THIRD DIVISION
[G.R. Nos. 232374-75. October 11, 2021.]
REPUBLIC OF THE PHILIPPINES, DEPARTMENT OF HEALTH, AND MARIANO MARCOS MEMORIAL HOSPITAL AND MEDICAL CENTER, petitioners, vs.COMPACT BUILDERS, INC., respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Third Division, issued a Resolution datedOctober 11, 2021, which reads as follows:
"G.R. Nos. 232374-75 (Republic of the Philippines, Department of Health, and Mariano Marcos Memorial Hospital and Medical Center v. Compact Builders, Inc.). — This resolves the Petition for Review on Certiorari (with Urgent Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction) 1 under Rule 45 of the Rules of Court, assailing the Consolidated Decision 2 dated January 23, 2017 and Consolidated Resolution 3 dated June 21, 2017 of the Court of Appeals (CA) in CA-G.R. SP Nos. 133831 and 134059. The CA affirmed in toto the Final Award 4 dated January 14, 2014 by the Construction Industry Arbitration Commission (CIAC).
The Facts
This case stemmed from a complaint 5 filed by respondent Compact Builders, Inc. (CBI) against the Department of Health (DOH) and Mariano Marcos Memorial Hospital and Medical Center (MMMHMC) to accept and pay the construction of an oxygen generating plant that CBI claimed was built and delivered before the contract period ended, as well as to recover damages and attorney's fees.
In the complaint, CBI alleged the following causes of action:
1. Correct Computation of Contract Period
2. Recovery of Wrongfully Deducted Liquidated Damages
3. Release of Retention Amount
4. Cost of Revised Drawings
5. Cost of PSA Oxygen Generator
6. Cost of Retro-fitting of Cryogenic Oxygen Generator
7. Cost of Demolition Works
8. Cost of Delivered and Accomplished Electrical Works
9. Cost of Step-up Transformer CAIHTE
10. Cost of Electrical Civil Works for Genset & Service Line
11. Clarity on the Diesel Electrical Generator
12. Additional Incurred Expenses
13. Costs of Extended Maintenance and Warranty
14. Costs for Cryogenic Service Engineer
15. Interest of 2.5% per month for unpaid items
16. Attorney's Fees and Costs of Arbitration 6
Per the Terms of Reference 7 (TOR) dated July 2, 2013 and Amended TOR 8 dated July 24, 2013, the parties admitted the following facts:
1. CBI is a domestic corporation organized and existing under and by virtue of the laws of the Republic of the Philippines with principal office located at 237 General Luis Street, Novaliches, Quezon City. It is engaged in the business of construction in the Philippines.
2. The Republic is a party to the Contract Agreement dated December 14, 2010, represented by and acting through DOH and MMMHMC.
3. DOH is the government agency "primarily responsible for the formulation, planning, implementation, and coordination of policies and programs in the field of health."
4. MMMHMC is a government hospital administered by the DOH.
a. Dr. Ma. Lourdes K. Otayza is Chief of Hospital III of MMMHMC.
b. Bernadette G. Ipac is the Administrative Officer of MMMHMC.
c. Leonardo E. Concepcion, Jr. is one of the engineers of MMMHMC.
d. Davinci Sagatsat is one of the engineers of MMMHMC.
e. Carlos Bariring is one of the engineers of DOH.
5. On October 17, 2009, petitioners published an invitation to bid for the supply, delivery and installation of Oxygen Generating Plant with 99% minimum working purity, in accordance with Republic Act No. 9184 (RA 9184), but there was a failure of bidding.
6. On June 20, 2010, petitioners published an invitation to bid for the construction of Oxygen Generating Plant with 99.5% minimum working purity. The bid documents included the designs and plans of the plant.
7. A pre-bid conference was conducted on July 2, 2010.
8. CBI inspected the site on July 14, 2010.
9. CBI submitted its bid. On October 20, 2010, MMMHMC issued a Notice of Award to CBI, which the latter accepted on October 28, 2010.
10. On December 14, 2010, the parties entered into a Contract of Agreement for the Construction of an Oxygen Generating Plant 99.5% Minimum Working Purity (Project) for a contract price of Php39,898,000.76 to be completed not later than 240 calendar days from receipt of the claimant of the Notice to Proceed, provided it shall be in accordance with the provisions of the bid documents.
11. On January 4, 2011, CBI received from MMMHMC the Notice to Proceed (NTP) dated December 15, 2010.
12. Based on the designs and plans, the oxygen generating plant was to be located at the south side of the Main Building of MMMHMC's compound.
13. The Project was eventually located at the area occupied by MMMHMC's Motor Pool Building southeast of the main hospital.
14. In a letter to CBI dated January 25, 2011, MMMHMC informed CBI of a pre-construction conference for the Project on January 26, 2011, which the parties attended.
15. In a letter to MMMHMC dated January 27, 2011, CBI asked for immediate suspension of the Project due to its redrafting and redesigning of plans. The letter was received by MMMHMC on February 1, 2012.
16. In a letter dated January 31, 2011, addressed to and received by MMMHMC on February 1, 2011, CBI forwarded another set of plans for the Project and offered to provide upgraded and better medical oxygen generators that can produce 50 cubic meters or 215 cylinders per day — almost twice the original production capacity, but at a lower production cost per cylinder than the original machine, which can produce only 30 cubic meters (or 128 cylinders per day) stipulated in the bid documents, at no additional cost to the petitioners.
17. The Mechanical Equipment Layout of the approved revised plan provided for both a cryogenic oxygen generator and a pressure swing adsorption (PSA) oxygen generator.
