LM POWER vs.

CAPITOL INDUSTRIAL

Facts:
This is a Petition for Review on Certiorari filed by the petitioner LM Power against
Respondent Capitol Industrial seeking to set aside the decision of CA.
Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a Subcontract Agreement involving electrical work at the Third Port
of Zamboanga. Due to the inability of the petitioner to procure materials, Capitol Industial
took over some of the work contracted to the former. After the completion of the contract,
petitioner billed respondent in the amount of P6, 711,813.90 but the respondent refused to
pay.

Petitioner filed with the RTC of Makati a Complaint for the collection of the amount
representing the alleged balance due it under the subcontract. Respondent filed a Motion to
Dismiss, alleging that the Complaint was premature, due to the absence of prior recourse to
arbitration.

RTC denied the Motion on the ground that the dispute did not involve the interpretation or
the implementation of the Agreement and was not covered by the arbitral clause and ruled
in favor of the petitioner.
Respondent appealed to the CA, the latter reversed the decision of the RTC and ordered the
referral of the case to arbitration.

Hence, this Petition.

ISSUE:
WON there is a need for the prior arbitration before filing of the complaint with the court.

HELD:
AFFIRMATIVE.
SC ruled that in the case at hand it involves technical discrepancies that are better left to an
arbitral body that has expertise in the subject matter. Moreover, the agreement between the
parties contains arbitral clause that any dispute or conflict as regards to interpretation and
implementation of this agreement which cannot be settled between respondent and
petitioner amicably shall be settled by means of arbitration. The resolution of the dispute
between the parties herein requires a referral to the provisions of their agreement. Within
the scope of the arbitration clause are discrepancies as to the amount of advances and

billable accomplishments, the application of the provision on termination, and the

consequent set-off of expenses.
With respect to the disputes on the take-over/termination and the expenses incurred by
respondent in the take-over, the SC ruled that the agreement provides specific provisions
that any delay, expenses and any other acts in violation to such agreement, the respondent
can terminate and can set off the amount it incurred in the completion of the contract.

SC tackled also that theres no need for the prior request for arbitration by the parties with
the Construction Industry Arbitration Commission (CIAC) in order for it to acquire
jurisdiction. Because pursuant to Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration, when a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the jurisdiction of CIAC.
Furthermore, the arbitral clause in the agreement is a commitment on the part of the parties
to submit to arbitration the disputes covered therein. Because that clause is binding, they
are expected to abide by it in good faith.
Since a complaint with the RTC has been filed without prior recourse to arbitration, under RA
876 (Arbitration Law) the proper procedure is to request the stay or suspension of such
action in order to settle the dispute with the CIAC.