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 there’s 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.

CHINA CHANG JIANG ENERGY CORPORATION vs ROSAL INFRASTRUCTURE

BUILDERS, G.R. No. 125706, September 30, 1996
FACTS:
China Chang is the operator of the Binga Hydroelectric Plant in Itogon, Benguet, which is under a
Rehabilitate Operate and Leaseback Contract with the National Power Corporation (NAPOCOR) and was
engaged in the rehabilitation of the power plant, including the construction of check dams.
On February 1994, petitioner China Chang engaged the services of Rosal Infrastructure Builders for the
construction of a Dam in Itogon, Benguet. In this contract, the parties agreed to submit disputes arising
therefrom to arbitration before the Arbitration of the International Chamber of Commerce.
When a dispute arose between the parties, Rosal filed a complaint before the Construction Industry
Arbitration Commission (CIAC) for arbitration. China Chang filed its answer with compulsory
counterclaim and raised therein the issue of lack of jurisdiction on the part of CIAC. In August 1995, the -
CIAC considered the question of jurisdiction merely as a special defense which can be included as part of
the issues of the Terms of Reference. China Chang filed a motion for reconsideration which was denied
by CIAC in October 1995.
China Chang raised the issue of lack of jurisdiction with the CA. In February 1996, the CA dismissed the
petition. China Chang filed a Motion for Reconsideration, but was denied by the CA. China Chang now
questions the validity of Construction Industry Arbitration Commission (CIAC) Resolution 3- 93
amending Section 1, Article III of CIAC Rules of Procedure Governing Construction Arbitration
promulgated by the CIAC pursuant to its rule-making power granted under Section 21 of Executive Order
No. 1008, which pertinently provides as follows:
Article III Effect of the Agreement to Arbitrate Section 1. Submission to CIAC Jurisdiction – An
arbitration clause in a construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future controversy to the CIAC
jurisdiction, notwithstanding the reference to a different arbitral institution or arbitral body in
such contract or submission.
ISSUES:
1. W/N the CIAC has acquired jurisdiction over the dispute.
2. W/N the parties in the case at bar can agree to submit to arbitration their construction
dispute under the CIAC.
HELD:
1. YES.
There is no restriction whatsoever on any party from submitting a dispute for arbitration to an
arbitral body other than the CIAC. On the contrary, the new rule, as amended merely implements
the letter and the spirit of its enabling law, E.O. No. 1008, which vests jurisdiction upon the
CIAC:
Section 4: Jurisdiction - The CIAC shall have the original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by the parties involved in
 the construction in the Philippines, whether the dispute arises before or after the
completion of the contracts, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration. (Emphasis
supplied)
What the law merely requires for a particular construction contract to fall within the jurisdiction
of CIAC is for the parties to agree to submit the same to voluntary arbitration.
Now that Section 1, Article III, as amended, is submitted to test in the present petition, the
Supreme Court ruled to uphold its validity with full certainty.
2. YES
However, this should not be understood to mean that the parties may no longer stipulate to submit
their disputes to a different forum or arbitral boy. Parties may continue to stipulate as regards
their preferred forum in case of voluntary arbitration, but in so doing, they may not divest the
CIAC of jurisdiction as provided by law. Under the elementary principle on the law on contracts
that laws obtaining in a jurisdiction form part of all agreements, when the law provides that the
Board acquires jurisdiction when the parties to the contract agree to submit the same to voluntary
arbitration, the law in effect, automatically gives the parties an alternative forum before whom
they may submit their disputes. That alternative forum is the CIAC.