18. In CBI's letter dated March 18, 2011, which MMMHMC received on the same day, CBI requested an extension of 75 days to complete the Project.
19. On March 28, 2011, the Commission on Audit (COA) issued an inspection report noting that "[d]emolition [of the Motor Pool Building] is necessary to pave way for the construction of (MMMHMC's) Oxygen Generating Plant." CBI proceeded to demolish the Motor Pool Building and completed the same sometime in late April 2011.
20. In a letter dated March 30, 2011, which MMMHMC received on April 4, 2011, CBI requested another extension of 14 days to complete the Project. HEITAD
21. In a letter to the Department of Budget and Management (DBM) dated March 31, 2011, MMMHMC advised that the advance payment of 15% due to CBI was not remitted to the latter's account because of a typographical error in the account number that was submitted to DBM, La Union, and requested the re-issuance of the lapsed Notice of Cash Allocation of the Project under Batch No. 101-03-003-2011.
22. In its Disbursement Voucher dated January 31, 2011, MMMHMC deducted final VAT of Php641,217.87 and withholding tax of Php320,608.93 from the advance payment to CBI, for the net amount ofPhp5,664,091.18.
23. MMMHMC issued Variation Order/Change Order No. 1 dated April 4, 2011, with the conformity of CBI, for the following works without any increase in the original contract amount:
a. Relocation of the oxygen plant housing;
b. Construct the oxygen plant housing using the revised (redesigned) plans.
Based on the same Variation Order/Change Order No. 1, the contract time was increased by 79 days for the revised contract time of 319 days. The revised completion date was November 25, 2011.
24. In CBI's letter dated April 11, 2011, which MMMHMC received on February 1, 2012, CBI requested the immediate resumption of the Project.
25. On May 2, 2011, MMMHMC received from CBI two sets of Revised Plan for the construction of Medical Oxygen Generating Plant. Two sets of the revised plan were received by Engr. Conception, and another two sets were received by Tomas Tabije III.
26. In a letter dated June 6, 2011, which MMMHMC received on the same date, CBI followed up its request for extension and requested that its previous request for extension of 75 days be increased to 90 days because CBI computed the number of days incorrectly.
27. In a letter dated June 7, 2011, which MMMHMC received on June 8, 2011, CBI requested that the NTP be moved to April 4, 2011 when CBI started the demolition of the Motor Pool Building instead of counting the number of days from the time it got the NTP up to the time it received the instruction to proceed with the demolition clearance from COA.
28. In a letter to CBI dated September 13, 2011, petitioners requested that they be furnished with brochures and specifications of all the equipment that would be installed in the ongoing construction of Cryogenic Oxygen Generating Plant. These materials would be used as technical reference to be reviewed by DOH's consultant.
29. In a letter dated October 12, 2011, MMMHMC required CBI to submit for evaluation and approval the brochures and specifications of all equipment that would be installed in the oxygen plant, including the following:
a. Standard size engineering plan duly signed and sealed by respective professionals
b. Photocopy of the PRC license of CBI's structural engineer who signed the Structural Design and Analysis
c. Photocopy of the PRC license of Professional Mechanical Engineer and Professional Electrical Engineer
d. Functions and duty of Mr. Manolito Bonifacio Leonador
MMMHMC further warned CBI that failure to submit the same within 15 days would force them to stop the Project.
30. In a letter to MMMHMC dated October 24, 2011, CBI requested for clarification if MMMHMC was still interested with the PSA Medical Oxygen General which CBI committed to lend.
31. In a letter to MMMHMC dated November 5, 2011, CBI requested for confirmation of its proposal to upgrade the oxygen machine/s at no additional cost to MMMHMC. ATICcS
32. In a letter dated November 5, 2011, which MMMHMC received on November 9, 2011, CBI requested an extension of time of the Project due to weather conditions that caused delay on the construction works.
33. In a letter dated November 5, 2011, which MMMHMC received on November 17, 2011, CBI requested clarification of the capacity of the electric diesel generator which, as required and stipulated in the bidding documents, was 100 KVA, while the Total Load Schedule stated in the Electrical Plans was 198 KVA.
34. In a letter dated November 14, 2011, which MMMHMC received on November 17, 2011, CBI requested permission and assistance in the delivery of the medical oxygen equipment on November 19, 2011.
35. In a letter to CBI dated November 14, 2011, MMMHMC replied/commented to CBI's letter dated October 24, 2011.
36. In a letter to MMMHMC dated November 18, 2011, CBI requested a conference meeting on November 25, 2011 to discuss and resolve all pending questions or issues in connection with the Project. In response, MMMHMC wrote a letter dated November 28, 2011, received by CBI on November 29, 2011, confirming the meeting on November 29, 2011 instead of November 25, 2011.
37. In a letter dated November 14, 2011, MMMHMC gave CBI an additional seven-day time extension of the Project. In a letter dated November 24, 2011, which MMMHMC received on November 25, 2011, CBI asked for reconsideration of the seven-day time extension initially granted in the letter dated November 14, 2011 and requested that it be extended to 102 days.
38. In a letter dated November 30, 2011 to MMMHMC, which the latter received on December 12, 2011, CBI advised MMMHMC that it delivered and put the equipment into place and requested assistance on the matter of the power supply for the oxygen generating plant.
39. In a letter dated December 1, 2011, which MMMHMC received on December 19, 2011, CBI submitted its first billing for the Project in the amount of Php24,717,659.19. MMMHMC then prepared a Disbursement Voucher dated September 20, 2011 in the net amount of Php19,453,890.39 after deducting, among others, 10% retention in the amount of Php2,785,103.68, supported, among others, by a Statement of Work Accomplishment as of December 21, 2011. The Disbursement Voucher was approved by MMMHMC on December 27, 2011, and CBI received the check payment on the same date.
