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Updates on Arbitration in the Philippines

Diesel Construction Co., Inc. v.
UPSI Property Holdings, Inc.
G.R. No. 154885; UPSI Property
Holdings, Inc. v. Diesel Construction Co.,
Inc. and FGU Insurance Corp.,
G.R. No. 154937, March 24, 2008

FACTS:

This is a construction arbitration case filed with the Construction Industry Arbitration Commission [“CIAC”], initiated by Diesel Construction Co., Inc. [“Diesel”] against UPSI Property Holdings, Inc. [“UPSI”] for payment of the balance of the contract price, damages and attorney’s fees. UPSI filed an answer with counterclaim. The principal defense of UPSI was that Diesel was guilty of delay for which it should be held liable for the payment of liquidated damages. After hearing, the CIAC arbitral tribunal found that the delays were attributable to UPSI and awarded to Diesel the amount of P4,027,861.60 plus interest. UPSI appealed by petition for review under Rule 43 of the Rules of Court to the Court of Appeals. The appeals court partially reversed the Tribunal and found Diesel guilty of inexcusable delay of 45 days for which it was held liable for liquidated damages in the amount of P1,309,500.00 which should be deducted from the unpaid balance of the contract price amounting to P2,441,482.64.

Diesel moved the Court of Appeals to reconsider its judgment invoking the general rule that “…..the findings of fact of specialized agencies are entitled to great respect and credit, or even finality, specially when such findings require technical or special training, aside from a good knowledge and grasp of over-all condition relevant to the said field.¹ This is particularly true when the conclusions of fact are supported by substantial evidence.”²

The CA was unmoved by this argument. “[L]ike all legal axioms”, the CA said, “this (general rule) admits of certain exceptions. Thus, there are occasions when the courts have intervened to annul the findings of even highly specialized agencies, essentially when the question goes to the very heart of the substantiality of the evidence.³

“This dictum”, the CA continued, “finds greater application in the case of the CIAC because, as pointed out by petitioner in its Comment, the doctrine of primary jurisdiction relied upon by respondent Diesel is diluted by the indubitable fact that the CIAC panel that decided the case initially, is not at all composed of technocrats, or persons exceptionally well-versed in the construction industry. For instance, its chair, Madame Alice Tiongson, is a statistician; another member, Atty. Federico Alikpala, Jr, a former magistrate, is a member of the Board. Doubtless these two are preeminent in their fields, and their competence and proficiency in their chosen professions are unimpeachable. However, when it comes to determining findings of fact with respect to the matter before Us, the said panel which they partly comprise cannot claim to have any special advantage over the members of this Court.”

In its petition under Rule 45 of the Rules of Court filed with the Supreme Court for a review on certiorari of the decision of the CA, Diesel raised the following issues:

        “1.    Whether or not the [CA] has the discretion, indeed the     jurisdiction, to pass upon the qualifications of the individual members of     the CIAC Arbitral Tribunal and declare them to be non-technocrats and not     exceptionally well-versed in the construction industry warranting reversal     and nullification of the tribunal’s findings;

        “2.    Whether or not the [CA] may intervene to annul the findings     of a highly specialized agency, like the CIAC, on the ground that     essentially the question to be resolved goes to the very heart of the     substantiality of the evidence, when in so doing [CA] merely substituted its     own conjectural opinions to that of the CIAC Arbitral Tribunal’s well-    supported findings and award.”

The Supreme Court, in its decision, said that the CA may indeed review and even overturn conclusions of fact of an arbitral tribunal when the matter of its being adequately supported by substantial evidence is raised in issue in the appeal. However, what the CA stated to belabor this point struck the Supreme Court as specious and uncalled for. It held that: “The question of whether or not the findings of fact of the CIAC are supported by substantial evidence has no causal connection to the personal qualification of the members of the arbitral panel. Surely, a person’s undergraduate or post-graduate degrees, as the case may be, can hardly be invoked as the sole, fool proof basis to determine that person’s qualification to hold a certain position. One’s work experience and attendance in relevant seminars and trainings would perhaps be more important factors in gauging a person’s fitness to a certain undertaking.”

In its decision, the Supreme Court deleted the award of liquidated damages which the CA, but not the CIAC, had imposed.

Comment:

The issue has not been whether the members of the Arbitral Tribunal were qualified to be appointed arbitrators for the dispute. No issue in regard to whether the chosen arbitrators were “fit” or “competent” to perform the task of hearing and deciding the dispute was raised before CIAC or the Tribunal. Diesel, in seeking from the CA a reconsideration of its decision anchored its argument on the general rule that the tribunal that decided the case should be regarded as having acquired the expertise in matters entrusted to its jurisdiction such that the tribunal’s findings of fact are accorded not only respect but even finality if supported by substantial evidence. In the process of denying the motion for reconsideration, the CA, in effect, said that the general rule does not apply in this case, and to demonstrate that fact, it questioned the expertise of the Tribunal to rule upon the matters submitted to it.

