No arbitration agreement, no CIAC jurisdiction

No arbitration agreement, no CIAC jurisdiction | Daily Tribune

Over recent years, the legal community has recognized arbitration as the preferred mode of resolving disputes. One of the factors considered in choosing arbitration over litigation is the relatively efficient and expedited process.

With respect to construction disputes, there has been a rise as well of parties providing an arbitration clause.

Pursuant to the Construction Industry Arbitration Law (CIAL), the Construction Industry Arbitration Committee (CIAC) was created to encourage the expeditious settlement of disputes in the Philippine construction industry.

Despite the expedient nature of submitting disputes to the CIAC, the Supreme Court reminded in the fairly recent case of Karen Baldovino Chua v. Noel B. de Castro (G.R. 235894, 5 February 2024), that CIAC has jurisdiction only when both parties agree to submit their construction dispute to arbitration.

In the said case, petitioner Karen Chua and her husband engaged respondent Jose de Castro’s services for the construction of a two-story residential building. Chua and De Castro did not execute a written contract, considering the latter’s years of experience and relationship as her mother’s first cousin.

De Castro prepared the necessary building plans, designs, and material specifications, which the petitioner and her husband approved. De Castro also received the funds he had requested. However, a month after the couple had moved into the newly-constructed house, they noticed defects such as leaking ceilings, flooding, cracks on the doors, and plumbing issues.

The petitioner and her husband engaged the services of another foreman to fix the defects and an engineer to inspect the house. Both foremen and engineer revealed that De Castro had: (a) compromised on the work done and the materials used; and (b) deviated from the structural plans agreed upon.

The dispute was then referred to the Lupong Tagapamayapa. However, the parties failed to resolve their difference, which constrained the Lupon to issue a Certificate to File Action. Consequently, the petitioner filed against De Castro a complaint for rescission, breach of contract, and damages before the Regional Trial Court (RTC).

However, the RTC dismissed the case motu proprio. The court held that pursuant to Circular No. 103-2015 of the Office of the Court Administrator (OCA), the complaint had to be dismissed and referred to the CIAC, the same being the tribunal with exclusive jurisdiction over construction disputes. The trial court held that the allegations in the complaint placed the controversy within the jurisdiction of the CIAC and as such, it was exercising its discretion to dismiss the case motu proprio.

Petitioner moved for the RTC to reconsider this order, which the latter denied. This constrained petitioner to file a petition for certiorari before the Supreme Court. Through a direct recourse to the High Court on a pure question of law, petitioner argued that the RTC erred in dismissing her complaint for want of jurisdiction.

She insists that under Executive Order 1008, parties must agree to submit the dispute to the CIAC for voluntary arbitration before the tribunal can exercise its jurisdiction. In her case, there was neither a construction contract with an arbitration clause nor a subsequent agreement from the parties to submit their case for arbitration.

The Supreme Court granted Chua’s petition. The Court affirmed that jurisdiction over the subject matter of a dispute is conferred by law, and not by the consent or acquiescence of any or all parties, or by the erroneous belief of the court or tribunal that it existed.

The High Court ruled that section 4 of E0 1008 provides that when the dispute involves a construction agreement, the law vests jurisdiction with the CIAC so long as the “the parties agree to submit to voluntary arbitration.”

According to the High Tribunal, the mere incorporation of an arbitration clause in a construction contract is sufficient to vest the CIAC with jurisdiction. The Court adds that the arbitration clause operates as the parties’ consent as required by the law, and may not be subjected to any condition or qualification.

Applying the foregoing, the Supreme Court ruled that the records neither reflected that Chua and De Castro had agreed to submit their dispute to arbitration nor indicated that they had acquiesced to the same. The Court emphasized that there is no arbitration clause from which such consent to arbitrate could be inferred since there was no written construction contract executed between the parties.

Thus, the Supreme Court ruled that the RTC erred in dismissing the petitioner’s complaint and in referring the case to the CIAC. Consequently, the Court remanded the case to the RTC for an adjudication on the merits.

The Supreme Court stated that it recognized the pivotal role that the CIAC plays in the swift settlement of construction controversies. It even adopted policies to ensure that the adjudicative body is “empowered and enabled to fulfill its function as the professionally authoritative venue for settlement of construction disputes.”

However, the Court reminded trial courts of overzealously applying OCA Circular 103-2015, and other Circulars of a similar nature, as it is not an excuse to ignore the letter of the law or established jurisprudence with regard to the proper jurisdiction of the RTC vis-à-vis the CIAC.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.