40. In a letter dated December 28, 2011, which MMMHMC received on February 1, 2012, CBI requested for partial suspension of electrical works, genset, etc. in view of resolved issues cited in the said letter.
41. In a letter dated January 5, 2012, MMMHMC informed CBI that the Project was already delayed and requested the latter to submit a catch-up schedule.
42. In a letter to CBI dated January 16, 2012, which MMMHMC received on January 18, 2012, CBI submitted a surety bond for the release of the retention money.
43. In a letter to CBI dated February 2, 2012, MMMHMC commented/replied to CBI's letter dated December 28, 2011.
44. In a letter dated February 15, 2012 which MMMHMC received on February 16, 2012; CBI advised MMMHMC that the medical oxygen generator was ready to be commissioned and requested that the plant be energized so that it could start the commissioning.
45. In a letter to CBI dated February 16, 2012, MMMHMC advised CBI that the "three (3) units 75 KVA Power Transformers intended for the Oxygen Plant ha(ve) already been installed and ready to be tapped to energize the plant." TIADCc
46. In a letter to CBI dated March 26, 2012, which was noted by Dr. Otayza, Engr. Davinci Sagsagat, Project Engineer of MMMHMC requested CBI to submit an electrical cable route plan.
47. In a letter dated July 31, 2012 to Arch. Ma. Rebecca M. Peñafiel (Arch. Peñafiel), Director III, National Center for Health Facility Development, DOH, with attached COA Audit Observation Memorandum dated July 6, 2012, MMMHMC advised Arch. Peñafiel that it was planning to rescind the contract with CBI due to unresolved issues, and requested assistance in its arbitration with CBI.
48. On August 28, 2012, CBI, through counsel, sent MMMHMC a Final Notice of Arbitration, which the latter received on August 29, 2012.
49. On November 16, 2012, MMMHMC prepared a disbursement voucher in favor of CBI in the net amount of Php3,475,199.27 showing deductions for (1) 10% retention in the amount of Php992,293.58; and (2) liquidated damages in the sum of Php3,095,955.96. CBI received the check payment on November 16, 2012 "without prejudice to other CBI claims and legal actions."
50. In a letter to CBI dated December 8, 2012, MMMHMC forwarded the final copy of the approved Cable Route Plans signed by the Professional Electrical Engineer and other signatories from petitioners.
51. In a letter dated December 20, 2012, which CBI received on December 26, 2012, MMMHMC requested an update on CBI's "desire (sic) for arbitration proceedings."
52. In a letter dated February 18, 2013, which CBI received on February 20, 2013, MMMHMC expressed "willingness to bring the pending issue to arbitration."
53. In a letter dated March 12, 2013, which CBI received on March 14, 2013, MMMHMC informed CBI that it "can only accommodate until April 5, 2013 to cause or cause to be done the service and/or receipt of the notice of arbitration by the MMMHMC."
54. In a letter dated April 26, 2013, which was sent via facsimile and received by CBI's counsel on April 29, 2013, MMMHMC told CBI that the "Manual Transfer Switch (MTC), Secondary Metering and Electrical Panel installed by Compact Builders, Inc. to energize the Oxygen Generating Plant at the western wall will be demolished (all) the electrical hardware should be transferred to the newly extended wall." In the same letter, MMMHMC invited CBI's authorized representative to be present on or before May 4, 2013, otherwise it will be "forced to relocate the said hardware after May 4, 2013."
55. As of July 25, 2013, the oxygen generating plant has not been accepted by MMMHMC. 9
The CIAC Arbitral Tribunal (CIAC Tribunal) rendered the Final Award 10 dated January 14, 2014 in favor of CBI and against the Republic, DOH, and MMMHMC, holding as follows:
1. CBI's claim was not prematurely filed. There is nothing in the law or jurisprudence requiring prior submission of the claims to the COA. On the contrary, the terms of the subject contract expressly required the parties to submit their dispute to arbitration by the CIAC.
2. The original contract was not amended from a construction-only contract 11 to a design-and-build contract. 12 A design-and-build contract would have required the issuance of a variation order specifying the architectural or engineering redesign of the oxygen plant housing as a pay item, which did not happen in this case as the variation works specified were only the relocation of the oxygen plant housing and construction of the oxygen plant housing using the Revised (Redesign) Plans.
Moreover, CBI did not agree to the amendment of the contract from a construction-only contract to a design-and-build contract. Had CBI agreed to such conversion, it should have requested a variation order and petitioners should have issued one, specifying the architectural or engineering redesign of the oxygen plant housing as a pay item, prior to the construction of the civil works and CBI's delivery of the oxygen generator.
3. There was delay in the construction of the Project, and petitioners were responsible for the delay that rendered impossible CBI's completion of the works within the contract period, as shown by the following: (a) delay in the issuance of the NTP for 20 days; (b) delay in making the advance payment to CBI for 72 days; (c) issuance of bid and contract documents that contained errors; (d) calling a pre-construction conference on January 26, 2011, 15 days after the start date of January 11, 2011; (e) changing the location of the oxygen generating plant and accepting CBI's offer to redesign the original plans, but refusing to suspend the works and delayed the extension of time until March 19, 2011 and April 4, 2011; (f) MMMHMC's interference with CBI's performance through communications by AO Ipac, who was not the procuring entity's representative, by requiring submission of several documents on October 12, 2011; (g) delay in the issuance of the approved electrical cable route plan on December 8, 2012; (h) delay in releasing the retention fee withheld from CBI's first billing; (i) delay in accepting the cryogenic oxygen generating plant, which delay is continuing; (j) delay in providing power to energize the cryogenic oxygen generating plant only in January 2012.
