In Metropolitan Cebu Water District v. Mactan Rock Industries, G.R. No. 172438 (July 2012), the Supreme Court ruled that the Construction Industry Arbitration Commission (“CIAC”) has jurisdiction over reformation of contracts and a party’s refusal to arbitrate will not stay its proceedings or the issuance of an arbitral award.
Petitioner Metropolitan Cebu Water District (“MCWD”) is a government-owned and controlled corporation mandated to supply water within its service area in the Province of Cebu. On 19 May 1997, it entered into a Water Supply Contract with Respondent Metro Rock Industries, Inc. (“MRII”), a domestic corporation. Under the Contract, it was agreed that MRII would supply MCWD with potable water, in accordance with WHO or Philippine standards. On 15 March 2004, MRII filed a Complaint against MCWD with the CIAC seeking the reformation of Clause 17 of the Contract (the Price Escalation/De-Escalation Clause) to include Capital Cost Recovery in the price escalation formula, and the payment of the unpaid price escalation/adjustment, and unpaid variation/extra work order and interest/cost of money. On 7 May 2002, MCWD filed its Answer with a motion to dismiss the complaint on the ground that the CIAC had no jurisdiction over the case, as the Contract was not one for construction or infrastructure (i.e., reformation of and payment under a Water Supply Contract). The CIAC issued an order denying MCWD’s motion to dismiss and called the parties to a preliminary conference for the review and signing of the Terms of Reference. MCWD then filed a petition for certiorari with Court of Appeals questioning the jurisdiction of the CIAC.
The CIAC proceeded with the scheduled preliminary conference which MWCD did not attend. MRII and the CIAC both signed the Terms of Reference, and pursuant thereto, MRII submitted its documentary evidence and affidavits of its witnesses, and subsequently filed its Formal Offer of Evidence and memorandum of arguments in the form of a draft decision. MCWD did not attend the hearings, did not submit evidence other than those annexed to its Answer, and did not file a formal offer of evidence or a memorandum. The CIAC promulgated its Decision which, among others, ordered the reformation of Clause 17 of the Water Supply Contract and payment by MCWD to MRII under the reformed Clause 17 of the net amount of PHP12,126,296.70 plus legal interest; with the parties sharing equally the cost of arbitration.
MWCD appealed the CIAC decision. The Supreme Court ruled against MWCD.
Supreme Court’s Ruling
CIAC has jurisdiction over broad range of construction disputes, including reformation of contracts.
The Supreme Court noted that the parties themselves characterized the Contract as one involving construction, as its arbitration clause specifically refers disputes arising out of or relating to the Contract to an arbitration tribunal in accordance with the Construction Industry Arbitration Law. Since CIAC has jurisdiction over the Contract, it follows that it has jurisdiction to order the reformation of the Contract as well. It held that neither the provisions of the Civil Code on reformation of contracts or the law creating the CIAC exclude the reformation of contracts from CIAC’s jurisdiction. The Supreme Court cited previous rulings that the CIAC has jurisdiction over a broad range of issues and claims arising from construction disputes, and the law creating it excludes only disputes arising from employer-employee relationships.
Refusal to arbitrate will not stay CIAC proceedings
Considering the affirmation of the CIAC’s jurisdiction, the Supreme Court ruled that the CIAC could proceed with the case even if the MCWD refused to participate in the arbitration proceedings. It said that the refusal of a party to participate in the arbitration proceedings, cannot prevent the CIAC from proceeding with the case and issuing an award in favor of one of the parties. Under the Revised CIAC Rules, the failure of a respondent to appear, which amounts to refusal to arbitrate, will not stay the proceedings, notwithstanding the absence of the respondent or the lack of participation of such party. In such cases, the CIAC is mandated to appoint the arbitrator/s in accordance with the Revised CIAC Rules, and the arbitration proceedings shall continue and an award made after receiving the evidence of the claimant. In support of the ruling, the Supreme Court cited previous case where it held that the CIAC has jurisdiction over a construction dispute even though only one of the parties requested for arbitration, or even if both parties had withdrawn their consent to arbitrate.
In any event the Supreme Court noted the party who did not participate is not without a remedy. Under the Revised CIAC Rules, a respondent who failed to appear is still given the opportunity to move for the reopening of the proceedings to present evidence, provided that this is done before an award is issued.
This case affirms the rule that parties to a valid arbitration clause are contractually bound to settle their dispute through arbitration and that the refusal of a party to arbitrate will not affect the authority of the CIAC to conduct the proceedings and issue an arbitral award.