Professional Documents
Culture Documents
Consistent with
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., the above-mentioned policy of encouraging alternative dispute
respondent. resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation
Alternative Dispute Resolution; Arbitration; Courts; that covers the asserted dispute, an order to arbitrate should be
Jurisdiction; The inclusion of an arbitration clause in a granted. Any doubt should be resolved in favor of arbitration.
contract does not ipso facto divest the courts of jurisdiction to
pass upon the findings of arbitral bodies, because the awards Same; Same; Same; Construction Industry Arbitration
are still judicially reviewable under certain conditions.—We Commission (CIAC); Recourse to the CIAC may now be
side with respondent. Essentially, the dispute arose from the availed of whenever a contract “contains a clause for the
parties’ incongruent positions on whether certain provisions of submission of a future controversy to arbitration.—On the
their Agreement could be applied to the facts. The instant case other hand, Section 1 of Article III of the new Rules of Pro-
involves technical discrepancies that are better left to an
arbitral body that has expertise in those areas. In any event, the _______________
inclusion of an arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass upon the findings *
THIRD DIVISION.
of arbitral bodies, because the awards are still judicially
reviewable under certain conditions. 563
Same; Same; Same; Being an inexpensive, speedy and
VOL. 399, MARCH 26, 2003 563
amicable method of settling disputes, arbitration—along with
mediation, conciliation and negotiation—is encouraged by the LM Power Engineering Corporation vs. Capitol Industrial
Supreme Court; Arbitration is regarded as the “wave of the Construction Groups, Inc.
future” in international civil and commercial disputes;
Consistent with the policy of encouraging alternative dispute cedure Governing Construction Arbitration has dispensed with
resolution methods, courts should liberally construe this requirement and recourse to the CIAC may now be availed
arbitration clauses.—Being an inexpensive, speedy and of whenever a contract “contains a clause for the submission of
amicable method of settling disputes, arbitration—along with a future controversy to arbitration,” in this wise: “SECTION 1.
mediation, conciliation and negotiation—is encouraged by the Submission to CIAC Jurisdiction.—An arbitration clause in a
Supreme Court. Aside from unclogging judicial dockets, construction contract or a submission to arbitration of a
arbitration also hastens the resolution of disputes, especially of construction dispute shall be deemed an agreement to submit
the commercial kind. It is thus regarded as the “wave of the an existing or future controversy to CIAC jurisdiction,
future” in international civil and commercial disputes. notwithstanding the reference to a different arbitration
Brushing aside a contractual agreement calling for arbitration institution or arbitral body in such contract or submission.
When a contract contains a clause for the submission of a _______________
future controversy to arbitration, it is not necessary for the
1
parties to enter into a submission agreement before the See Panganiban, A Centenary of Justice, 2001 ed., p. 83.
claimant may invoke the jurisdiction of CIAC.” The foregoing
2
amendments in the Rules were formalized by CIAC Resolution Rollo, pp. 7-17.
Nos. 2-91 and 3-93.
3
Seventh Division. Written by Justice Portia Aliño-
PETITION for review on certiorari of a decision of the Court Hormachuelos and concurred in by Justices Corona Ibay-
of Appeals. Somera (Division chairman) and Wenceslao I. Agnir, Jr.
(member).
The facts are stated in the opinion of the Court.
564
E.G. Ferry Law Offices for petitioner.
564 SUPREME COURT REPORTS ANNOTATED
Catindig, Tiongco & Nibungco for private respondent. LM Power Engineering Corporation vs. Capitol Industrial
Construction Groups, Inc.
PANGANIBAN, J.:
“WHEREFORE, the judgment appealed from is REVERSED
Alternative dispute resolution methods or ADRs—like
and SET ASIDE. The parties are ORDERED to present their
arbitration, mediation, negotiation and conciliation—are
dispute to arbitration in accordance with their Sub-contract
encouraged by the Supreme Court. By enabling parties to
Agreement. The surety bond posted by [respondent] is
resolve their disputes amicably, they provide solutions that are
[d]ischarged.”4
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships.1
The Facts
The Case On February 22, 1983, Petitioner LM Power Engineering
2 Corporation and Respondent Capitol Industrial Construction
Before us is a Petition for Review on Certiorari under Rule 45
Groups, Inc. entered into a “Subcontract Agreement” involving
of the Rules of Court, seeking to set aside the January 28, 2000
electrical work at the Third Port of Zamboanga.5
Decision of the Court of Appeals3 (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as
follows:
6
On April 25, 1985, respondent took over some of the work See Letters dated March 15, 1985 and April 25, 1985, pp. 63-
contracted to petitioner.6 Allegedly, the latter had failed to 64.
finish it because of its inability to procure materials.7
7
See Letter dated March 7, 1985, p. 62.