Because of the delay caused by petitioners, CBI is entitled to an initial suspension of 74 days, a subsequent suspension that is continuing, and to an extension of 186 days of the contract period. The Project thus remained suspended until the dispute was referred to the CIAC for arbitration.
4. CBI is entitled to recover the liquidated damages deducted by MMMHMC from the second progress billing. CBI was not in delay as there is no evidence that it refused or failed to satisfactorily complete the work within the specified contract time and it was in default.
5. CBI is entitled to the release of the retention money as CBI has substantially performed its obligation in good faith. The release of the retention money and issuance of the Certificate of Completion is subject to CBI's compliance with conditions of acceptance, as stated in the Final Award. SDAaTC
6. There was substantial completion of the Project, i.e., 94.68% or approximately 95% accomplishment, as certified by MMMHMC.
7. MMMHMC and/or its officials acted in the bad faith in the performance of their respective obligations under the contract. On the other hand, there is no evidence that CBI acted in bad faith in the performance of its reciprocal obligations under the contract.
Petitioners unduly interfered with CBI's performance of the works through: (a) unauthorized communications by AO Ipac to CBI and the imposition of various requirements not specified in the contract; (b) unreasonable delay in acting on CBI's requests for suspension and extension; (c) unreasonable delay in the release of the advance payment and retention fee, despite CBI's posting of a surety bond; (d) unlawful withholding of liquidated damages from CBI's progress billing; (e) unreasonable delay in the issuance of the electrical cable route plan, in providing power to the oxygen generating plant, and in accepting the plant; (f) calling CBI to meetings on short notice and refusing to provide it with copies of minutes of such meetings; and (g) refusing to receive written communications from CBI and compelling it to perform works outside of the scope of the contract.
In addition, CBI dealt with several persons representing or claiming to represent petitioners, instead of just dealing with Dr. Garganta as the Procuring Entity's representative under the Special Conditions of Contract (SCC). Further, instead of issuing a Work Resumption Order as recommended by Engr. Bariring in his Report of Technical Inspection dated June 13, 2012 to Arch. Peñafiel of the National Center for Health Facilities Development (NCHFD), MMMHMC wrote the same office on July 31, 2012 to seek assistance on petitioners' plan to rescind the contract.
8. CBI is entitled to recover the costs incurred for the demolition of the Motor Pool Building and step-up transformer, but is not entitled to its claims for the costs of the Revised Drawings, PSA oxygen generator, retrofitting the cryogenic oxygen generator, electrical works, electrical civil works for genset and service line, additional incurred expenses, extended warranty and maintenance, cryogenic service engineer.
CBI is also entitled to compensatory interest for the delay in payment of its claims for the liquidated damages, retention money, demolition works, and step-up transformer.
Further, since petitioners were responsible for the delay in the performance of their obligations under the contract and they acted in bad faith, CBI is entitled to attorney's fees and litigation expenses. 13
The dispositive portion of the Final Award 14 thus provides:
WHEREFORE, the Tribunal renders judgment:
1. Upon the Claim, in favor of Claimant Compact Builders, Inc. and against Respondents Department of Health and Mariano Marcos Memorial Hospital and Medical Center (MMMHMC), directing Respondents, upon finality of this Final Award, to jointly and solidarily pay Claimant the following sums:
(a) Php3,095,955.96 as reimbursement for liquidated damages unlawfully deducted from the second progress billing;
(b) Php3,777,397.26 as retention money upon compliance by Claimant with the conditions for the issuance of the Certificate of Completion as stated in Issue 6;
(c) Php792,576.00 as reimbursement for the cost of demolition of the Motor Pool Building;
(d) Php540,000.00 as reimbursement for the cost of step-up transformer;
(d) [sic] Php595,221.50 in arbitration cost;
(e) Php1,796,564.00 as attorney's fees; acEHCD
(f) Legal interest at 6% per annum on the sums due in subparagraphs (a), (b), (c), (d), and (e) from July 20, 2012 until the sums awarded are paid in full by Respondents;
(g) Upon issuance by Respondents of the Certificate of Completion, Claimant shall (1) operate and maintain the oxygen generating plant free of charge to Respondents for a period of one (1) year from issuance of the Certificate of Completion; and (2) provide the services of one or more qualified engineers for a period of not less than two (2) months to instruct and train the representative of Respondents in the operation and maintenance of the oxygen generating plant;
(h) The claims for the cost of the revised drawings, pressure swing adsorption generator, retrofitting of the cryogenic oxygen generator, electrical works, cost of electrical civil works for the generator set and service line, additional incurred costs, extended warranty and maintenance, and cost of the cryogenic service engineer are denied.
2. Within thirty (30) calendar days from finality of this award or such other period as the parties may agree in writing prior to the lapse of such 30-day period, Claimant shall deliver and install, and Respondents shall accept from Claimant the delivery and installation of the following: (a) Medical Gas Building; (b) 50mm Ø copper tube pipeline system form the Main Building to the oxygen manifold of MMMHMC to be relocated at the Medical Gas Building; (c) 150 KvA diesel generator set; (d) delivery truck as specified in the Bill of Quantities; and (e) testing and commissioning of the cryogenic oxygen generating plant to produce oxygen with 99.5% purity.
