SC issues new guidelines on construction trade disputes

The Supreme Court has adopted new guidelines that limit the grounds parties may use to appeal the findings and resolutions of construction disputes issued by the Construction Industry Arbitration Commission purportedly to speed up the implementation of the latter’s awards.

The SC stressed that the new guidelines with respect to the modes of judicial review of the CIAC should be applied prospectively and does not cover cases that are pending with the CA.

Under the new guidelines, the high court said if the issue raised in the appeal is a pure question of law, the petition should be filed directly and exclusively with the high court.

In cases where the petition takes issue on the integrity of the arbitral tribunal and its decision, such as  allegations of corruption, fraud, misconduct, evident partiality, incapacity or excess of powers within the tribunal, or the unconstitutionality or invalidity of its actions in the arbitral process, the SC declared that the parties are directed to appeal the CIAC award before the CA under Rule 65, on grounds of grave abuse of discretion amounting to lack or excess in jurisdiction, where a factual review may be conducted by the CA.

“Under no other circumstances other than the limited grounds provided above may parties appeal to the CA a CIAC arbitral award,” the high court emphasized.

The SC issued the guidelines after the SC affirmed with modification the arbitral award dated May 10, 2016 of the CIAC involving the case of Ross Systems International, Inc., (RSII) and Global Medical Center of Laguna, Inc. (GMCLI), both assailing the decision dated October 28, 2016 of the  CA’s  Sixth Division. The decision was penned by Associate Justice Benjamin S. Caguiao.

The CIAC ruled that  GMCLI has  no authority to withhold and remit the two percent creditable withholding tax (CWT) on the cumulative amount of 15 progress billings of RSII;  RSII was not entitled to the release of the amount of P4,884,778.92, equivalent to the two percent  CWT withheld because at the time the same was remitted to the Bureau of Internal Revenue (BIR), RSII had not yet paid income taxes on the payments from progress billings nos. 1 to 15; and RSII was still entitled to the amount of P1,088,214.33, representing the balance due

after deducting from P8,131,474.83 the two percent  CWT on progress billings  in the amount of P3,941,769.00 and the payment already made to RS II  in the amount of P3,101,491.00.

The appellate court also denied the motion for reconsideration of RS II through its resolution dated February 21, 2017.

The controversy arose when GMCLI engaged the services of RS II for the construction of its hospital in Cabuyao, Laguna amounting to t P248,500,000.00  with 15 percent  of said contract price to be paid to RSII as down payment, and the remaining balance to be paid in monthly installments based on the percentage of work accomplished.

On April 12, 2015, RSII submitted to GMCLI its progress billing which indicated that it had already accomplished 79.31 percent  of the project, equivalent to P9,228,286.77.

After receipt and upon  evaluation of GMCLI, however, it estimated that the accomplished percentage was only at 78.84 percent  of the entire contract price or equivalent to P7,043,260.00 for the said progress billing.

GMCLI, after its internal audit, learned that it was unable to withhold and remit 2 percent  CWT on RSII’s progress billings nos. 1 to 14.

In order to make up for its previous non-remittances, GMCLI withheld the two percent CWT not only from progress billing no. 15 or from the amount of P7,043,260.00  but from the cumulative amount of all progress billings nos. 1-15or from the amount of P197,088,497.00, equivalent to the submitted 79.31 percent accomplishment of RSII.

Thus, for RSII’s progress billing No. 15 priced at P7,043,260.00, GMCLI only paid a total of P3,101,491.00 RSII filed a complaint and request for arbitration before the CIAC on August 6, 2015.

After getting an unfavorable decision from the CIAC, RSII elevated the matter before the Court of Appeals which affirmed with modification the CIAC’s ruling by declaring that the petitioner is entitled to the payment of the amount of P1.088 million representing the balance after deducting from P8,131,474.83 (at 78.84 percent work accomplishment) the two percent  CWT on progress billings nos. 1 to 15  in the amount of P3.9 million and the payment already made to RSII in the amount of P3.1 million.

Both RSII’s motion for partial reconsideration and GMCLI’s motion for reconsideration were denied through the CA’s Resolutiondated February 21, 2017.

This prompted both GMCLI and RSII filed before the Court  separate petitions which were later on consolidated.

GMCLI sought that the CA decision be partially modified and the CIAC arbitral award be reinstated in full.

On the other hand, RSII claims that it is entitled not only to the balance of P1,088,214.83, but to the amount of P3,815,996.50, equivalent to the allegedly improperly withheld  CWT In an en banc decision released last August 6, 2021, the SC unanimously to partially grant the petitions.

The Court partially reversed the CA’s ruling with respect to RS II’s entitlement to the amount of Pl,088,214.83.

It reinstated with modification the CIAC’s final award dated May 10, 2016 in that GMCLI is further ordered to furnish RS II with the pertinent BIR Form 2307 ( Certificate of Creditable Tax Withheld at Source) , in compliance with Section 2.57.3, Revenue Regulation No. 2-98.

In the same ruling, the Court noted that the case gave it an opportunity to review the laws and rules in connection with the relationship between the courts and the CIAC.

It recalled that the CIAC was created by virtue of Executive Order No.

1008 issued by then President Ferdinand Marcos when the growth of the construction industry was in full swing.

Section 19 of the CIAC Charter provides that findings of fact of the CIAC are no longer open to challenge on appeal, but its legal conclusions may be assailed before the Court.

The Court said allowing the  CA to review questions of fact pertaining to the CIAC awards violates E.O. 1008’s original design of the relationship between the courts and the CIAC.

“Disputes such as the one presented by the petitions at bar, which to date already ran a lifespan of over four years, illustrate the need for CIAC arbitral awards to henceforth be given the authoritative sway and deference that they merit, as well as demonstrates the call for courts to stay their hands until a pure question of law can be distilled from the dispute and brought before it,” the SC ruled.

“It is central, therefore, that the CIAC be empowered and enabled to fulfill its function as the professionally authoritative venue for settlement of construction disputes, and not straitjacketed to fit into the mold of the court system which it was meant to be an alternative of,” it added.

The SC said the courts can contribute to the speedy resolution of construction disputes  through non- participation unless there is a question of law.

It added that the factual review of the courts of the CIAC rulings also weighs heavily in costs for the parties as it renders the proceedings with the CIAC as mere additional layer in the process and its resolution of construction disputes no longer the alternative to litigation, but only the beginning.

“As has been fleshed out by the present controversy, this overarching attempt towards less court litigation and more of alternative conflict resolution in the construction industry must only get support from the Court through its own restraint, lest it be accused of being eager towards copious and lengthy litigations, or worse, indifferent to their costs,” the SC said.

Chief Justice Alexander Gesmundo and Associate Justices Marvic Leonen, Henri Jean Paul Inting, Rodil Zalameda, Mario Lopez, Samuel Gaerlan , Edgardo delos Santos and Jhosep Lopez concurred with the ruling.

Justice Leonen issued a separate concurring opinion.