Upon completing its task under the Contract, petitioner billed
respondent in the amount of P6,711,813.90.8 Contesting the 8
See Letter dated September 30, 1986, p. 65.
accuracy of the amount of advances and billable
9
accomplishments listed by the former, the latter refused to pay. Records, pp. 68-69.
Respondent also took refuge in the termination clause of the
Agreement.9 That clause allowed it to set off the cost of the 10
Id., pp. 1-3.
work that petitioner had failed to undertake—due to
termination or take-over—against the amount it owed the latter. 11
Id., pp. 32-34.
_______________ After trial on the merits, the RTC14 ruled that the take-over of
some work items by respondent was not equivalent to a
4
Assailed CA Decision, pp. 21-22; Rollo, pp. 40-41. termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed
5
See Pay Item Nos. 7.01 to 7.26 of the Bill of Quantities; by petitioner.
Records, pp. 16-25.
Ruling of the Court of Appeals
16
On appeal, the CA reversed the RTC and ordered the referral of This case was deemed submitted for decision on October 25,
the case to arbitration. The appellate court held as arbitrable the 2001, upon this Court’s receipt of respondent’s Memorandum
issue of whether respondent’s take-over of some work items signed by Atty. Henry S. Rojas. Petitioner’s Memorandum,
had been intended to be a termination of the original contract filed on October 10, 2001, was signed by Atty. Eleazar G.
under Letter “K” of the Subcontract. It ruled likewise on two Ferry.
other issues: whether petitioner was liable under the warranty
clause of the Agreement, and whether it should reimburse 566
respondent for the work the latter had taken over.15
566 SUPREME COURT REPORTS ANNOTATED
Hence, this Petition.16 LM Power Engineering Corporation vs. Capitol Industrial
Construction Groups, Inc.
The Issues
“B
In its Memorandum, petitioner raises the following issues for
the Court’s consideration: In the affirmative, whether or not the requirements provided in
Article III [1] of CIAC Arbitration Rules regarding request for
“A arbitration ha[ve] been complied with[.]”17
xxx xxx xxx 1. ‘1. Any amount due [petitioner] from [respondent] at
the time of the termination of this Agreement.’ ”22
‘6. If despite previous warnings by [respondent], [petitioner]
does not execute the WORK in accordance with this The issue as to the correct amount of petitioner’s advances and
Agreement, or billable accomplishments involves an evaluation of the manner
in which the parties completed the work, the extent to which
_______________ they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the
19 computation of foreign and local costs of materials, foreign and
Subcontract Agreement, p. 10; Rollo, p. 52. Italics supplied.
local advances, retention fees and letters of credit, and taxes
20 and duties as set forth in the Agreement. These data can be
Subcontract Agreement, p. 6; Rollo, p. 47.
gathered from a review of the Agreement, pertinent portions of
568 which are reproduced hereunder:
568 SUPREME COURT REPORTS ANNOTATED “C. CONTRACT PRICE AND TERMS OF PAYMENT
LM Power Engineering Corporation vs. Capitol Industrial
xxx xxx xxx
Construction Groups, Inc.
“All progress payments to be made by [respondent] to
persistently or flagrantly neglects to carry out [its] obligations [petitioner] shall be subject to a retention sum of ten percent
under this Agreement.’ ”21 (10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent] “All expenses incurred by [respondent], both in foreign and
from the progress payments and/or retained amount. Any local currencies in connection with the opening of the letters of
excess from the retained amount after deducting [respondent’s] credit shall be deducted from the Contract Prices.
claims shall be released by [respondent] to [petitioner] after the
issuance of [the Ministry of Public Works and Highways] of xxx xxx xxx
the Certificate of Completion and final acceptance of the
WORK by [the Ministry of Public Works and Highways]. “N. OTHER CONDITIONS
570 SUPREME COURT REPORTS ANNOTATED Tesco was promulgated by this Court, using the foregoing
LM Power Engineering Corporation vs. Capitol Industrial provision as reference.
Construction Groups, Inc.
On the other hand, Section 1 of Article III of the new Rules of
Procedure Governing Construction Arbitration has dispensed
interpretation that covers the asserted dispute, an order to with this requirement and recourse to the CIAC may now be
arbitrate should be granted.28 Any doubt should be resolved in availed of whenever a contract “contains a clause for the
favor of arbitration.29 submission of a future controversy to arbitration,” in this wise:
572
SO ORDERED.