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THIRD DIVISION had failed to finish it because of its inability to procure warranty clause of the Agreement, and whether it

materials.[7] should reimburse respondent for the work the latter


[G.R. No. 141833. March 26, 2003] had taken over.[15]
Upon completing its task under the Contract,
LM POWER petitioner billed respondent in the amount Hence, this Petition.[16]
ENGINEERING CORPORATION, petitioner, of P6,711,813.90.[8] Contesting the accuracy of the
vs. CAPITOL INDUSTRIAL CONSTRUCTION amount of advances and billable accomplishments The Issues
GROUPS, INC., respondent. listed by the former, the latter refused to In its Memorandum, petitioner raises the following
DECISION pay. Respondent also took refuge in the termination issues for the Courts consideration:
clause of the Agreement.[9] That clause allowed it to
PANGANIBAN, J.: set off the cost of the work that petitioner had failed A
to undertake -- due to termination or take-over --
Alternative dispute resolution methods or ADRs -- like Whether or not there exist[s] a controversy/dispute
against the amount it owed the latter.
arbitration, mediation, negotiation and conciliation -- between petitioner and respondent regarding the
are encouraged by the Supreme Court. By enabling Because of the dispute, petitioner filed with the interpretation and implementation of the Sub-
parties to resolve their disputes amicably, they Regional Trial Court (RTC) of Makati (Branch 141) a Contract Agreement dated February 22, 1983 that
provide solutions that are less time-consuming, less Complaint[10] for the collection of the amount requires prior recourse to voluntary arbitration;
tedious, less confrontational, and more productive of representing the alleged balance due it under the
goodwill and lasting relationships.[1] B
Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,[11] alleging that In the affirmative, whether or not the requirements
The Case
the Complaint was premature, because there was no provided in Article III [1] of CIAC Arbitration Rules
Before us is a Petition for Review prior recourse to arbitration. regarding request for arbitration ha[ve] been
[2]
on Certiorari under Rule 45 of the Rules of Court, complied with[.][17]
In its Order[12] dated September 15, 1987, the RTC
seeking to set aside the January 28, 2000 Decision
denied the Motion on the ground that the dispute did The Courts Ruling
of the Court of Appeals[3](CA) in CA-GR CV No.
not involve the interpretation or the implementation of
54232. The dispositive portion of the Decision reads The Petition is unmeritorious.
the Agreement and was, therefore, not covered by
as follows:
the arbitral clause.[13]
First Issue:
WHEREFORE, the judgment appealed from is
After trial on the merits, the RTC[14] ruled that the
REVERSED and SET ASIDE. The parties are Whether Dispute Is Arbitrable
take-over of some work items by respondent was not
ORDERED to present their dispute to arbitration in
equivalent to a termination, but a mere modification, Petitioner claims that there is no conflict regarding the
accordance with their Sub-contract Agreement. The
of the Subcontract. The latter was ordered to give full interpretation or the implementation of the
surety bond posted by [respondent] is [d]ischarged.[4]
payment for the work completed by petitioner. Agreement. Thus, without having to resort to prior
The Facts arbitration, it is entitled to collect the value of the
Ruling of the Court of Appeals
services it rendered through an ordinary action for the
On February 22, 1983, Petitioner LM Power collection of a sum of money from respondent. On the
On appeal, the CA reversed the RTC and ordered the
Engineering Corporation and Respondent Capitol other hand, the latter contends that there is a need
referral of the case to arbitration. The appellate court
Industrial Construction Groups Inc. entered into a for prior arbitration as provided in the
held as arbitrable the issue of whether respondents
Subcontract Agreement involving electrical work at Agreement. This is because there are some
take-over of some work items had been intended to
the Third Port of Zamboanga.[5] disparities between the parties positions regarding
be a termination of the original contract under Letter
On April 25, 1985, respondent took over some of the K of the Subcontract. It ruled likewise on two other the extent of the work done, the amount of advances
work contracted to petitioner.[6] Allegedly, the latter issues: whether petitioner was liable under the and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over of was caused by petitioners delay in completing the 1. Any amount due [petitioner] from [respondent] at
petitioners work. work. Such delay was in violation of the provision in the time of the termination of this Agreement.[22]
the Agreement as to time schedule:
We side with respondent. Essentially, the dispute The issue as to the correct amount of petitioners
arose from the parties ncongruent positions on G. TIME SCHEDULE advances and billable accomplishments involves an
whether certain provisions of their Agreement could evaluation of the manner in which the parties
be applied to the facts. The instant case involves [Petitioner] shall adhere strictly to the schedule completed the work, the extent to which they did it,
technical discrepancies that are better left to an related to the WORK and complete the WORK within and the expenses each of them incurred in
arbitral body that has expertise in those areas. In any the period set forth in Annex C hereof. NO time connection therewith. Arbitrators also need to look
event, the inclusion of an arbitration clause in a extension shall be granted by [respondent] to into the computation of foreign and local costs of
contract does not ipso facto divest the courts of [petitioner] unless a corresponding time extension is materials, foreign and local advances, retention fees
jurisdiction to pass upon the findings of arbitral granted by [the Ministry of Public Works and and letters of credit, and taxes and duties as set forth
bodies, because the awards are still judicially Highways] to the CONSORTIUM.[20] in the Agreement. These data can be gathered from
reviewable under certain conditions.[18] Because of the delay, respondent alleges that it took a review of the Agreement, pertinent portions of
over some of the work contracted to petitioner, which are reproduced hereunder:
In the case before us, the Subcontract has the
following arbitral clause: pursuant to the following provision in the Agreement: C. CONTRACT PRICE AND TERMS OF PAYMENT

6. The Parties hereto agree that any dispute or K. TERMINATION OF AGREEMENT xxxxxxxxx
conflict as regards to interpretation and [Respondent] has the right to terminate and/or take
implementation of this Agreement which cannot be All progress payments to be made by [respondent] to
over this Agreement for any of the following causes: [petitioner] shall be subject to a retention sum of ten
settled between [respondent] and [petitioner]
amicably shall be settled by means of arbitration x x xxxxxxxxx percent (10%) of the value of the approved
x.[19] quantities. Any claims by [respondent] on [petitioner]
6. If despite previous warnings by [respondent], may be deducted by [respondent] from the progress
Clearly, the resolution of the dispute between the [petitioner] does not execute the WORK in payments and/or retained amount. Any excess from
parties herein requires a referral to the provisions of accordance with this Agreement, or persistently or the retained amount after deducting [respondents]
their Agreement. Within the scope of the arbitration flagrantly neglects to carry out [its] obligations under claims shall be released by [respondent] to
clause are discrepancies as to the amount of this Agreement.[21] [petitioner] after the issuance of [the Ministry of Public
advances and billable accomplishments, the Works and Highways] of the Certificate of Completion
Supposedly, as a result of the take-over, respondent
application of the provision on termination, and the and final acceptance of the WORK by [the Ministry of
incurred expenses in excess of the contracted
consequent set-off of expenses. Public Works and Highways].
price. It sought to set off those expenses against the
A review of the factual allegations of the parties amount claimed by petitioner for the work the latter xxxxxxxxx
reveals that they differ on the following questions: (1) accomplished, pursuant to the following provision:
Did a take-over/termination occur? (2) May the D. IMPORTED MATERIALS AND EQUIPMENT
If the total direct and indirect cost of completing the
expenses incurred by respondent in the take-over be [Respondent shall open the letters of credit for the
remaining part of the WORK exceed the sum which
set off against the amounts it owed petitioner? (3) importation of equipment and materials listed in
would have been payable to [petitioner] had it
How much were the advances and billable Annex E hereof after the drawings, brochures, and
completed the WORK, the amount of such excess
accomplishments? other technical data of each items in the list have
[may be] claimed by [respondent] from either of the
The resolution of the foregoing issues lies in the following: been formally approved by [the Ministry of Public
interpretation of the provisions of the Works and Highways]. However, petitioner will still be
Agreement. According to respondent, the take-over
fully responsible for all imported materials and According to petitioner, assuming arguendo that the submission agreement before the claimant may
equipment. dispute is arbitrable, the failure to file a formal request invoke the jurisdiction of CIAC.
