Camp John Hay Development Corporation v.

Charter Chemical and

Coating Corporation

G.R. No. 198849

August 7, 2019

Facts:

Camp John Hay Development (“Camp John Hay”) entered into a Contractor’s
Agreement with Charter Chemica (“Charter”). This was inclusive of the price of
two (2)-studio type units at Camp John Hay Suites, the total amount of which
would be based on the units chosen by Charter Chemical.

The Contractor’s Agreement contained no date of the units’ turnover, yet Camp
John Hay still allowed Charter to choose the units for offsetting under an
offsetting scheme. The respondent chose Units 102 and 104 studio type in the
second phase of Camp John Hay Suites.

Later on, the contract price was reduced to P13,239,734.16, for which Camp
John Hay paid P7,339,734.16. The balance of P5,900,000.00 was ought to be
settled by offsetting the price of the two (2) studio units.

Charter then completed the painting works by 2003. After which, Charter
demanded the execution of the deed of sale and delivery of the titles of the two
(2) units in September 2004, with a follow-up in April 2005.

Camp John Hay and Charter executed contracts to sell in 2005, obliging Camp
John Hay to deliver to Charter the units. Camp John Hay then issued the
certifications to Charter. The certifications pronounced that the two (2) units
were fully paid under their offsetting scheme. However, the units were not
delivered because the construction of Camp John Hay Suites was still
incomplete.

Camp John Hay had initially estimated that the construction would be
completed by 2006. In a Lease Agreement executed on October 19, 1996, Camp
John Hay and Bases Conversion and Development Authority provided for a
period of three and a half (3.5) years from the execution of the Lease Agreement
to complete the various physical components in Camp John Hay. When this
timetable was not followed due to alleged mutual delays and force majeure, the
two entered into at least four (4) more amendments to the Lease Agreement.
Two (2) of these covered the revision of the Project Implementation Plan
providing the targeted completion dates of the various facilities in Camp John
Hay. Under these revisions, Camp John Hay Development and Bases
Conversion and Development Authority estimated that the second phase of the
Camp John Hay Suites would be completed by the end of the second quarter of
2006.

Camp John Hay again failed to complete its construction due to other
unforeseen circumstances. Under the July 1, 2008 revision, the Camp John
Hay Suites was estimated to be completed by 2012.

Due to the profound delay, Charter, wrote to Camp John Hay. Charter
demanded to transfer the units or pay the value of these units in the sum of
P6,996,517.48.

Charter then filed before the Construction Industry Arbitration Commission a

Request for Arbitration under the arbitration clause in the Contractor’s
Agreement. The filing happened on June 12, 2008 because Charter felt that
further demands would be rendered useless. The CIAC ordered Camp John
Hay Development to pay the amounts of P5,900,000.00, the monetary value of
the two (2) units in Camp John Hay Suites, and P590,000.00 as attorney’s
fees.

The arbitral tribunal ruled that Charter Chemical was entitled to its claim for
the value of the two (2) units because Camp John Hay Development failed to
deliver the units within the targeted completion date. It also ruled that the
courts should not fix the period for the delivery of the subject units as provided
for in Article 1197 of the Civil Code because the reciprocal nature of the
contract itself provides for the period of their delivery. Moreover, CIAC can fix
the period if necessary.

In the appeal before the CA, Camp John Hay Development argued that the
arbitral tribunal did not have jurisdiction over the dispute because the
arbitration clause had been superseded by a subsequent dispute resolution
clause contained in the contracts to sell. It further asserted that it had neither
agreed on the completion date of the two (2) units nor admitted that the units
were to be completed within three (3) years from 2003 or 2005. Instead, it
asked for a fixing of the term or period when the units would be completed.

The CA affirmed the arbitral tribunal’s award. It held that the arbitration
clause in the Contractor’s Agreement was neither modified nor superseded by
the contracts to sell, which were merely devices by which to transfer
possession and title over the units to Charter Chemical. The Contractor’s
Agreement, it noted, remained the principal covenant. It also ruled that Camp
John Hay Development was already in delay when Charter Chemical demanded
the transfer of units on August 3, 2007. When Charter Chemical finished the
work in 2003, a timetable based on the 2003 Memorandum of Agreement
between Camp John Hay Development and Bases Conversion and Development
Authority stated that the units would be completed by 2006. This showed that
there was a definite time for the completion of the units. Although Charter
Chemical was an outsider to this agreement, it was “equivalent to an
announcement to all concerned that the units would be completed at such and
such a date.”

