process into the contract. Petitioner emphasized that Section 28 of RA 9285 allows a party to request, before the constitution of the arbitral tribunal, an interim measure of protection from the court.

In support of its insistence that court intervention was permissible despite RA 8975, petitioner also invoked the statutory exception under RA 8975 for cases of extreme urgency involving a constitutional issue, arguing that the Court should treat the petition as falling under that exception.

Respondent’s Position: RA 8975 Prohibits Interim Injunctive Relief to Restrain Termination

Respondent countered that RA 8975 prohibits lower courts from issuing temporary restraining orders, preliminary injunctions, or preliminary mandatory injunctions to restrain, prohibit, or compel acts involving national government projects, including termination or rescission of such contracts. Respondent cited OCA Circular No. 38-14 and Department of Foreign Affairs, et al. v. Hon. Judge. Falcon, et al. (Falcon) to underscore that even where the dispute relates to matters that may otherwise be arbitrable, a trial court cannot issue injunctive relief that would effectively negate the government’s right to terminate a national government project contract.

Respondent noted that the parties agreed the dispute should be referred to arbitration, but argued that petitioner’s prayer before the RTC nonetheless sought relief that would indirectly violate the statutory prohibition by restraining termination while arbitration was pending, thereby prejudging the merits.

Controlling Statutory Framework on Arbitration and Interim Measures

The Court addressed the interaction between RA 9285 and RA 8975. It reiterated that RA 9285 is a general law allowing courts, before the constitution of the arbitral tribunal, to grant interim or provisional relief, and that a court may do so upon a written application for the specified forms of provisional relief.

At the same time, the Court stressed that RA 8975 is a special law governing national government projects, which prohibits any court other than the Supreme Court from issuing TROs or injunctions—including preliminary mandatory injunctions—to restrain, prohibit, or compel acts enumerated in Section 3, including termination or rescission of any such contract. The Court observed that the prohibition applies in cases instituted by private parties, and that the statute permits an exception only when the matter is one of extreme urgency involving a constitutional issue, such that grave injustice and irreparable injury would arise unless injunctive relief is issued.

Reliance on Falcon: Interim Relief Cannot Undercut Prohibited Termination

The Court found Falcon instructive on the proper reconciliation of the two statutes. It held that RA 9285, as a general statute permitting interim measures in arbitration contexts, must yield to the special statute RA 8975 in cases involving national government projects. In Falcon, the Court had reasoned that allowing a project proponent to obtain injunctive relief to contest the government’s termination would prevent the government from entering into new contracts while the dispute remained pending, thereby harming the public interest and vital public services.

The Court quoted Falcon’s rationale, emphasizing that the only instance where a trial court may grant injunctive relief under RA 8975 is the presence of an extreme urgency involving a constitutional issue, a requirement that petitioner had to meet to escape the statutory prohibition.

The RTC Petition Sought to Restrain Termination: Application of RA 8975

The Court examined the actual relief sought by petitioner in the RTC petition. Petitioner requested, upon filing, an ex parte Temporary Protection Order enjoining respondent and its officers or representatives from taking acts that would result in termination or effectively implement a prior termination that would render a judgment illusory. Petitioner also requested interim protection to, among others, maintain the status quo ante litem motam, require payment of a fixed monthly maintenance fee subject to penalties based on train availability certifications, prevent cessation of acts that would terminate or implement termination, and compel compliance with the arbitration agreement and proceed to arbitration under RA 9285.

The Court held that because petitioner sought to restrain respondent from terminating the MRT3 Contract, the statutory pronouncements in Falcon applied squarely. Consequently, the RTC correctly dismissed petitioner’s petition for interim injunctive relief.

Petitioner’s Claim of “Extreme Urgency” and a Constitutional Issue

Petitioner argued that its case involved extreme urgency and a constitutional issue, thus bringing it within the exception in RA 8975. The Court rejected the contention. It held that the dispute between the parties was purely contractual. It further reasoned that petitioner had not demonstrated the existence of any constitutional issue involved, much less a constitutional issue of extreme urgency.

The Court treated the dispute as primarily contractual in nature. It did not consider the matter as raising a constitutional adjudication requiring trial court injunctive intervention. It relied on the same analytical approach taken in Falcon, where the Court had observed that contractual rights and statutory compliance in relation to termination should be assessed against the contract and applicable statutes, not by resort to constitutional adjudication absent a clear constitutional question.

The Court’s Restraint from Ruling on the Merits and Its Disposition

The C

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