Case Summary (G.R. No. 180640)
Factual Background
HUTAMA-RSEA Joint Operations, Inc. contracted with CITRA METRO MANILA TOLLWAYS CORPORATION under an Engineering Procurement Construction Contract (EPCC) for Stage 1 of the South Metro Manila Skyway Project. The EPCC provided petitioner would perform construction work for a contract price of US$369,510,304.00. During performance, petitioner submitted interim billings and repeated demands for payment after respondent paid only partially. Petitioner completed work and informed respondent that the Skyway Project was operational; petitioner then demanded final billing, the outstanding interim balances, the contractual “Early Completion Bonus,” and interest on delayed payments, but respondent refused to pay.
Pre-CIAC Proceedings and Arbitration Clause
The parties negotiated intermittently for almost a year without settlement. The EPCC incorporated an arbitration scheme that provided for initial referral to a Dispute Adjudication Board (DAB) under Clause 20.4, with a pathway to arbitration where a DAB decision became final and binding or where a party timely gave notice of dissatisfaction. The EPCC’s dispute resolution provisions also contemplated the appointment, composition, remuneration, and procedural duties of the DAB and specified arbitration under Sub-Clause 20.6 where DAB decisions were not final and binding.
CIAC Proceedings and Jurisdiction Rulings
Petitioner filed a Request for Arbitration that CIAC docketed as CIAC Case No. 17-2005. Respondent pleaded lack of CIAC jurisdiction and argued that petitioner’s filing was premature because the parties had not referred the dispute to the DAB as required by Clause 20.4. CIAC conducted preliminary proceedings, adopted a Terms of Reference, and identified the jurisdictional question among the issues. CIAC denied respondent’s urgent motion to refrain from proceeding and, on 30 August 2005 and again in written orders dated 6 December 2005 and 12 December 2005, ruled that it had jurisdiction and that compliance with Clause 20.4 was a factual matter to be resolved in the merits.
Court of Appeals Decision
Aggrieved, respondent filed a special civil action with the Court of Appeals in CA-G.R. SP No. 92504. The Court of Appeals annulled CIAC’s 12 December 2005 order and enjoined CIAC, its arbitral tribunal, petitioner and their agents from further proceeding with CIAC Case No. 17-2005 until the dispute had been referred to and decided by the DAB constituted in accordance with Sub-Clause 20.4. The appellate court held that prior resort to the DAB was a condition precedent to CIAC jurisdiction and that CIAC exceeded its jurisdiction by entertaining the case without such referral.
Issue on Review
The sole issue presented to the Supreme Court was whether CIAC had jurisdiction to hear CIAC Case No. 17-2005 notwithstanding the parties’ failure to refer the dispute first to the DAB in accordance with Clause 20.4 of the EPCC.
Petitioner's Arguments
HUTAMA-RSEA Joint Operations, Inc. contended that CIAC possessed original and exclusive jurisdiction under Executive Order No. 1008 and the CIAC Rules, and that the existence of an arbitration clause in the EPCC was sufficient to vest CIAC with jurisdiction. Petitioner maintained that the EPCC’s reference to a DAB did not operate to divest or suspend the statutory jurisdiction of CIAC once arbitration was invoked.
Respondent's Arguments
CITRA METRO MANILA TOLLWAYS CORPORATION argued that compliance with Clause 20.4 was a contractual condition precedent. Respondent asserted that, because the DAB had not been constituted and the parties had not referred the dispute to it, CIAC could not properly assume jurisdiction and that petitioner’s Request for Arbitration was premature.
Supreme Court Ruling and Disposition
The Supreme Court granted the petition, reversed and set aside the Court of Appeals Decision dated 23 May 2007 and Resolution dated 16 November 2007, and remanded the case to the CIAC for further proceedings. The Court directed CIAC to resolve the dispute with dispatch.
Legal Reasoning
The Court interpreted Section 4 of Executive Order No. 1008 and Section 1, Article III of the CIAC Rules to mean that CIAC’s jurisdiction attaches when the parties to a construction contract agree to submit an existing or future controversy to voluntary arbitration. The Court observed that the EPCC contained an arbitration clause and that under the CIAC Rules an arbitration clause in a construction contract is deemed an agreement to submit controversies to CIAC jurisdiction “notwithstanding the reference to a different arbitration institution or arbitral body in such contract.” The Court held that the mere existence of an arbitration clause ipso facto vested CIAC with jurisdiction and that such jurisdiction, being conferred by law, could not be suspended or diminished by a contractual stipulation imposing a condition precedent such as prior DAB referral. The Court relied on
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Case Syllabus (G.R. No. 180640)
Parties and Procedural Posture
- HUTAMA-RSEA JOINT OPERATIONS, INC., PETITIONER, VS. CITRA METRO MANILA TOLLWAYS CORPORATION, RESPONDENT are corporations organized and existing under Philippine laws.
- Petitioner acted as sub-contractor and respondent acted as general contractor and operator of the South Metro Manila Skyway Project.
- Petitioner filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC) docketed as CIAC Case No. 17-2005.
- Respondent challenged CIAC jurisdiction before the CIAC and subsequently filed a special civil action with the Court of Appeals in CA-G.R. SP No. 92504.
- The petition before the Supreme Court was a Petition for Review on Certiorari under Rule 45, Rules of Court seeking to set aside the Court of Appeals Decision dated 23 May 2007 and Resolution dated 16 November 2007.
Key Factual Allegations
- The parties executed an Engineering Procurement Construction Contract (EPCC) dated 25 September 1996 for Stage 1 of the Skyway Project.
- The EPCC provided petitioner a total contract price of US$369,510,304.00 for its construction obligations.
- Petitioner submitted interim billings which respondent paid only partially and thereafter refused to pay outstanding balances and the agreed early completion bonus.
- The Skyway Project was opened for public use on 15 December 1999 and tolls were collected thereafter.
- Petitioner formally demanded payment by letter dated 24 May 2004 and engaged in almost one year of unsuccessful negotiations before filing for arbitration.
Contract Clause at Issue
- Clause 20.4 of the EPCC required that disputes "initially be referred in writing to the Dispute Adjudication Board" and set prescribed periods for the DAB to render decisions and for parties to give notice of dissatisfaction.
- The EPCC contained related provisions in Sub-Clauses 20.3, 20.5, 20.6, 20.7, and 20.8 governing DAB constitution, amicable settlement, commencement of arbitration, and exceptions when the DAB appointment expired.
- The EPCC thereby provided a procedural sequence where DAB decision could become final and binding unless timely dissatisfied parties invoked arbitration.
CIAC Proceedings and Court of Appeals Decision
- The CIAC issued an Order dated 30 August 2005 finding that it had jurisdiction and directing respondent to file an Answer.
- The CIAC denied respondent's Urgent Motion to refrain from proceeding and denied a Motion for Reconsideration in an Order dated 12 December 2005, holding that prior resort to DAB was not a condition precedent to CIAC jurisdiction.
- The Court of Appeals on 23 May 2007 annulled the CIAC Order dated 12 December 2005 and enjoined CIAC and the arbitral tribunal from proceeding with CIAC Case No. 17-2005 until the dispute was referred to and decided by the