The additional cost of supplying the 150KvA generator set shall be reimbursed by Respondents, subject to the submission by Claimant of a final billing showing the actual cost of such generator set less the cost of the 100 KvA generator set specified in the original approved plans. Thereafter, or upon acceptance of the foregoing items of Works, subject to the issuance of a punch list of corrective or remaining items, Respondents shall issue to Claimant a Certificate of Completion.
3. Denying Respondents' Counterclaim for liquidated damages and actual damages.
SO ORDERED. 15
The parties filed their respective petitions for review 16 before the CA.
CBI sought the partial reversal and setting aside of the Final Award, raising the following issues:
1. Whether the CIAC acted with grave abuse of discretion in ordering CBI to operate and maintain the oxygen generating plant free of charge for a period of one (1) year from issuance of the Certificate of Completion, and provide the services of one or more qualified engineers for a period of not less than two (2) months to instruct and train the representative of Petitioners in the operation and maintenance of the oxygen generating plant; and
2. Whether the CIAC gravely erred in denying CBI's claim for the following: (a) retrofitting of the cryogenic oxygen generator; (b) electrical works; (c) additional incurred costs; (d) extended warranty and maintenance; (e) cost of the cryogenic engineer; (f) interest; and (g) attorney's fees. 17
On the other hand, the Republic, DOH, and MMMHMC sought the reversal and setting aside of the Final Award, except paragraph 1 (h) page 73 thereof (denying certain claims of CBI), raising the following arguments:
1. The CIAC Arbitral Tribunal gravely erred and violated Petitioners' right to due process when it ruled that there is no evidence that CBI acted in bad faith in the performance of its obligations under the December 14, 2010 contract.
2. There is no substantial evidence to support the CIAC's conclusions in favor of CBI as they are based on inadmissible evidence, particularly hearsay evidence. SDHTEC
3. The CIAC Tribunal acted with grave abuse of discretion when it considered and admitted inadmissible evidence and awarded to CBI: (a) attorney's fees (without proof of payment) in the sum of Php1,796,564; (b) full reimbursement of arbitration cost in the sum of Php595,221.50 (even if not all claims of CBI were granted); (c) legal interest at 6% per annum on certain sums due from July 20, 2012 (even if the complaint was filed only on April 5, 2013).
4. The CIAC Tribunal exceeded its authority when it ordered Petitioners to accept what it directed CBI to install in paragraph 2, page 73 of the Final Award, in violation of Section 21.3, Rule 21 of the CIAC Revised Rules of Procedure governing Construction Arbitration.
5. The CIAC Tribunal, having acted with grave abuse of discretion and lack of substantial evidence to support its rulings, the present case falls under the exception to the rule that findings of fact of the agency concerned are binding on the CA.
6. There are indications in the Final Award that the CIAC Tribunal had not been impartial. 18
In its Consolidated Decision 19 dated January 23, 2017, the CA denied the petitions for review filed by the parties, and affirmed in toto the Final Award. The CA found no reason to disturb the factual findings of the CIAC Tribunal as being well supported by evidence and properly referred to in the record, and further found no showing of any arbitrariness on the part of the CIAC Tribunal in their findings of facts. 20
Petitioners filed a Motion for Partial Reconsideration, 21 which the CA denied in its Consolidated Resolution 22 dated June 21, 2017. Hence, petitioners filed the instant petition, arguing that the CA erred in: (1) affirming the Final Award despite the lack of substantial evidence to support the adverse ruling against them; and (2) refusing to recognize that the CIAC Tribunal showed manifest partiality when it issued the Final Award, ruled that there was bad faith on petitioners' part, and denied all of petitioners' counterclaims.
According to petitioners, when the CA denied CBI's petition and affirmed the CIAC Tribunal's denial of a portion of CBI's claims, it actually acknowledged that CBI acted in bad faith and was in delay in the performance of its obligations. Petitioners allege that the CIAC Tribunal's finding that petitioners, and not CBI, acted in bad faith lacks evidential support and contradicts the evidence, thereby illustrating the CIAC Tribunal's grave abuse of discretion. Petitioners also allege that it was CBI that acted in bad faith, was in delay in the performance of its obligations, and had not completed the project, much less, offered to deliver it to petitioners. As such, CBI is not entitled to its claims for reimbursement of liquidated damages, release of retention money, arbitration cost, attorney's fees, and legal interest thereon.
Petitioners submit that the CIAC Tribunal has not offered and has refused to turn over to petitioners the Project; thus, the CIAC Tribunal gravely erred in saying that petitioners "delayed in accepting the cryogenic oxygen generating plant, which delay is continuing." They also submit that the CIAC Tribunal acted with grave abuse of discretion when it considered and admitted inadmissible evidence, and awarded to CBI: (1) attorney's fees without proof of payment; (2) full reimbursement of the arbitration cost even if not all claims of CBI were granted; and (3) legal interest at 6% per annum on certain sums due from July 20, 2012, even if the complaint was filed only on April 5, 2013.
Petitioners further aver that the CA should have denied CBI's claim for attorney's fees since such fees are in the nature of actual damages, and thus, payment must be proved. It was therefore grave error for the CIAC Tribunal to impose legal interest thereon. They also aver that the CA should have noted that the CIAC Tribunal imposed a condition on the release of the retention money to CBI, and as such, the CA should not have affirmed the CIAC Tribunal's imposition of legal interest thereon from July 20, 2012 until paid in full. AScHCD
Petitioners thus insist that because the CIAC Tribunal acted with grave abuse of discretion and had not been impartial, and for lack of substantial evidence to support its rulings, the CA should have treated the case as falling under the exception to the rule that findings of fact of the CIAC are binding on the CA.
