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CHUNG FU INDUSTRIES INC. v. CA

FACTS:

Petitioner Chung Fu Industries (Philippines) Inc. (Chung Fu) and respondent Roblecor Philippines, Inc. entered into a construction agreement for the construction of an industrial/factory complex. In addition to the construction agreement, Chung Fu and Roblecor also entered into two other ancillary contracts. However, Roblecor failed to complete the work and Chung Fu took over the construction. Roblecor filed a petition for compulsory arbitration with the Regional Trial Court (RTC) claiming an unsatisfied account and unpaid progress billings. Chung Fu moved to dismiss the petition and sought the quashing of the restraining order. Eventually, the parties reached a negotiation and formulated an arbitration agreement wherein they agreed to abide by the decision of the arbitrator. The agreement provided that the decision of the arbitrator will be final and unappealable, with the exception that either party is entitled to seek judicial assistance for the enforcement of the arbitrator's award. The RTC approved the arbitration agreement and appointed an arbitrator.

The arbitrator ordered Chung Fu to pay Roblecor a specific amount and declared the award as final and unappealable. Roblecor moved for the confirmation of the award, while Chung Fu sought a remand of the case and reconsideration of the judgment award. The RTC denied Chung Fu's motion to remand and granted Roblecor's motion for confirmation of the award. The court also granted the motion for the issuance of a writ of execution.

Chung Fu filed a petition for certiorari with the Court of Appeals, but the court upheld the RTC's ruling that the parties, including Chung Fu and its officers, are bound by the arbitration agreement and are precluded from seeking judicial review of the arbitration award. Chung Fu's motion for reconsideration was also denied by the Court of Appeals. Hence, the present petition.

Arbitration has been recognized as a mode of dispute settlement in the Philippines, with provisions on compromises made applicable to arbitrations under the Spanish Civil Code. Although these provisions were later repealed, they were reinstated in the present Civil Code. Arbitration also found acceptance in the resolution of labor-management disputes. The petitioners argue that the trial court and the Court of Appeals violated due process by not vacating and annulling the arbitration award. The respondents assert that the petitioners are estopped from questioning the arbitration award based on the stipulations in the parties' arbitration agreement.

ISSUES:

  1. Whether parties can opt for recourse to arbitration to settle their disputes.

  2. Can parties stipulate that the arbitrators' award shall be final, unappealable, and executory?

  3. Whether the arbitral award is beyond the court's power of judicial review.

  4. How may the power of judicial review be invoked?

  5. Whether or not the appellate court committed grave abuse of discretion in not giving due course to the petition.

  6. Whether or not the objections raised against an arbitration award may constitute grounds for annulling, vacating or modifying said award under the laws on arbitration.

RULING:

  1. Yes, parties can resort to arbitration to settle their disputes. They have the freedom to establish arbitration stipulations in their contract or submission agreement, in anticipation of or when facing a dispute. However, this does not completely deprive the courts of jurisdiction over the matter.

  2. Parties can provide that the arbitrators' award shall be final, unappealable, and executory. Article 2044 of the Civil Code recognizes the validity of such stipulation. Similarly, the Construction Industry Arbitration Law states that the arbitral award shall be final and inappealable, except on questions of law which can be appealed to the Supreme Court. Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable, and executory. However, the provision allowing appeals to the National Labor Relations Commission for money claims exceeding a certain amount or percentage of the paid-up capital of the respondent employer has been deleted. Therefore, the voluntary arbitrator's decision is now final and executory after ten (10) calendar days from receipt by the parties.

  3. The arbitral award is not beyond the court's power of judicial review. The finality of the arbitrator's award is not absolute and without exceptions. There are grounds for vacating, modifying, or rescinding an arbitrator's award under the Civil Code and the Arbitration Law. Judicial review of the award is warranted when the factual circumstances described in the applicable provisions are present.

  4. The proper remedy to invoke the power of judicial review when courts refuse or neglect to inquire into the factual milieu of an arbitrator's award is certiorari under Rule 65 of the Revised Rules of Court. However, this action will lie only when a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the arbitrator is clearly shown.

  5. The petition is granted. The Resolutions of the Court of Appeals and the Orders of the Regional Trial Court, including the writ of execution, are set aside. The case is remanded to the court of origin for further hearing on this matter.

  6. Respondent courts should not shirk from exercising their power to review, especially where objections raised against an arbitration award may properly constitute grounds for annulling, vacating, or modifying said award under the laws on arbitration.

PRINCIPLES:

  • Parties have the freedom to resort to arbitration to settle their disputes, either through a stipulation in a contract or a submission agreement.

  • The courts will look with favor upon arbitration agreements and will only reluctantly interfere or nullify the action of the arbitrator unless the agreement absolutely closes the doors of the courts.

  • Stipulations that arbitrators' awards shall be final are valid, without prejudice to certain articles in the Civil Code.

  • The Construction Industry Arbitration Law provides that arbitral awards shall be final and inappealable, except on questions of law which can be appealed to the Supreme Court.

  • Under the Labor Code, voluntary arbitration awards or decisions were final and unappealable, but the provision allowing appeals for certain money claims has been deleted, making the voluntary arbitrator's decision final and executory after a specific period.

  • The finality of the arbitrator's award is not absolute and without exceptions.

  • There are grounds for vacating, modifying, or rescinding an arbitrator's award under the Civil Code and the Arbitration Law.

  • Courts have the power of judicial review over arbitral awards when the conditions for annulment or rescission under the applicable provisions are present.

  • Certiorari under Rule 65 of the Revised Rules of Court is the proper remedy to invoke the power of judicial review when courts refuse or neglect to inquire into the factual milieu of an arbitrator's award.

  • The writ of certiorari is an extraordinary remedy and will only be granted when there is a showing of grave abuse of discretion or an act without or in excess of jurisdiction on the part of the arbitrator.

  • Even decisions of administrative agencies declared "final" by law are not exempt from judicial review when there is want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law.

  • Voluntary arbitrators act in a quasi-judicial capacity, and their decisions should not be beyond the scope of the court's power of judicial review.

  • Courts should not hesitate to review arbitration awards, especially where the objections raised can justify annulling, vacating, or modifying said award under the laws on arbitration.

  • Respondent courts should not shirk from exercising their power to review when such power may be rightfully exercised under the applicable laws and jurisprudence.