Case Summary (G.R. No. 242904-05)
Factual Background
In May 2014, Alphaland entered into a construction agreement with DATEM worth Php1.26 billion, for civil, structural, and architectural works on the condominium project. DATEM submitted progress billings which Alphaland partially paid, leaving an unpaid balance of Php34,076,747.09. The construction experienced delays not attributable to DATEM, prompting multiple claims for time extensions, some of which were granted. Alphaland accepted and certified the completion of Towers 1 and 2 but refused to pay for works related to Tower 3, deducting Php72,396,659.29 from DATEM’s contract. DATEM also claimed retention funds amounting to Php121,930,996.35 were withheld unjustly. Following Alphaland’s alleged delay and refusal to resolve issues, DATEM terminated the remaining works on Tower 3 and demanded payment, which Alphaland refused, leading to arbitration under the contract’s arbitration clause.
Applicable Law and Procedural History
The parties’ dispute was brought before the CIAC pursuant to the arbitration clause in their construction agreement, with DATEM filing a complaint for unpaid claims. Alphaland challenged the CIAC’s jurisdiction on grounds of non-compliance with a stipulated condition precedent requiring amicable settlement meetings before arbitration. The CIAC denied the motion to dismiss and proceeded with arbitration. Alphaland filed a petition for certiorari with the Court of Appeals (CA) to nullify the CIAC's jurisdiction, resulting in the CA annulling the CIAC’s Final Award dated April 5, 2018, for lack of jurisdiction based on the unmet precondition. DATEM subsequently filed a petition for review with the Supreme Court.
Issue Before the Court
The central issue is whether the CA erred in ruling that the CIAC lacked jurisdiction over the arbitration case due to the non-fulfillment of the amicable settlement meeting precondition embedded in the arbitration clause.
Jurisdiction of the CIAC Under EO 1008
The Supreme Court affirmed that under Section 4 of Executive Order (EO) No. 1008, the CIAC has original and exclusive jurisdiction over construction contract disputes when the parties have agreed to submit their controversies to arbitration. This jurisdiction is vested automatically by law upon the presence of an arbitration clause in the contract, irrespective of compliance with any procedural conditions stipulated within that clause. The Court emphasized that jurisdiction conferred by law cannot be waived, diminished, or conditioned upon by the parties’ stipulations, acts, or omissions. The existence of an arbitration clause alone is sufficient to establish CIAC's jurisdiction.
Arbitration Clause Analysis
The contract’s Article 13 on Dispute Settlement specifies that parties should attempt amicable resolution within specified timeframes before submitting disputes to arbitration. However, the Court interpreted these provisions as procedural guidelines rather than jurisdictional conditions precedent. The CA’s reliance on the failure to meet the amicable settlement meeting requirement as a ground to deny jurisdiction was held to be erroneous.
Treatment of Non-Compliance with Preconditions
The CIAC Revised Rules of Procedure provide that while claimants must show compliance with preconditions, non-compliance does not divest CIAC of jurisdiction. Instead, the CIAC may suspend proceedings temporarily to allow compliance within a reasonable period. The records show that the CIAC granted several extensions to allow amicable negotiations, but Alphaland eventually insisted on dismissal instead of continuing participation, which was within the CIAC’s authority to reject.
Substantial Compliance with Verification Requirements
The Court addressed Alphaland’s contention regarding defective verification of the petition, ruling that the discrepancy in dates did not render the petition fatally defective. Verification is a formal requirement to assure good faith; substantial compliance is sufficient when the verifying party has actual knowledge of the facts. Here, DATEM substantially complied with the requirement.
Policy Considerations and Legislative Intent
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Case Syllabus (G.R. No. 242904-05)
Background and Parties Involved
- The dispute arose from the construction of Towers 1, 2, and 3 of Alphaland Makati Place, a condominium project located in Makati City, consisting of a six-level podium with basements and three tower buildings.
- DATEM Incorporated (petitioner) entered into a construction agreement with respondents Alphaland Makati Place, Inc. and Alphaland Southgate Tower, Inc. (collectively referred to as Alphaland) in May 2014, for civil, structural, and architectural works with a total contract price of Php1.26 billion.
- The project encountered several delays and disputes relating to unpaid progress billings, uncollected retention money, and unresolved design issues particularly affecting Tower 3.
Financial Claims and Construction Delays
- DATEM submitted progress billings and change order claims amounting to Php34,076,747.09 which remained unpaid by Alphaland.
- Retention money totaling Php121,930,996.35 was also withheld by Alphaland despite DATEM’s claim of project completion.
- Construction completion was delayed multiple times, leading DATEM to submit nine claims for time extensions; six were granted while the last three remained unevaluated due to termination of Alphaland’s construction manager’s services.
- Completion of Towers 1 and 2 was certified and a Certificate of Occupancy obtained, but unresolved design issues for Tower 3 led Alphaland to deduct the balance amount for that tower’s works.
Initiation of Arbitration and Jurisdictional Dispute
- DATEM initiated arbitration proceedings before the Construction Industry Arbitration Commission (CIAC) based on the arbitration clause in the construction agreement to resolve claims for unpaid amounts and other issues.
- Alphaland moved to dismiss the arbitration for lack of jurisdiction, arguing DATEM failed to comply with a condition precedent requiring amicable settlement meetings before arbitration.
- The CIAC denied Alphaland's motion and provided reasonable periods for negotiation and settlement attempts between the parties.
- Alphaland petitioned the Court of Appeals (CA) to annul CIAC’s jurisdiction and the Final Award.
Court of Appeals Decision
- The CA annulled the CIAC’s Final Award for lack of jurisdiction, holding that non-compliance with the precondition of meeting to amicably settle disputes deprived the CIAC of jurisdiction.
- The CA declared that the stipulated condition precedent in the contract had not been fulfilled before the arbitration was instituted.
- Consequently, the CA dismissed the CIAC case and set aside its Final Award.
Petition for Review Before the Supreme Court – Main Issue
- The primary issue raised in the petition by DATEM was whether the CA erred in ruling that the CIAC lacked jurisdiction due to the non-compliance with the condition precedent.
- DATEM argued that under Executive Order No. 1008 (EO 1008), the CIAC’s jurisdiction is automatically vested by law upon the existence of an arbitration clause in a construction contract, and any preconditions