Title
Tourism Infrastructure and Enterprise Zone Authority vs. Global-V Builders Co.
Case
G.R. No. 219708
Decision Date
Oct 3, 2018
Dispute over unpaid construction projects; CIAC jurisdiction upheld despite no explicit arbitration clause; negotiated procurement deemed valid; Global-V awarded payment, interest, and fees.

Case Summary (G.R. No. 219708)

Background and Cause of Dispute

Between 2007 and 2008, the PTA entered into five Memoranda of Agreement (MOAs) with Global-V for several infrastructure projects including projects on Boracay Island and a perimeter fence at Banaue Hotel. Two of these projects were obtained through competitive bidding while the others were negotiated procurements under Section 53 of R.A. No. 9184. Global-V sought arbitration in 2012 through the Construction Industry Arbitration Commission (CIAC), for unpaid claims amounting to over ₱16 million, plus interest, damages, and attorney’s fees. TIEZA, as the PTA’s successor, denied jurisdiction of CIAC on the basis that no arbitration clause existed in the contracts.

Issue of Jurisdiction of CIAC

TIEZA contended that CIAC lacked jurisdiction because the MOAs did not contain arbitration agreements as required under E.O. No. 1008 and the CIAC Rules and because Global-V did not allege exhaustion of administrative remedies, specifically failing to file claims with the Commission on Audit (COA). Global-V countered that under Section 59 of R.A. No. 9184, disputes arising from government contracts must be submitted to arbitration pursuant to the Arbitration Law (R.A. No. 876) and those within CIAC competence shall be referred thereto. They argued that provisions of R.A. 9184 were deemed part of the contracts by operation of law and that this sufficed to establish jurisdiction despite the lack of express arbitration clauses.

Arbitral Tribunal’s Jurisdictional Ruling

The CIAC Arbitral Tribunal dismissed TIEZA’s motion to dismiss, ruling that absence of an arbitration clause in the main contract was not fatal where statutory provisions on arbitration under R.A. No. 9184 and incorporated General Conditions of Contract applied. The Tribunal further held that Global-V complied with the exhaustion of administrative remedies doctrine, especially considering unreasonable delay (almost five years of nonpayment). TIEZA’s motion for reconsideration was denied, confirming CIAC jurisdiction.

Proceedings and Final Award Before CIAC

Despite contesting jurisdiction, TIEZA participated in preliminary conferences and filed an answer ex abundanti cautela (to avoid waiver), but later limited participation after the Tribunal affirmed jurisdiction. The Tribunal resolved disputes regarding the validity of contracts, the entitlement to claims, and authority to claim payment. The final award granted Global-V over ₱10 million plus 6% annual interest from the award date, attorney’s fees, and arbitration costs, but denied claims related to one project due to lack of authority from Global-V’s joint venture partner and denied claims for moral and exemplary damages.

Court of Appeals Decisions

The Court of Appeals initially nullified the CIAC award in 2014 for lack of jurisdiction due to absence of arbitration agreement. However, upon reconsideration in 2015, it reversed itself, ruling that CIAC had jurisdiction. It found that Clause 20.2 of the General Conditions of Contract, attached to the MOAs, contained an arbitration clause binding the parties to submit disputes to arbitration under R.A. No. 9285. The Court emphasized that a suspensive condition requiring incorporation of proceedings into the contract did not negate jurisdiction, as the existence of an arbitration agreement sufficed under E.O. No. 1008 and CIAC Rules. It ruled that RA 9184’s arbitration provisions were part of the contracts by law, making arbitration mandatory for disputes. The COA’s primary jurisdiction over money claims was rejected, holding that CIAC’s jurisdiction covers such disputes involving government contracts once arbitration is agreed upon. The court validated the negotiated procurement contracts based on urgency and the related scope of work criteria under R.A. No. 9184 sections 53(b) and 53(d). Interest, attorney’s fees, and arbitration costs were affirmed.

Issues Raised by TIEZA in the Supreme Court Petition

TIEZA sought review on grounds that the Court of Appeals erred in:

  1. Ruling that CIAC had jurisdiction despite the alleged absence of an arbitration agreement and the requirement of arbitration incorporation in contracts.
  2. Rejecting COA’s primary jurisdiction over money claims.
  3. Upholding the validity of negotiated procurement contracts.
  4. Awarding interest, attorney’s fees, and arbitration costs without sufficient basis.

Supreme Court Ruling on Jurisdiction

The Supreme Court affirmed the Court of Appeals ruling, holding:

  • CIAC’s original and exclusive jurisdiction over construction disputes arises once parties agree to submit disputes to arbitration or an arbitration clause exists in the contract, even if process details are incomplete or not incorporated at the time.
  • Clause 20.2 of the General Conditions of Contract, attached to the MOAs, operated as an arbitration clause binding parties to arbitration under R.A. No. 9285.
  • The suspensive condition for incorporation of arbitration process did not negate jurisdiction, as the existence of the clause suffices for CIAC jurisdiction under E.O. No. 1008 and the CIAC Rules.
  • The statutory arbitration mandate under Section 59 of R.A. No. 9184 further supports the incorporation of arbitration provisions by operation of law, particularly for negotiated procurement contracts, as existing laws and regulations are read into government contracts.
  • CIAC’s jurisdiction cannot be diminished or waived by party stipulations when law grants it original and exclusive jurisdiction.

Supreme Court on Exhaustion of Administrative Remedies and COA Jurisdiction

The Court reiterated that the rule on exhausting administrative remedies, particularly filing claims first with COA, is subject to exceptions such as unreasonable delay. Given the five-year nonpayment delay and the jurisprudence in Vigilar v. Aquino, exhaustion was deemed satisfied and did not bar arbitration. The Court distinguished the jurisdiction of CIAC and COA, emphasizing that CIAC’s jurisdiction over construction contracts’ disputes is broad and exclusive under E.O. No. 1008, covering both government and private contracts, except employer-employee disputes. COA jurisdiction was not an obstacle to CIAC jurisdiction over Global-V’s claims.

Validity of Negotiated Procurement Contracts

The Court upheld the validity of the negotiated procurement method for the disputed projects under Section 53(b) and (d) of R.A. No. 9184, as follows:

  • Section 53(b) permits negotiated procurement when time is of the essence to prevent damage or loss of life or property, which was justified by the urgent need to protect Boracay’s safety during peak season.
  • Section 53(d) allows negotiated procurement for contracts adjacent or related to an ongoing competitively bid infrastructure project; the Additional Sidewalk, Streetlighting, and Drainage System project qualified due to its related scope and continuity with the original BEIP drainage project.
    The Court gave weight to the fact that PTA’s officers initially approved these contracts and that the projects have been completed and have public utility, making TIEZA bound by PTA’s contracts.

Award of Interest, Attorney’s Fees, and Arbitration Costs

The Court affirmed the award of 6% legal interest on the monetary award from finality until payment, consistent with Supreme Court jurisprudence in Nacar v. Gallery Frames. The award of attorney’s fees and arbitration costs was justified on the ground that TIEZA acted in gross and evi

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