for arbitration with the Construction Industry
All expenses incurred by [respondent], both in foreign Arbitration Commission (CIAC) precluded the latter The foregoing amendments in the Rules were
and local currencies in connection with the opening from acquiring jurisdiction over the question. To formalized by CIAC Resolution Nos. 2-91 and 3-
of the letters of credit shall be deducted from the bolster its position, petitioner even cites our ruling 93.[31]
Contract Prices. in Tesco Services Incorporated v. Vera.[30] We are The difference in the two provisions was clearly
xxxxxxxxx not persuaded. explained in China Chang Jiang Energy Corporation
Section 1 of Article II of the old Rules of Procedure (Philippines) v. Rosal Infrastructure Builders et
N. OTHER CONDITIONS al.[32] (an extended unsigned Resolution) and
Governing Construction Arbitration indeed required
xxxxxxxxx the submission of a request for arbitration, as follows: reiterated in National Irrigation Administration v.
Court of Appeals,[33] from which we quote thus:
2. All customs duties, import duties, contractors SECTION. 1. Submission to Arbitration -- Any party
taxes, income taxes, and other taxes that may be to a construction contract wishing to have recourse to Under the present Rules of Procedure, for a particular
required by any government agencies in connection arbitration by the Construction Industry Arbitration construction contract to fall within the jurisdiction of
with this Agreement shall be for the sole account of Commission (CIAC) shall submit its Request for CIAC, it is merely required that the parties agree to
[petitioner].[23] Arbitration in sufficient copies to the Secretariat of the submit the same to voluntary arbitration Unlike in the
CIAC; PROVIDED, that in the case of government original version of Section 1, as applied in
Being an inexpensive, speedy and amicable method the Tesco case, the law as it now stands does not
construction contracts, all administrative remedies
of settling disputes,[24] arbitration -- along with provide that the parties should agree to submit
available to the parties must have been exhausted
mediation, conciliation and negotiation -- is disputes arising from their agreement specifically to
within 90 days from the time the dispute arose.
encouraged by the Supreme Court. Aside from the CIAC for the latter to acquire jurisdiction over the
unclogging judicial dockets, arbitration also hastens Tesco was promulgated by this Court, using the same. Rather, it is plain and clear that as long as the
the resolution of disputes, especially of the foregoing provision as reference. parties agree to submit to voluntary arbitration,
commercial kind.[25] It is thus regarded as the wave of regardless of what forum they may choose, their
the future in international civil and commercial On the other hand, Section 1 of Article III of agreement will fall within the jurisdiction of the CIAC,
disputes.[26] Brushing aside a contractual agreement the new Rules of Procedure Governing Construction such that, even if they specifically choose another
calling for arbitration between the parties would be a Arbitration has dispensed with this requirement and forum, the parties will not be precluded from electing
step backward.[27] recourse to the CIAC may now be availed of to submit their dispute before the CIAC because this
whenever a contract contains a clause for the right has been vested upon each party by law, i.e.,
Consistent with the above-mentioned policy of submission of a future controversy to arbitration, in E.O. No. 1008.[34]
encouraging alternative dispute resolution methods, this wise:
courts should liberally construe arbitration Clearly, there is no more need to file a request with
clauses. Provided such clause is susceptible of an SECTION 1. Submission to CIAC Jurisdiction An the CIAC in order to vest it with jurisdiction to decide
interpretation that covers the asserted dispute, an arbitration clause in a construction contract or a a construction dispute.
