LM Power Engineering Construction v Capitol Industrial Construction Groups

Facts:

Petitioner LM Power Engineering Construction (LM) and respondent Capitol Industrial

Construction Groups (Capitol) entered into a Subcontract agreement involving the electrical
work at the 3rd port of Zamboanga. Capitol took over some of the work contracted to
petitioner since allegedly, LM failed to finish it due to its inability to procure materials.
Upon completion of its task under the contract, LM billed respondent an amount of
6,711,813.90. Capitol refused to pay, contesting the accuracy of the amount of advances and
billable accomplishments listed by LM. It also took refuge in the termination clause of the
agreement, allowing it to set off the cost of the work that LM failed to undertake, due to
termination or take over, against the amount it owed to LM.
Because of this dispute, LM filed with RTC a complaint for the collection of the amount
representing the alleged balance due it under the subcontract. On the other hand, Capitol
filed a motion to dismiss alleging that the complaint was premature since there was no prior
recourse to arbitration.
RTC:
o Dispute didnt involve the interpretation or implementation of the agreement and
thus, not covered by the arbitral clause.
o The take-over of some work items by Capitol was not equivalent to a termination but
a mere modification of the subcontract.
o Capitol was ordered to pay the full payment for the work completed by LM.
CA:
o Reversed and ordered the referral of the case to arbitration.
o The issue of whether Capitols take-over of some work items had been intended o be
a termination of the original contract.

Issues:
1. WON there exists a dispute regarding the interpretation and implementation of the
subcontract agreement, requiring prior recourse to voluntary arbitration.
2. WON there is a need to file a request with CIAC in order to vest it with jurisdiction to
decide a construction dispute.
Held:
1. YES. LM claims that there is no conflict regarding the interpretation or implementation of the
agreement and that even without prior recourse to arbitration, it is entitled to collect the value
of the services it rendered through an ordinary civil action of collection.
Capitol claims that prior arbitration is needed because there are some disparities between the
parties positions regarding the extent of work done, amount of advances and billable
accomplishments and the set off of expenses incurred by Capitol in its take-over of LMs work.
The dispute arose from the parties incongruent positions on whether certain provisions could
be applied to the facts. The instant case 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 the jurisdiction to pass
upon the findings of arbitral bodies because the awards are still judicially reviewable under
certain conditions.

A review of the factual findings reveals that the parties differ on the following questions: Did
a takeover/termination occur? May expenses incurred by Capitol be set off against the
amounts it owed LM? How much were the advances and billable accomplishments?The
resolution of such lies in the interpretation of the provisions of the agreement.
Being an inexpensive, speedy and amicable method of settling disputes, arbitration is
encouraged by SC to declog court dockets and hasten the resolution of disputes especially of
commercial kinds. It is regarded as the wave of the future in international civil and
commercial disputes. Consistent with the encouragement of ADR methods, courts should
liberally construe arbitration clauses provided that such is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be
resolved in favor of arbitration.

2. NO. LM claims that assuming the dispute is arbitrable, the failure to file a formal request for
arbitration with CIAC precluded Capitol from acquiring jurisdiction over the question, citing the
case of Tesco Inc. v Vera where the old rules of procedure governing Construction arbitration
required the submission of a request for arbitration.
The new rules of procedure governing Construction arbitration states that recourse to CIAC
may now be availed of whenever a contract contains a clause for the submission of a future
controversy to arbitration. The law as it now stands does not provide that the parties should
agree to submit the disputes arising from their agreement specifically to CIAC for the latter to
acquire jurisdiction. As long as the parties agree to submit to voluntary arbitration regardless
of what forum they choose, agreement will fall within CIACs jurisdiction even if they
specifically choose another forum, the parties will not be precluded from submitting the
dispute before CIAC because this right has been vested upon each party by law.
The arbitral clause in the agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because such clause is binding, parties are expected
to abide it in good faith.