Issue:

Whether the Construction Industry Arbitration Commission has jurisdiction

over the dispute despite the existence of a dispute resolution clause

Decision:

Yes. The CIAC has jurisdiction over the dispute.

The Construction Industry Arbitration Commission was created under

Executive Order No. 1008 to establish an arbitral machinery that will “settle
expeditiously problems arising from, or connected with, contracts in the
construction industry.” It has jurisdiction over “construction disputes between
or among parties to an arbitration agreement, or those who are otherwise
bound by the latter, directly or by reference.” Its purpose is to encourage the
early and expeditious settlement of disputes in the construction industry,
recognizing that it is necessary to avert delays in the resolution of construction
industry disputes, which is important to attain the national development goals.

For the Construction Industry Arbitration Commission to acquire jurisdiction,

the law merely requires that the parties agree to submit to voluntary
arbitration any dispute arising from construction contracts.

Under Section I, Article III of the CIAC Rules, an arbitration clause in a

construction contract shall be deemed as an agreement to submit an existing
or future controversy to CIAC jurisdiction, “notwithstanding the reference to a
different arbitration institution or arbitral body in such contract.” Since the
jurisdiction of CIAC is conferred by law, it cannot be subjected to any
condition; nor can it be waived or diminished by the stipulation, act or
omission of the parties, as long as the parties agreed to submit their
construction contract dispute to arbitration, or if there is an arbitration clause
in the construction contract. The parties will not be precluded from electing to
submit their dispute to CIAC, because this right has been vested in each party
by law.

It bears to emphasize that the mere existence of an arbitration clause in the

construction contract is considered by law as an agreement by the parties to
submit existing or future controversies between them to CIAC jurisdiction,
without any qualification or condition precedent. To affirm a condition
precedent in the construction contract, which would effectively suspend the
jurisdiction of the CIAC until compliance therewith, would be in conflict with
the recognized intention of the law and rules to automatically vest CIAC with
jurisdiction over a dispute should the construction contract contain an
arbitration clause.

Arbitration of construction disputes through the Construction Industry

Arbitration Commission was incorporated into the general statutory framework
on alternative dispute resolution through Republic Act No. 9285, or the
Alternative Dispute Resolution Act of 2004. Chapter 6, Section 34 of this law
explicitly referenced the Construction Industry Arbitration Law, while Section
35 affirmed the Construction Industry Arbitration Commission’s jurisdiction.

SC explained the rationale behind this policy: Aside from unclogging judicial
dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the “wave of the future” in international
civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.

Here, petitioner and respondent agreed to submit to arbitration any dispute

arising from the construction contract, as clearly stipulated in their
Contractor’s Agreement. The arbitration clause should, thus, be given primacy
in accordance with the State’s policy to favor arbitration. It follows that if there
is any doubt as to what provision should be given effect, SC will rule in favor of
the arbitration clause.

Moreover, the contracts to sell, containing a contrary dispute resolution clause,

did not supersede the arbitration clause. The case records show that the
contracts to sell are not inconsistent with the Contractor’s Agreement. They are
merely devices to facilitate the transfer of ownership of the two (2) units to
respondent – an offshoot of the offsetting scheme provision in the Contractor’s
Agreement.

While the contracts to sell and the Contractor’s Agreement both refer to the
transfer of the two (2) units to respondent, the contracts to sell are pro-forma
contracts provided by petitioner in selling the Camp John Hay Suites units.
There is no intent to supersede the Contractor’s Agreement, which remains the
principal contract between petitioner and respondent.

Petitioner erred in claiming that because the contracts to sell are not
construction contracts, they effectively removed the parties’ dispute outside the
ambit of a construction dispute. On the contrary, the subject of the contracts
to sell still falls within the jurisdiction of the Construction Industry Arbitration
Commission. Section 4 of the Construction Industry Arbitration Law states that
its jurisdiction includes “payment and default of employer or contractor.” Here,
the main dispute concerning the contracts to sell all boils down to the issue of
payment of the two (2) units for the services rendered by respondent. Hence,
the units’ transfer as payment to respondent still falls under the jurisdiction of
the arbitral tribunal.