Case Digest: Asian Construction v. Sumitomo

G.R. No. 196723 : August 28, 2013


FACTS: On March 15, 1996, Asian Construction entered into a Civil Work Agreement (Agreement) with Sumitomo for the construction of a portion of the Light Rail Transit System along the Epifanio Delos Santos Avenue. The said Agreement provides that the "validity, interpretation, enforceability, and performance of the same shall be governed by and construed in accordance with the law of the State of New York, U.S.A. (New York State Law), without regard to, or legal effect of, the conflicts of law provisions thereofand that any dispute, controversy or claim arising therefrom "shall be solely and finally settled by arbitration."

On September 1, 1998, Sumitomo informed Asian Construction that it was terminating the Agreement effective September 5, 1998 due to failure of the latter to fulfill its obligations as provided in the agreement. On September 2, 2008, Asian Construction filed a complaint with the CIAC, docketed as CIAC Case No. 28-2008, seeking payment for its alleged losses and reimbursements. Subsequently, the parties signed a TOR, stipulating the admitted facts and defining the issues to be determined in the arbitration proceedings.

On December 15, 2009, the Arbitral Tribunal rendered the Partial Awardwhich affirmed its jurisdiction over the dispute but held that the parties were bound by their Agreement that the substantive New York State Law shall apply in the resolution of the issues. It proceeded to dismiss both the claims and counterclaims of the parties on the ground that these had already prescribed under New York State Laws six-year statute of limitations.

Aggrieved, Asian Construction filed before the CA, on January 5, 2010, a Rule 43 Petition for Review (First CA Petition), seeking the reversal of the Partial Award.

On March 17, 2010, the Arbitral Tribunal rendered the Final Awardwhich granted Sumitomos claim for attorneys fees in the amount of US$200,000.00. It held that while the filing of the arbitration suit cannot be regarded as "clearly unfounded" because of the two progress billings that were left unpaid, Asian Constructions disregard of the Agreement to have the dispute resolved in accordance with New York State Law had forced Sumitomo to incur attorneys fees in order to defend its interest.

Dissatisfied with the Arbitral Tribunals ruling, Asian Construction filed another Rule 43 Petition for Reviewbefore the CA (Second CA Petition), this time, to set aside the Final Award.

The CA, acting on the first petition, dismissed the same on the ground of forum shopping. On the other hand, the CA gave due course to the second Petition assailing the Final Award and rendered a Decision. The CA held that the fact that Asian Construction initiated an action or refused to compromise its claims cannot be considered unjustified or made in bad faith as to entitle Sumitomo to the aforesaid award. Consequently, Sumitomo moved for reconsideration,asserting that Asian Constructions Second CA Petition should have instead been dismissed in its entirety considering their Agreement that the Arbitral Tribunals decisions and awards would be final and non-appealable. However, the CA denied the motion for reconsideration. Thus, Sumitomos petition before the Court.

ISSUE: Whether or not CA erred in dismissing the first petition on the ground of forum shopping.

Whether or not CA erred in reviewing and modifying the Final Award which Sumitomo insists to be final.

HELD: NO.CA decision affirmed.

Remedial Law- Forum shopping

CA committed no reversible error in dismissing Asian Constructions First CA Petition on the ground of forum shopping since the relief sought (i.e., the reconsideration of the Partial Award) and the allegations stated therein are identical to its opposition to Sumitomos claim for costs filed before the Arbitral Tribunal while CIAC Case No. 28-2008 was still pending. These circumstances clearly square with the first kind of forum shopping which thereby impels the dismissal of the First CA Petition on the ground of litis pendentia.

On this score, it is apt to point out that Asian Constructions argument that it merely complied with the directive of the Arbitral Tribunal cannot be given any credence since it (as well as Sumitomo) was only directed to submit evidence to prove the costs it had incurred and paid as a result of the arbitration proceedings. However, at variance with the tribunal’s directive, Asian Construction, in its opposition to Sumitomos claim for costs, proceeded to seek the reversal of the Partial Award in the same manner as its First CA Petition. It cannot, therefore, be doubted that it treaded the course of forum shopping, warranting the dismissal of the aforesaid petition.

Sumitomo Corporation faults the CA for reviewing and modifying a final and non-appealable arbitral award and insists that the Asian Constructions Second CA Petition should have been, instead, dismissed outright. It mainly argues that by entering into stipulations in the arbitration clause which provides that "the order or award of the arbitrators will be the sole and exclusive remedy between the parties regarding any and all claims and counterclaims with respect to the matter of the arbitrated dispute and that "the order or award rendered in connection with an arbitration shall be final and binding upon the parties, Asian Construction effectively waived any and all appeals from the Arbitral Tribunals decision or award.

In this case, the Court finds that the CA correctly reviewed and modified the Arbitral Tribunals Final Award insofar as the award of attorneys fees in favor of Sumitomo is concerned since the same arose from an erroneous interpretation of the law. To elucidate, jurisprudence dictates that in the absence of a governing stipulation, attorneys fees may be awarded only in case the plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith, as embodied in Article 2208 of the Civil Code.

After a careful scrutiny of the records, the Court observes that there was no gross and evident bad faith on the part of Asian Construction in filing its complaint against Sumitomo since it was merely seeking payment of its unpaid works done pursuant to the Agreement. Neither can its subsequent refusal to accept Sumitomos offered compromise be classified as a badge of bad faith since it was within its right to either accept or reject the same owing to its contractual nature. Verily, absent any other just or equitable reason to rule otherwise, these incidents are clearly off-tangent with a finding of gross and evident bad faith which altogether negates Sumitomos entitlement to attorney’s fees.