CBI filed its Comment, 23 alleging that the bulk of the subject petition revolve on the finding of bad faith on the part of petitioners in the performance of their obligations under the contract, which is a question of fact. Since the CIAC Tribunal's adverse rulings against petitioners are well-supported by substantial evidence and petitioners failed to show that any of the exceptions that would warrant a review and reversal of the findings of the CIAC Tribunal, the findings of fact of the said arbitral tribunal should not only be accorded respect, but finality. The CA did not err in recognizing that the CIAC Tribunal was impartial and did not commit grave abuse of discretion, and in affirming the award to CBI of liquidated damages and retention money. Lastly, CBI is entitled to its claims of attorney's fees, full reimbursement of arbitration cost, and legal interest.
Petitioners filed their Reply, 24 reiterating the arguments in its petition before the Court.
The Court's Ruling
As a preliminary matter, the Court denies petitioners' prayer for a temporary restraining order (TRO) and/or writ of preliminary injunction, as they have failed to establish the urgency of a writ's issuance to prevent grave and irreparable injury. The instant petition was filed on August 22, 2017, already more than four years ago, without petitioners insisting on its prayer for a TRO. Verily, there is no urgency that would warrant the issuance of a TRO in this case. Petitioners likewise failed to establish requisites 25 for their entitlement to a writ of preliminary injunction.
This Court now discusses the arguments raised by petitioners in praying for the reversal of the Consolidated Decision and Resolution of the CA.
Factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the petitioner challenges the integrity of the arbitral tribunal by proving affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act as such under Section Nine of Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. 26 Another exception was added in the recent case of Global Medical Center of Laguna, Inc. v. Ross Systems International, Inc.: 27 allegation of the arbitral tribunal's violation of the Constitution or positive law.
After a judicious review of the records, this Court does not find that this case falls under any of the exceptions enumerated above. Thus, the general rule that the awards of the arbitral tribunal may be appealed only on pure questions of law, and that its factual findings should be respected and upheld, applies. The CA was therefore correct in affirming the factual findings of the CIAC Tribunal.
Among the issues raised by petitioners, only the following involve questions of law:
1. Whether CBI is entitled to attorney's fees in the amount of Php1,796,564.00, despite lack of proof of payment thereof;
2. Whether CBI is entitled to full reimbursement of the arbitration cost in the amount of Php595,221.50, even if not all of its claims were granted; and AcICHD
3. Whether legal interest at 6% per annum on the retention money, attorney's fees, and arbitration costs was correctly counted from July 20, 2012. 28
Attorney's Fees
Although the CIAC Tribunal found no proof of payment by CBI of the billings of its counsel in the amount of Php1,794,564.00, the CIAC Tribunal awarded attorney's fees in this amount in favor of CBI, and the CA affirmed the same.
This Court does not find error in the CA's affirmation of the award of attorney's fees.
Article 2208 of the Civil Code provides:
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Contrary to what petitioners are impressing upon this Court, the CIAC Tribunal did not merely list the exceptions to the rule that in the absence of stipulation, attorney's fees and expenses of litigation cannot be recovered, as shown by the following paragraphs:
As found by the Tribunal, Respondents were responsible for the delay in the performance of the Contract Agreement and that they acted in bad faith in the performance of their obligations. The record shows that prior to filing the Complaint, Claimant attempted to extrajudicially enforce its claims, writing the Secretary of Health on July 9, 2012 to demand payment of the balance of the contract price, including the retention fee, and to investigate the matters set forth in its letter. Despite receipt of such letter, Respondents failed to comply with their reciprocal obligations, thereby compelling Claimant to arbitrate to protect its interest.
As a general rule, in the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered except in the following cases, among others: (a) when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (b) where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and (c) in any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. 29(Citations omitted. Emphasis supplied.)
In the second paragraph quoted above, the CIAC Tribunal did not list all the exceptions under Article 2208 of the Civil Code; it only enumerated the exceptions applicable in this case, citing paragraphs (2) and (5) of Article 2208 30 and De Guzman v. Tumolva. 31
Attorney's fees were awarded in favor of CBI because petitioners were found to have been responsible for the delay in the completion of the Project and acted in bad faith. The CIAC Tribunal also found it just and equitable that attorney's fees be recovered in favor of CBI. All of these grounds fall under the exceptions enumerated in Article 2208.
Proof of payment is not a requirement in awarding attorney's fees under Article 2208. Article 2208 of the Civil Code only provides that attorney's fees must be reasonable, while it is established in jurisprudence that the award of attorney's fees under Article 2208 demands factual, legal, and equitable justification. 32 The award of attorney's fees to the winning party even lies within the discretion of the court, taking into account the circumstances of each case. This means that such an award should have factual, legal, and equitable basis, not founded on pure speculation and conjecture. 33 The counsel's fees may be considered in fixing the amount of attorney's fees as an element of damages. 34
The CIAC Tribunal thus has the discretion to award attorney's fees in an amount that it finds reasonable, as supported by the facts, applicable law, and equity. Considering the voluminous submissions made by CBI's counsel (as noted by the CIAC Tribunal) and billings presented by CBI, as well as the findings that petitioners were responsible for the delay in the completion of the Project and acted in bad faith, this Court finds the amount awarded as attorney's fees reasonable and with sufficient factual, legal, and equitable basis. The CA thus correctly affirmed the CIAC Tribunal in this regard.
