In a construction dispute between LICOMCEN Incorporated and Foundation Specialists, Inc. (FSI), the Supreme Court affirmed the jurisdiction of the Construction Industry Arbitration Commission (CIAC), holding that the CIAC’s authority extends to disputes arising from the execution of works defined in a construction contract, even when claims are based on alleged breaches. This decision underscores the importance of arbitration clauses in construction agreements and the CIAC’s role in resolving related conflicts efficiently. It clarifies that active participation in CIAC proceedings prevents parties from later challenging its jurisdiction, emphasizing the binding nature of arbitration agreements and promoting stability within the construction industry.

Navigating Contractual Waters: When Can CIAC Decide Construction Disputes?

Liberty Commercial Center, Inc. (LICOMCEN) contracted Foundation Specialists, Inc. (FSI) for the bored pile foundation of the LCC City Mall (CITIMALL). A dispute arose when LICOMCEN suspended construction due to legal challenges and later rebid the project. FSI sought payment for work done, materials, and other expenses, leading to a petition for arbitration with the CIAC. LICOMCEN challenged the CIAC’s jurisdiction, arguing that the dispute was a breach of contract, falling under the regular courts’ purview, and that FSI failed to comply with conditions precedent for arbitration. The central legal question was whether the CIAC had jurisdiction over the dispute, considering the contractual provisions and the nature of FSI’s claims.

The Supreme Court addressed the issue of jurisdiction by emphasizing the scope of the CIAC’s authority as defined in Executive Order (E.O.) No. 1008, also known as the Construction Industry Arbitration Law. Section 4 of E.O. No. 1008 provides that the CIAC has original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines. To further highlight the CIAC’s broad jurisdiction, the Court quoted Section 4 of E.O. No. 1008:

SECTION 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

Building on this principle, the Court noted that the jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost. The critical factor, the Court emphasized, is that the parties to a dispute must agree to submit the same to voluntary arbitration. This agreement is often manifested through an arbitration clause in the construction contract.

The Court further reasoned that LICOMCEN had submitted itself to the jurisdiction of the CIAC when its president signed the Terms of Reference (TOR) during the preliminary conference. The TOR explicitly stated that the parties agreed to settle their differences through an Arbitral Tribunal appointed under the CIAC Rules of Procedure, and that the case would be decided in accordance with the contract, the Construction Industry Arbitration Law, and applicable laws and industry practices. By signing the TOR, LICOMCEN effectively consented to the CIAC’s jurisdiction and waived any objections it might have had.

Furthermore, the Court affirmed the Court of Appeals’ finding that the dispute between FSI and LICOMCEN arose out of or in connection with the execution of works, as defined in the construction contract. The Court rejected LICOMCEN’s attempt to narrowly interpret the phrase “disputes arising out of or in connection with the execution of work” as separate and distinct from “disputes arising out of or in connection with the contract.” The Court emphasized that the various stipulations of a contract should be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The Court quoted Article 1374 of the Civil Code on the interpretation of contracts:

Article 1374 of the Civil Code on the interpretation of contracts ordains that “the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.”

Essentially, while FSI’s money claims against LICOMCEN arose out of or in connection with the contract, they also necessarily arose from the work it accomplished or sought to accomplish pursuant to that contract. Thus, the Court concluded that these monetary claims could be categorized as a dispute arising out of or in connection with the execution of work, thereby falling within the CIAC’s jurisdiction. The Court also found that FSI had complied with the condition precedent for arbitration, as it had referred the claim to ESCA and LICOMCEN, and had exerted efforts to settle the claim amicably before filing suit with the CIAC.

The Supreme Court also addressed LICOMCEN’s argument that the contract had been merely suspended indefinitely, not terminated. The Court pointed out that LICOMCEN itself had invoked GC-41 of the GCC, which pertains to LICOMCEN’s right to suspend work or terminate the contract. By invoking this provision, LICOMCEN, in effect, admitted that the contract had already been terminated. The Court further noted that the termination of the contract was made obvious and unmistakable when LICOMCEN’s new project consultant rebid the contract for the bored piling works for the CITIMALL. The Court rejected LICOMCEN’s claim that the rebidding was conducted merely for purposes of getting cost estimates for a possible new design, calling it a lame attempt to avoid liability under the contract.

The Court ruled that LICOMCEN could not find refuge in the principle of laches to avoid liability. The Court emphasized that it is not just the lapse of time or delay that constitutes laches, but rather the failure or neglect, for an unreasonable and unexplained length of time, to do that which, through due diligence, could or should have been done earlier. The Court concluded that FSI’s delay in filing its petition for arbitration was not unreasonable, as it was due to FSI’s efforts to settle the claim extra-judicially, which LICOMCEN had rebuffed. Moreover, FSI filed its claim well within the ten-year prescriptive period provided for in Article 1144 of the Civil Code for actions upon a written contract.

FAQs

What was the key issue in this case?	The central issue was whether the CIAC had jurisdiction over the construction dispute, given the specific arbitration clauses in the contract and the nature of the claims made by FSI.
What is the Construction Industry Arbitration Commission (CIAC)?	The CIAC is a government body with original and exclusive jurisdiction over disputes arising from construction contracts in the Philippines, provided the parties agree to submit to voluntary arbitration.
What does it mean to submit to voluntary arbitration?	Submitting to voluntary arbitration means that the parties agree to resolve their disputes through an impartial arbitrator or panel of arbitrators, instead of going to court. This agreement is often included as a clause in the original contract.
How did LICOMCEN submit to the CIAC’s jurisdiction?	LICOMCEN submitted to the CIAC’s jurisdiction by signing the Terms of Reference (TOR) during the preliminary conference, which indicated their agreement to have the dispute settled by the CIAC.
What is the significance of the Terms of Reference (TOR)?	The Terms of Reference (TOR) is a document signed by all parties that outlines the scope and procedures of the arbitration process, including the issues to be resolved and the applicable rules and laws.
Can a party challenge the CIAC’s jurisdiction after participating in the proceedings?	No, a party cannot challenge the CIAC’s jurisdiction after actively participating in the proceedings and seeking affirmative relief, as this is seen as an acquiescence to the CIAC’s authority.
What is the principle of laches?	Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, through due diligence, could or should have been done earlier, which can bar a party from asserting a right or claim.
What is the prescriptive period for actions based on a written contract in the Philippines?	The prescriptive period for actions based on a written contract in the Philippines is ten years from the time the cause of action accrues, as provided in Article 1144 of the Civil Code.
What are material costs at the site?	In this case, material costs at the site refer to the costs of construction materials, like steel bars, that were reasonably ordered for the project and delivered to the job site.
What is the effect of a termination clause in a construction contract?	A termination clause in a construction contract outlines the conditions under which the contract can be terminated by either party and specifies the obligations and rights of the parties upon termination.

The Supreme Court’s decision in this case reinforces the CIAC’s critical role in resolving construction disputes, providing a streamlined and efficient alternative to traditional court litigation. By affirming the CIAC’s jurisdiction and emphasizing the binding nature of arbitration agreements, the Court promotes stability and predictability within the construction industry.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: LICOMCEN INCORPORATED vs. FOUNDATION SPECIALISTS, INC., G.R. NO. 167022, August 31, 2007