Zusmitha D.

Salcedo Alternative Dispute Resolution Case Digests

G.R. NO. 196723               AUGUST 28, 2013

ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION v. SUMITOMO

CORPORATION

FACTS: On March 15, 1996, Asian Construction entered into a Civil Work Agreement
(Agreement) with Sumitomo for the construction of a portion of the Light Rail Transit
System for a total cost of US$19,982,000.00. The said Agreement provides that the
"validity, interpretation, enforceability, and performance of the same shall be governed
by and construed in accordance with the law of the State of New York, U.S.A. (New York
State Law), without regard to, or legal effect of, the conflicts of law provisions
thereof"and that any dispute, controversy or claim arising therefrom "shall be solely
and finally settled by arbitration." With the said agreement, Asian Construction received
from Sumitomo the amount of US$9,731,606.62, inclusive of the advance payments
(before withholding tax of US$97,308.44).

On September 1, 1998, Sumitomo informed Asian Construction that it was

terminating the Agreement effective September 5, 1998. Due to such decision,
Sumitomo requested Asian Construction to make the necessary arrangements for the
proper turnover of the Project. The latter however claimed that the accomplishments
under the two Progress Billings as well as other various claims, were still left
unpaid. Hence, it sent Sumitomo a letter demanding payment for the total amount of
US$6,371,530.89. This was followed by several correspondences between the parties
through 1999 to 2007 but no settlement was achieved.

On September 2, 2008, Asian Construction filed a complaint with the Construction

Industry Arbitration Commission (CIAC) seeking payment for its alleged losses and
reimbursements. In turn, Sumitomo filed a Motion to Dismiss, questioning the CIAC’s
jurisdiction over the dispute on the ground that the arbitration should proceed in
accordance with the Commercial Arbitration Rules of Japan.

On December 15, 2009, the Arbitral Tribunal rendered the Partial Award which
affirmed its jurisdiction over the dispute but held that the parties were bound by their
Agreement that the substantive New York State Law shall apply in the resolution of the
issues. It proceeded to dismiss both the claims and counterclaims of the parties on the
ground that these had already prescribed under New York State Law’s six-year statute
of limitations and ruled that, in any case, were it to resolve the same on the merits, "it
would not produce an affirmative recovery for the claimant. Aggrieved, Asian
Construction filed an appeal before the Court of Appeals (CA) seeking for the reversal of
the award.

The CA gave due course to Asian Construction’s Second CA Petition assailing the
Final Award and rendered a Decision on January 26, 2011, upholding the Arbitral
Zusmitha D. Salcedo Alternative Dispute Resolution Case Digests

Tribunal’s ruling except the award of attorney’s fees in favor of Sumitomo. The CA held
that the fact that Asian Construction initiated an action or refused to compromise its
claims cannot be considered unjustified or made in bad faith as to entitle Sumitomo to
the aforesaid award. Consequently, Sumitomo moved for reconsideration, asserting
that Asian Construction’s Second CA Petition should have instead been dismissed in its
entirety considering their Agreement that the Arbitral Tribunal’s decisions and awards
would be final and non-appealable. However, the CA denied the said motion for
reconsideration. Hence, this petition.

ISSUE: Whether or not the final award of the Arbitral Tribunal is final and unappealable.

HELD : No, the final award of the Arbitral Tribunal is appealable and subject for judicial
review.

Sumitomo Corporation faults the CA for reviewing and modifying a final and non-
appealable arbitral award and insists that the Asian Construction’s Second CA Petition
should have been dismissed outright. It mainly argues that by entering into stipulations
in the arbitration clause – which provides that "the order or award of the arbitrators will
be the sole and exclusive remedy between the parties regarding any and all claims and
counterclaims with respect to the matter of the arbitrated dispute" and that "the order
or award rendered in connection with an arbitration shall be final and binding upon the
parties," Asian Construction effectively waived any and all appeals from the Arbitral
Tribunal’s decision or award

A brief exegesis on the development of the procedural rules governing CIAC cases
clearly shows that a final award rendered by the Arbitral Tribunal is not absolutely
insulated from judicial review.

To begin, Executive Order No. (EO) 1008, which vests upon the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, plainly states that the arbitral
award "shall be final and inappealable except on questions of law which shall be
appealable to the Court." Later, however, the Court, in Revised Administrative Circular
(RAC) No. 1-95, modified this rule, directing that the appeals from the arbitral award of
the CIAC be first brought to the CA on "questions of fact, law or mixed questions of fact
and law." This amendment was eventually transposed into the present CIAC Revised
Rules which direct that "a petition for review from a final award may be taken by any of
the parties within fifteen (15) days from receipt thereof in accordance with the
provisions of Rule 43 of the Rules of Court." Notably, the current provision is in
harmony with the Court’s pronouncement that "despite statutory provisions making
the decisions of certain administrative agencies ‘final,’ the Court still takes cognizance
of petitions showing want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the law" and that, in
Zusmitha D. Salcedo Alternative Dispute Resolution Case Digests

particular, "voluntary arbitrators, by the nature of their functions, act in a quasi-judicial

capacity, such that their decisions are within the scope of judicial review."