Arbitration Costs
As for the arbitration costs, there is no basis for petitioners' argument that CBI is not entitled to full reimbursement of the arbitration cost because not all of its claims were granted. ICHDca
That not all of CBI's claims were granted does not affect the amount of arbitration costs that should be reimbursed in its favor. Part IX (Arbitration Fees and Schedule of Payments) of the Terms of Reference 35 provides:
The costs of arbitration which include the filing, administrative, arbitrators' fees, and charges for Arbitration Development Fund, including all incidental expenses, shall be initially shared on a pro-rata basis by the parties, subject to the determination of the Arbitral Tribunal which of the parties shall eventually shoulder such costs or the mode of sharing thereof. 36
As correctly stated by the CIAC Tribunal and CA, Rule 16, Section 16.5 of the CIAC Rules provides that "where the parties agreed that the sharing of fees shall be determined by the Arbitral Tribunal, the Final Award shall, in addition to dealing with the merits of the case, fix the costs of the arbitration, and/or decide which of the parties shall bear the cost(s) or in what proportion the cost(s) shall be borne by each of them."
It was therefore within the authority of the CIAC Tribunal to decide which of the parties shall bear the costs of arbitration. Since petitioners were in delay and acted in bad faith, the CIAC Tribunal found it proper for petitioners to shoulder the arbitration costs. Thus, the CA did not err in affirming the award of reimbursement of the arbitration costs in favor of CBI.
Legal Interest
It is undisputed that CBI made a demand on petitioners on July 20, 2012. Petitioners are, however, claiming that legal interest should not have been imposed on the retention money, attorney's fees, and arbitration costs from July 20, 2012, since the complaint was filed only on April 5, 2013. Further, the release of the retention money is still subject to conditions set forth in the Final Award. cDHAES
The interest imposed here is compensatory interest, which is interest imposed by law or by the courts as penalty or indemnity for damages for delay or breach of contract. 37
Lara's Gifts & Decors, Inc. v. Midtown Industrial Sales, Inc., 38 which modified the guidelines in Eastern Shipping Lines v. Court of Appeals39 and Nacar v. Gallery Frames40 on the imposition and accrual of interest in the concept of actual and compensatory damages, provides:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, goods, credits or judgments, the interest due shall be that which is stipulated by the parties in writing, provided it is not excessive and unconscionable, which, in the absence of a stipulated reckoning date, shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded interest is expressly stipulated by the parties, by law or regulation. Interest due on the principal amount accruing as of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.
2. In the absence of stipulated interest, in a loan or forbearance of money, goods, credits or judgments, the rate of interest on the principal amount shall be the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded interest is expressly stipulated by law or regulation. Interest due on the principal amount accruing as of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.
3. When the obligation, not constituting a loan or forbearance of money, goods, credits or judgments, is breached, an interest on the amount of damages awarded may be imposed in the discretion of the court at the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas, pursuant to Articles 2210 and 2211 of the Civil Code. No interest, however, shall be adjudged on unliquidated claims or damages until the demand can be established with reasonable certainty. Accordingly, where the amount of the claim or damages is established with reasonable certainty, the prevailing legal interest shall begin to run from the time the claim is made extrajudicially or judicially (Art. 1169, Civil Code) UNTIL FULL PAYMENT, but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the trial court (at which time the quantification of damages may be deemed to have been reasonably ascertained) UNTIL FULL PAYMENT. The actual base for the computation of the interest shall, in any case, be on the principal amount finally adjudged, without compounding any interest unless compounded interest is expressly stipulated by law or regulation. 41
Applying the foregoing parameters to this case, it is the last sentence of the third guideline cited above that applies to attorney's fees. The award of attorney's fees was only finally adjudged in this Decision. Hence, the interest at 6% per annum on the attorney's fees should be counted from finality of this Decision until fully paid, and not from July 20, 2012, which is the date of extrajudicial demand.
As for the legal interest on the retention money, records show that in its petition for review before the CA, petitioners only questioned the imposition of legal interest on the award of attorney's fees and arbitration costs; the imposition of legal interest on the retention money from July 20, 2012 was not raised as an issue.
Issues raised for the first time on appeal will not be entertained because to do so would be anathema to the rudiments of fairness and due process. 42 This rule is subject to the following exceptions:
(a) When the question affects jurisdiction over the subject matter;
(b) Matters that are evidently plain or clerical errors within contemplation of law; ASEcHI
(c) Matters whose consideration is necessary in arriving at a just decision and complete resolution of the case or in serving the interests of justice or avoiding dispensing piecemeal justice;
(d) Matters raised in the trial court and are of record having some bearing on the issue submitted that the parties failed to raise or that the lower court ignored;
(e) Matters closely related to an error assigned; and
(f) Matters upon which the determination of a question properly assigned is dependent. 43
The issue of the imposition of legal interest on the retention money falls under the fifth exception, i.e., matters closely related to an error assigned, since the issue of legal interest on some of the awards have been raised by petitioners in the petition before this Court.
Although CBI has substantially completed the Project 44 and submitted a surety bond for the release of the retention money, 45 the CIAC Tribunal imposed conditions for said release. Because of the imposition of conditions only on January 14, 2014, the date of promulgation of the Final Award, it cannot be said that the retention money was already due and demandable when CBI extrajudicially demanded its claims on July 20, 2012. Petitioners will only be liable for legal interest at 6% per annum if it fails to release the retention money upon CBI's compliance with the conditions stated in the Final Award. It is only at that point that petitioners will be in delay in fulfilling its obligation of releasing the retention money.
