Upholding Arbitration Finality and the Limits of Judicial Review in Construction Disputes

The Supreme Court recently settled two important questions in construction arbitration: when can a party appeal a CIAC arbitral award, and what happens when a party files multiple cases to challenge the same award? In Asian Construction and Development Corporation v. Sumitomo Corporation (G.R. Nos. 196723 and 196728, August 28, 2013), the Court denied both petitions and affirmed the Court of Appeals' rulings, providing clear guidance on the finality of arbitral awards and the limits of judicial review.

The Dispute

Asian Construction entered into a Civil Work Agreement with Sumitomo Corporation in 1996 to build a portion of the Light Rail Transit System along EDSA. The agreement provided that disputes would be "solely and finally settled by arbitration" and that New York State law would govern the contract.

In 1998, Sumitomo terminated the agreement, citing Asian Construction's alleged failures to complete work on time, provide adequate traffic management, and pay suppliers. Asian Construction claimed unpaid progress billings and other amounts, demanding over US$6 million. After years of unsuccessful correspondence, Asian Construction filed a complaint with the Construction Industry Arbitration Commission (CIAC) in 2008.

The Arbitration Proceedings

The CIAC Arbitral Tribunal rendered a Partial Award on December 15, 2009, affirming its jurisdiction but dismissing both parties' claims as prescribed under New York State law's six-year statute of limitations. The tribunal later issued a Final Award on March 17, 2010, granting Sumitomo's claim for attorney's fees of US$200,000 and ordering Asian Construction to bear the arbitration costs.

Asian Construction filed two separate petitions before the Court of Appeals: one challenging the Partial Award and another challenging the Final Award. Sumitomo, for its part, insisted that the Final Award should have been treated as final and unappealable.

Forum Shopping and Partial Awards

The Court upheld the dismissal of Asian Construction's petition against the Partial Award on the ground of forum shopping. Forum shopping occurs when a litigant repeatedly avails of several judicial remedies in different courts, all substantially founded on the same transactions and raising the same issues, to increase the chances of obtaining a favorable decision.

Here, Asian Construction filed its petition with the Court of Appeals while simultaneously filing an opposition before the Arbitral Tribunal seeking the same relief—reversal of the Partial Award. This constituted the first kind of forum shopping, warranting dismissal on the ground of litis pendentia.

The Court also noted that the CIAC Revised Rules allow a petition for review only against a final arbitral award, not a partial one. Asian Construction's premature resort to judicial review was therefore dismissible on this ground as well.

Judicial Review of Final Awards

Sumitomo argued that the parties' agreement made the arbitral award final and non-appealable, so the Court of Appeals should not have reviewed the Final Award at all. The Court rejected this argument.

While Executive Order No. 1008 (the Construction Industry Arbitration Law) provides that CIAC awards are "final and inappealable except on questions of law," the Court explained that this rule has been modified. Revised Administrative Circular No. 1-95 now directs that appeals from CIAC arbitral awards be brought to the Court of Appeals on questions of fact, law, or mixed questions of fact and law. This is now reflected in the CIAC Revised Rules, which allow a petition for review from a final award under Rule 43 of the Rules of Court.

The Court emphasized that voluntary arbitrators act in a quasi-judicial capacity, and their decisions remain within the scope of judicial review—particularly where there is want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law.

Attorney's Fees and Bad Faith

On the merits, the Court agreed with the Court of Appeals' deletion of the attorney's fees awarded to Sumitomo. Under Article 2208 of the Civil Code, attorney's fees may be awarded only in specific instances, including where a party acted in gross and evident bad faith in refusing to satisfy a plainly valid, just, and demandable claim.

The Court found no gross and evident bad faith on Asian Construction's part. It was merely seeking payment for work done under the agreement, and its refusal to accept Sumitomo's settlement offer was within its contractual rights. Since the parties' claims had already prescribed and the dispute did not involve interpretation of the agreement, the contractual stipulation on attorney's fees remained inoperative.

Practical Takeaways

• Only final awards are appealable. A party cannot seek judicial review of a CIAC partial award; the remedy of petition for review under Rule 43 applies only to final arbitral awards.
• Avoid forum shopping at all costs. Filing a case in court while simultaneously seeking the same relief before the arbitral tribunal constitutes forum shopping and results in summary dismissal.
• Arbitral awards are not absolutely insulated from review. Despite contractual provisions on finality, courts may review CIAC awards for jurisdictional defects, grave abuse of discretion, due process violations, or erroneous interpretation of law.
• Attorney's fees require bad faith. Absent a governing stipulation, attorney's fees in arbitration are recoverable only where a party acted in gross and evident bad faith—mere refusal to settle or filing a claim does not suffice.
• Know the applicable law. When a contract chooses a foreign law, that law governs substantive issues such as prescription, even in Philippine arbitration proceedings.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.