The Supreme Court said that Diesel was correct in arguing that highly specialized agencies “are presumed to have the necessary technical expertise in their line of authority. In other words, the members of the Arbitral Tribunal of CIAC have in their favor the presumption of possessing the necessary qualifications and competence exacted by the law. A party in whose favor the legal presumption exists may rely on and invoke such legal presumptions to establish a fact in issue. One need not introduce evidence to prove that the fact for a presumption is prima facie proof of the fact presumed.”

Under the revised CIAC Arbitration Rules, arbitrators are accredited by CIAC. All such arbitrators enjoy the presumption that they “are familiar with the construction industry” and those who are lawyers, “are experienced in construction disputes.” Construction arbitrators are mostly engineers and architects; about 25% are lawyers. One is an accountant. An applicant for accreditation is required to be at least 40 years of age and to have at least 10 years hands-on experience in construction. CIAC, in selecting arbitrators to appoint from the list of nominees provided by the parties, also takes into account the issues raised by the parties in their pleadings and appoints those that can provide a multi-disciplinary approach to the issues raised. A lawyer is appointed as invariably there are legal issues; an accountant is preferred if there are accounting issues; architects and engineers are appointed to resolve the technical issues. In this case, it may be assumed that Judge Alikpala was chosen for the legal issues, Dr. Ernesto de Castro, a civil engineer, for the technical issues. The decision of the tribunal is usually made during an executive session among the members.

In its Resolution, the CA appeared to have accepted at face value UPSI’s argument in its opposition to Diesel’s motion for reconsideration that:

    “1.4    The Chairman, Alice Tiongson (a graduate of Bachelor of Science in Statistics and a Master of Statistics) and a member, Federico Y. Alikpala, Jr. (a graduate of Bachelor of Arts and of Bachelor of Laws), are not even technical persons, nor have they ever been actually involved in any construction project. So that, it is a falsehood for Respondent DCCI to suggest that they have the monopoly, and that this Honorable Court is not competent, to appreciate the fact in a construction project more than said statistician and lawyer arbitrators.” [Emphasis in original]

UPSI’s counsel failed to mention the fact that Ms. Alice A. Tiongson was its second nominee.⁴ She was the first nominee of Diesel.⁵

UPSI’s counsel evidently obtained the information about Ms. Tiongson and Judge Alikpala, Jr. from the Construction Arbitrator’s Directory. The Directory, however, contains the curriculum vitae of the construction arbitrators. It contains a wealth of information about the qualifications of the accredited arbitrators which UPSI counsel evidently failed to mention as well. The Directory would indubitably show the extensive experience of the three arbitrators in construction matters. Ms. Tiongson, in particular, had been for 16 years Executive Director of the Construction Industry Authority of the Philippines, consultant on construction matters by the World Bank, and the Department of Public Works Highways, among others. She had written numerous articles and reports published in the Philippines and abroad. She has earned the degree of Masters in Construction Management at the Polytechnic University of the Philippines.

In light of this decision, it would not be possible, on appeal, for an appealing party to belittle the qualifications of arbitrators as a means of discrediting their award.

This article was prepared by Custodio O. Parlade, of-counsel of the Parlade Hildawa Parlade Eco & Panga and president emeritus of the Philippine Dispute Resolution Center, Inc. For further information on this topic, please contact Custodio O. Parlade at (632) 687 5362; by mail at 26th Floor, The Orient Square, F. Ortigas, Jr., Ortigas Center, Pasig City 1605 Philippines, or by e-mail at: coparlade@phpeplaw.com or gingparlade@yahoo.com.

__________________________

1 Citing Beautifont, Inc. v. Court of Appeals, 157 SCRA 481

2 Citing Lacuesta v. Herrera, 62 SCRA 115

3 Citing Gravador v. Manigo, 20 SCRA 742

4 The nominees of UPSI were: Atty. Alfredo F. Tadiar, Ms. Alicia A. Tiongson, Dr. Ernesto S. de Castro, Judge Salvador C. Ceguera, Ambassador Sedfrey A. Ordonez, and Atty. Victor P. Lazatin.

5 The nominees of Diesel were: Ms. Alicia A. Tiongson, Atty. Custodio O. Parlade, Engr. Eliseo I. Evangelista, Arch. Rosauro Paderon, Atty. Victor P. Lazatin, Dr. Ernesto S. de Castro, and Judge Federico Y. Alikpala, Jr.

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