Lastly, arbitration costs shall not earn interest. Arbitration costs are costs of suit as it is a lawful fee charged against the prevailing party by the court in entering the action. 46 In Norsk Hydro (Philippines), Inc., et al. v. Premiere Development Bank, 47 this Court held that costs of a suit are not considered as monetary award that earn interest.
WHEREFORE, the Petition for Review on Certiorari (with Urgent Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction) is DENIED. The Consolidated Decision dated January 23, 2017 and Consolidated Resolution dated June 21, 2017 of the Court of Appeals in CA-G.R. SP Nos. 133831 and 134059, affirming the Final Award dated January 14, 2014 of the Construction Industry Arbitration Commission, are AFFIRMED with MODIFICATION.
The Final Award dated January 14, 2014 by the Construction Industry Arbitration Commission is hereby modified such that: (a) legal interest at 6% per annum on the attorney's fees of Php1,796,564.00 shall be counted from finality of this Resolution until fully paid; and (b) legal interest on the arbitration costs is deleted.
The Construction Industry Arbitration Commission is hereby directed to determine the compliance of the parties with their respective obligations as stated in the Final Award. Legal interest at 6% per annum shall be imposed on the retention money of Php3,777,397.26 if CBI has complied with the conditions stated in the Final Award and petitioners Department of Health and Mariano Marcos Memorial Hospital and Medical Center fail to release the said amount in favor of CBI. ITAaHc
SO ORDERED." (Carandang, J., on wellness leave; Dimaampao, J., designated additional Member per Special Order No. 2839 dated September 16, 2021.)
By authority of the Court:
(SGD.) MISAEL DOMINGO C. BATTUNG IIIDivision Clerk of Court
Footnotes
1.Rollo, pp. 52-125.
2.Id. at 10-16. The CA Consolidated Decision was penned by Associate Justice Henri Jean Paul B. Inting (now a member of the Court), with the concurrence of Associate Justices Marlene B. Gonzales-Sison and Ramon A. Cruz.
3.Id. at 47-49. The CA Consolidated Resolution was penned by Associate Justice Henri Jean Paul B. Inting (now a member of the Court), with the concurrence of Associate Justices Marlene B. Gonzales-Sison and Ramon A. Cruz.
4.Id. at 174-247. The Final Award was issued by the CIAC Arbitral Tribunal consisting of Joven B. Joaquin (Chairperson), Roberto N. Dio, and Felicitas A. Pin Roda.
5.Id. at 309-361.
6.Id. at 136, 352-359.
7.Id. at 288-303.
8.Id. at 304-308.
9.Id. at 137-145.
10.Supra note 4.
11. Usually confined to civil works, which are known as "infrastructure projects" under the IRR of RA 9184, Rule I, Sec. 5 (u).
12. Infrastructure projects where the procuring entity awards a single contract for the architectural/engineering design and construction to single firm, partnership, corporation, joint venture, or consortium. (IRR of RA 9184, Annex G, Sec. 8.1)
13. See rollo, pp. 189-245.
14.Supra note 4.
15.Id. at 245-247.
16.Id. at 420-469 and 470-492.
17.Id. at 147-148.
18.Id. at 148-149.
19.Supra note 2.
20.Rollo, p. 168.
21.Id. at 248-272.
22.Supra note 3.
23.Rollo, pp. 575-612.
24.Id. at 713-734.
25. Section 3, Rule 58 of the RULES OF COURT provides:
Section 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring performance of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.
26.Wyeth Philippines, Inc. v. Construction Industry Arbitration Commission, G.R. Nos. 220045-48, June 22, 2020, citing Spouses David v. Construction Industry and Arbitration Commission, 479 Phil. 578, 590-591 (2004).
27. G.R. Nos. 230112 and 230119, May 11, 2021.
28. See rollo, pp. 82-83.
29.Id. at 241-242.
30. Paragraph 11 of Article 2208 of the New Civil Code of the Philippines should have been cited as well.
31. 675 Phil. 808 (2011).
32.Spouses Timado v. Rural Bank of San Jose, Inc., 789 Phil. 453, 460 (2016), citing ABS-CBN Broadcasting Corporation v. Court of Appeals, 361 Phil. 528, 529 (1999).
33.Spouses Timado v. Rural Bank of San Jose, Inc., id., citing Alcatel Philippines, Inc. v. I.M. Bongar & Co., Inc., 674 Phil. 529, 533 (2011).
34. See Aquino v. Casabar, 752 Phil. 1, 8-9 (2015); and Rosario, Jr. v. De Guzman, 713 Phil. 678, 685-686 (2013).
35.Rollo, pp. 288-303.
36.Id. at 300.
37.Odiamar v. Valencia, G.R. No. 213582, September 12, 2018, citing Spouses Pen v. Spouses Julian, 776 Phil. 50, 62 (2016).
38. G.R. No. 225433, August 28, 2019.
39. 304 Phil. 236 (1994).
40. 716 Phil. 267 (2013).
41.Supra note 38.
42.Punongbayan-Visitation v. People, G.R. No. 194214, January 10, 2018, 823 Phil. 212, 222-223 (2018), citing S.C. Megaworld Construction and Development Corporation v. Engr. Parada, 717 Phil. 732, 760 (2013).
43.Igot v. Valenzona, G.R. No. 230687, December 5, 2018, citing Catholic Bishop of Balanga v. Court of Appeals, 332 Phil. 206, 217-218 (1996).
44.Rollo, pp. 224-226.
45. No. 142 of the Admitted Facts per the TOR.
46. See Sections 9 (i), 10 (i), and 11 (c) of Rule 142 of the Rules of Court.
47. G.R. No. 226771, September 16, 2020.