In this case, the Court finds that the CA correctly reviewed and modified the
Arbitral Tribunal’s Final Award insofar as the award of attorney’s fees in favor of
Sumitomo is concerned since the same arose from an erroneous interpretation of the
law.

G.R. NO. 152471 AUGUST 18, 2006

FIESTA WORLD MALL CORPORATION v. LINBERG PHILIPPINES, INC.

Zusmitha D. Salcedo Alternative Dispute Resolution Case Digests

FACTS: Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall
located at Barangay Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a
corporation that builds and operates power plants.

On January 19, 2000, respondent filed with the Regional Trial Court (RTC) a
Complaint for Sum of Money against petitioner. It alleged that on November 12, 1997,
petitioner and respondent executed a build-own-operate agreement, entitled "Contract
Agreement for Power Supply Services, 3.8 MW Base Load Power Plant." Under this
Contract, respondent will construct, at its own cost, and operate as owner a power
plant, and to supply petitioner power/electricity at its shopping mall in Lipa City.
Petitioner, on the other hand, will pay respondent "energy fees" to be computed in
accordance with the Seventh Schedule of the Contract. It further alleged that
respondent constructed the power plant in Lipa City at a cost of about P130,000,000.00.
In November 1997, the power plant became operational and started supplying
power/electricity to petitioner’s shopping mall in Lipa City. In December 1997,
respondent started billing petitioner. As of May 21, 1999, petitioner’s unpaid obligation
amounted to P15,241,747.58, exclusive of interest. However, petitioner questioned the
said amount and refused to pay despite respondent’s repeated demands.

In its Answer with Compulsory Counterclaim, petitioner specifically denied the

allegations in the complaint, claiming that respondent failed to fulfill its obligations
under the Contract by failing to supply all its power/fuel needs. From November 10,
1998 until May 21, 1999, petitioner personally shouldered the cost of fuel. While both
parties had discussions on the questioned billings, however, "there were no earnest
efforts to resolve the differences in accordance with the arbitration clause provided for
in the Contract."

Finally, as a special affirmative defense in its answer, petitioner alleged that

respondent’s filing of the complaint is premature and should be dismissed on the
ground of non-compliance with paragraph 7.4 of the Contract.

Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the
ground that respondent violated the arbitration clause provided in the Contract,
thereby rendering its cause of action premature. This was opposed by respondent,
claiming that paragraph 7.4 of the Contract on arbitration is not the provision applicable
to this case; and that since the parties failed to settle their dispute, then respondent
may resort to court action pursuant to paragraph 17.2 of the same Contract.

ISSUE: Whether the filing with the trial court of respondent’s complaint is premature.

HELD: Yes, the filing with the trial court of respondent’s complaint is premature.
Zusmitha D. Salcedo Alternative Dispute Resolution Case Digests

Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner
dispute any amount of energy fees in the invoice and billings made by respondent, the
same "shall be resolved by arbitration of three (3) persons, one (1) by mutual choice,
while the other two (2) to be each chosen by the parties themselves." The parties, in
incorporating such agreement in their Contract, expressly intended that the said matter
in dispute must first be resolved by an arbitration panel before it reaches the court.
They made such arbitration mandatory.

It is clear from the records that petitioner disputed the amount of energy fees
demanded by respondent. However, respondent, without prior recourse to arbitration
as required in the Contract, filed directly with the trial court its complaint, thus violating
the arbitration clause in the Contract.

It bears stressing that such arbitration agreement is the law between the parties.
Since that agreement is binding between them, they are expected to abide by it in good
faith. And because it covers the dispute between them in the present case, either of
them may compel the other to arbitrate. Thus, it is well within petitioner’s right to
demand recourse to arbitration.

We cannot agree with respondent that it can directly seek judicial recourse by filing
an action against petitioner simply because both failed to settle their differences
amicably. Suffice it to state that there is nothing in the Contract providing that the
parties may dispense with the arbitration clause. Article XXI on jurisdiction cited by
respondent, i.e., that "the parties hereto submit to the exclusive jurisdiction of the
proper courts of Pasig City" merely provides for the venue of any action arising out of or
in connection with the stipulations of the parties in the Contract.

Moreover, we note that the computation of the energy fees disputed by petitioner
also involves technical matters that are better left to an arbitration panel who has
expertise in those areas. Alternative dispute resolution methods or ADRs – like
arbitration, mediation, negotiation and conciliation – are encouraged by this Court. By
enabling the parties to resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and more productive of goodwill
and lasting relationships. To brush aside such agreement providing for arbitration in
case of disputes between the parties would be a step backward.