order to arbitrate should be granted.[28] Any doubt submission to arbitration of a construction dispute
should be resolved in favor of arbitration.[29] shall be deemed an agreement to submit an existing The arbitral clause in the Agreement is a commitment
or future controversy to CIAC jurisdiction, on the part of the parties to submit to arbitration the
Second Issue: notwithstanding the reference to a different arbitration disputes covered therein. Because that clause is
institution or arbitral body in such contract or binding, they are expected to abide by it in good
Prior Request for Arbitration
submission. When a contract contains a clause for faith.[35] And because it covers the dispute between
the submission of a future controversy to arbitration, the parties in the present case, either of them may
it is not necessary for the parties to enter into a compel the other to arbitrate.[36]
Since petitioner has already filed a Complaint with the implementation of the Agreement and was not agreement provides specific provisions that any
RTC without prior recourse to arbitration, the proper covered by the arbitral clause and ruled in favor of the delay, expenses and any other acts in violation to
procedure to enable the CIAC to decide on the petitioner. such agreement, the respondent can terminate and
dispute is to request the stay or suspension of such can set off the amount it incurred in the completion of
action, as provided under RA 876 [the Arbitration Respondent appealed to the CA, the latter reversed the contract.
Law].[37] the decision of the RTC and ordered the referral of
the case to arbitration.
WHEREFORE, the Petition is DENIED and the
assailed Decision AFFIRMED. Costs against SC tackled also that there’s no need for the prior
petitioner. request for arbitration by the parties with the
Hence, this Petition. Construction Industry Arbitration Commission (CIAC)
SO ORDERED. in order for it to acquire jurisdiction. Because
pursuant to Section 1 of Article III of the new Rules
LM POWER vs. CAPITOL INDUSTRIAL of Procedure Governing Construction
Arbitration, when a contract contains a clause for the
ISSUE:
submission of a future controversy to arbitration, it is
Facts: WON there is a need for the prior arbitration before not necessary for the parties to enter into a
filing of the complaint with the court. submission agreement before the claimant may
This is a Petition for Review on Certiorari filed by
invoke the jurisdiction of CIAC. Furthermore, the
the petitioner LM Power against Respondent Capitol
arbitral clause in the agreement is a commitment on
Industrial seeking to set aside the decision of CA.
the part of the parties to submit to arbitration the
HELD:
Petitioner LM Power Engineering Corporation and disputes covered therein. Because that clause is
Respondent Capitol Industrial Construction Groups AFFIRMATIVE. binding, they are expected to abide by it in good faith.
Inc. entered into a Subcontract Agreement involving
SC ruled that in the case at hand it involves technical Since a complaint with the RTC has been filed without
electrical work at the Third Port of Zamboanga. Due
discrepancies that are better left to an arbitral body prior recourse to arbitration, under RA 876
to the inability of the petitioner to procure materials,
that has expertise in the subject matter. Moreover, (Arbitration Law) the proper procedure is to request
Capitol Industial took over some of the work
the agreement between the parties contains arbitral the stay or suspension of such action in order to settle
contracted to the former. After the completion of the
clause that “any dispute or conflict as regards to the dispute with the CIAC.
contract, petitioner billed respondent in the amount of
interpretation and implementation of this agreement
P6, 711,813.90 but the respondent refused to pay.
which cannot be settled between respondent and
petitioner amicably shall be settled by means of
arbitration”. The resolution of the dispute between the
Petitioner filed with the RTC of Makati a Complaint for parties herein requires a referral to the provisions of
the collection of the amount representing the alleged their agreement. Within the scope of the arbitration
balance due it under the subcontract. Respondent clause are discrepancies as to the amount of
filed a Motion to Dismiss, alleging that the Complaint advances and billable accomplishments, the
was premature, due to the absence of prior recourse application of the provision on termination, and the
to arbitration. consequent set-off of expenses.

With respect to the disputes on the take-


RTC denied the Motion on the ground that the dispute over/termination and the expenses incurred by
did not involve the interpretation or the respondent in the take-over, the SC ruled that the

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