Title
Heunghwa Industry Co., Ltd. vs. DJ Builders Corporation
Case
G.R. No. 169095
Decision Date
Dec 8, 2008
A Korean corporation subcontracting a Philippine firm for a road construction project in Palawan led to a payment dispute, arbitration referral, and jurisdictional conflict between the RTC and CIAC, ultimately affirmed by the Supreme Court in favor of arbitration.
construction dispute
jurisdiction
subcontract agreement

Case Summary (G.R. No. 169095)

Factual Background

Heunghwa Industry Co., Ltd. secured a contract with the Department of Public Works and Highways to construct the Roxas‑Langogan Road in Palawan. DJ Builders Corporation entered into a subcontract with Heunghwa to perform earthwork, sub‑base course and box culvert work for the amount of Php113, 228, 918.00. The subcontract contained an arbitration clause. The subcontractor alleged nonpayment and on January 19, 2000 filed a complaint in the RTC for breach of contract and collection of sum of money. Heunghwa answered, counterclaimed for Php24,293,878.60, and averred respondent caused work stoppage and that Heunghwa could not collect from the DPWH due to respondent’s poor performance.

Referral to CIAC and Early CIAC Proceedings

On September 27, 2000 the parties, through counsel, filed a Joint Motion to Submit Specific Issues To The Construction Industry Arbitration Commission, specifying five issues for arbitration: manpower and equipment standby time; unrecouped mobilization expenses; retention; discrepancy of billings; and price escalation for fuel and oil usage. The RTC granted the motion the same day. Thereafter, petitioner filed an urgent manifestation seeking referral of additional matters. Respondent filed a Request for Adjudication with CIAC on October 24, 2000. Petitioner thereafter manifested abandonment of the referral and announced pursuit of the RTC action. CIAC issued an order on November 27, 2000 directing respondent to move for dismissal of the RTC case insofar as the referred issues were concerned, but CIAC later modified that posture in its January 8, 2001 order and directed dismissal only with respect to the five specified issues.

Further Procedural Conflict Between the RTC and CIAC

A sequence of motions and orders followed in both forums. Petitioner moved in the RTC on February 22, 2001 to withdraw the referral, alleging lack of authorization by its counsel. The RTC issued a Resolution on May 16, 2001 granting the motion to recall. Respondent moved for reconsideration and later filed a Motion to Dismiss in the RTC which the RTC granted on July 16, 2001 without prejudice to petitioner’s counterclaim. Petitioner sought reconsideration. CIAC intermittently suspended and resumed proceedings, denied petitioner’s motions to dismiss, and set a preliminary conference and hearings in early 2002. On March 13, 2002 the RTC issued a resolution declaring the July 16, 2001 dismissal “without force and effect” and set the case for hearing. CIAC on March 22, 2002 denied petitioner’s motion to dismiss and held it had jurisdiction. The conflicting orders produced parallel petitions for certiorari to the Court of Appeals: petitioner’s CA‑G.R. SP No. 70001 and respondent’s CA‑G.R. SP No. 71621.

Issues Presented to the Supreme Court

Petitioner raised three principal assignments of error: (A) the CA erred in finding procedural infirmities because petitioner filed certiorari without first filing a motion for reconsideration with CIAC and because a denial of a motion to dismiss is interlocutory and not certiorariable; (B) the CA erred in confirming CIAC’s jurisdiction over the dispute and misapplied National Irrigation Administration v. Court of Appeals; and (C) the CA erred in refusing to remand the case to CIAC to allow petitioner to present evidence in the interest of justice.

Parties’ Contentions

Heunghwa Industry Co., Ltd. contended that the CA improperly dismissed its petition on procedural grounds, that the denial of its motion to dismiss by CIAC amounted to lack or excess of jurisdiction or patent grave abuse of discretion and was therefore certiorariable, and that CIAC lacked jurisdiction because the arbitration clause did not designate CIAC and because the counsel who joined the referral lacked authorization. Heunghwa sought a remand to permit presentation of evidence if required. DJ Builders Corporation maintained that CIAC had original and exclusive jurisdiction by virtue of the arbitration clause and the parties’ referral, that petitioner’s participation and the joint referral estopped it from denying CIAC jurisdiction, and that CIAC properly proceeded under its rules despite petitioner’s non‑participation.

Ruling of the Court of Appeals

The Court of Appeals denied petitioner’s petitions on both procedural and substantive grounds. Procedurally, the CA observed that petitioner did not file a motion for reconsideration of CIAC’s March 22, 2002 order and thus failed to afford the CIAC a chance to correct alleged error, and it held that denial of a motion to dismiss, being interlocutory, is generally not the proper subject of certiorari. Substantively, the CA found that CIAC had jurisdiction: the subcontract contained an arbitration clause, the parties had jointly moved to refer specific issues to CIAC, and petitioner’s contention as to lack of authorization of its counsel was immaterial because the agreement to submit disputes to arbitration vested jurisdiction in CIAC.

Supreme Court Disposition

The Supreme Court denied the petition for review on certiorari under Rule 45 for lack of merit and affirmed the August 20, 2004 Decision and August 1, 2005 Resolution of the Court of Appeals in CA‑G.R. SP Nos. 70001 and 71621. The Court ordered double costs against petitioner.

Legal Reasoning and Application of Precedent

The Supreme Court analyzed first the procedural contention. It reiterated the rule that a petition for certiorari ordinarily should be preceded by a motion for reconsideration, and it recognized exceptions where the issue is purely one of law, where public interest or urgency is involved, or where the same questions were already squarely and exhaustively considered below. The Court agreed that the principal issue—whether CIAC or the RTC had jurisdiction over the construction dispute—was a question of law and that the exception to the reconsideration rule applied. On the substantive contention, the Court recalled the narrow circumstances under which an interlocutory order may be assailed by certiorari: when the issuing tribunal acted without or in excess of jurisdiction, when there was patent grave abuse of discretion, or when appeal would be inadequate and not speedy. The Court held that CIAC did not act without jurisdiction nor commit patent grave abuse of discretion in denying petitioner’s motion to dismiss.

Basis for CIAC Jurisdiction

The Supreme Court concluded that CIAC possessed original and exclusive jurisdiction under Executive Order No. 1008 over construction disputes where the parties agreed to submit such disputes to arbitration. The Court applied the doctrine in Philrock, Inc. v. Construction Industry Arbitration Commission and National Irrigation Administration v. Court of Appeals, and it emphasized the amendment to the CIAC Rules that deems an arbitration clause in a construction contract or a submission to arbitration to constitute an agreement to submit the controversy to CIAC jurisdiction irrespective of any reference to another arbitral body. The Court therefore held that the mere presence of the arbitration clause in the subcontract vested CIAC with jurisdiction ipso facto and rendered subsequent consent superfluous. The Court found the RTC’s vacillations and later attempts to recall did not divest CIAC of jurisdiction once jurisdiction had attached.

On Authorization of Counsel, Participation, and Estoppel

The Supreme Court addressed petitioner’s argument that its counsel lacked

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