Bases Conversion Development Authority vs. DMCI Project Developers, Inc.

An arbitration clause in an original contract extends to subsequent amendments and supplements executed for the same purpose and binds both the designated nominee of a contracting party and a non-signatory beneficiary that accepted benefits under the contract. Because the Joint Venture Agreement, its amendment, and the Memorandum of Agreement formed a single agreement to implement the Manila-Clark railroad project, the arbitration clause therein was enforceable by DMCI-PDI as nominee and against Northrail as beneficiary.

BCDA is the government entity that organized North Luzon Railways Corporation as the joint venture corporation to construct, operate, and manage a railroad system from Manila to Clark with possible extensions. D.M. Consunji, Inc. was invited as a private strategic investor with the contractual option to act through its nominee, while Republic Act No. 876 and Republic Act No. 9285 embody the State policy favoring party autonomy and arbitration.

On June 10, 1995, Bases Conversion Development Authority entered into a Joint Venture Agreement with Philippine National Railways and foreign corporations to construct a railroad system from Manila to Clark with possible extensions to Subic Bay and La Union and later to Ilocos Norte and Nueva Ecija. Under that agreement BCDA was to establish North Luzon Railways Corporation for constructing, operating, and managing the system, with an initial capitalization of P100 million and an eventual authorized capital stock of P5.5 billion. The agreement contained Article XVI on arbitration of any dispute arising thereunder in accordance with Republic Act No. 876 as supplemented by the Rules of Conciliation and Arbitration of the International Chamber of Commerce, and Article XVII on assignment with prior written consent and on binding effect upon successors, permitted assignees, and designees or nominees.

On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee as party and strategic partner with 20% equity participation. On the same date, the same parties executed a Memorandum of Agreement to set up the mechanics for raising the seed capitalization needed by Northrail to accelerate implementation, fixing contributions at P300 million for BCDA/PNR, P200 million for DMCI, and P100 million for SRG, for a total of P600 million, with amounts committed to be converted to equity upon privatization. Thereafter DMCI's share was increased to P300 million, and upon BCDA and Northrail's request, DMCI Project Developers, Inc. deposited P300 million into Northrail's account with Land Bank of the Philippines on August 7, 1996 for its future subscription of Northrail shares, reflected in Northrail's 1998 financial statements as Deposits For Future Subscription while its application to increase authorized capital stock was still pending. In letters dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties that DMCI-PDI shall be its designated nominee for all agreements entered and to be entered in connection with the project, with all rights, obligations, warranties and commitments henceforth assumed, performed and delivered by PDI.

Later, Northrail withdrew its application for increased authorized capital stock, and according to DMCI-PDI, BCDA applied for Official Development Assistance from the Obuchi Fund of Japan which required Northrail to be a 100% government-owned and controlled corporation. On September 27, 2000, DMCI-PDI started demanding return of its P300 million deposit on the ground of failure to increase authorized capital stock, but BCDA and Northrail refused on the grounds that DMCI-PDI/FBDC participated as joint venture partner and co-investor with Board representation, was privy to Board deliberations and decisions, and had full access to financial statements and regular information on financial condition. The Office of the Government Corporate Counsel issued Opinion No. 116, Series of 2001 on June 27, 2001 stating that since no increase in capital stock was implemented, return of the investments was proper, and on January 19, 2005 DMCI-PDI reiterated its refund request, which BCDA denied on March 18, 2005 on the grounds that the P300 million was a contribution not deposits for future subscription and that DMCI as joint venture partner must share in profits and losses.

On August 17, 2005, DMCI-PDI served a demand for arbitration on BCDA and Northrail citing the arbitration clause in the June 10, 1995 Joint Venture Agreement, to which BCDA and Northrail failed to respond, prompting DMCI-PDI to file a Petition to Compel Arbitration before the Regional Trial Court of Makati praying for an order directing the parties to proceed to arbitration. The trial court found that the Joint Venture Agreement, the amended Joint Venture Agreement, and the Memorandum of Agreement constituted one contract for the formation and funding of Northrail, such that the arbitration clause covered all subsequent documents, and that even though DMCI-PDI was not a signatory, it was an assignee of D.M. Consunji, Inc.'s rights and could therefore invoke the clause.

• Privity to Arbitration Agreement: BCDA argued that only parties to an arbitration agreement can be bound thereby, and DMCI-PDI was not a party to the Joint Venture Agreement containing the clause, while Northrail argued it also was not a party and cannot be compelled to arbitrate.
• Lack of Valid Assignment and Consent: BCDA and Northrail argued there was no evidence that the right to compel arbitration was assigned to DMCI-PDI, and assuming assignment, BCDA did not consent to or recognize it as required by Section 17.1, so the trial court's finding of assignment had no basis.
• Due Process: BCDA argued the trial court decided the Motion to Dismiss in violation of due process by failing to conduct a hearing and by merely accepting DMCI-PDI's allegations on assignment without basis.

• Propriety of Appeal: DMCI-PDI argued Rule 45 was a wrong mode of appeal because the issues raised did not involve questions of law.
• Breach and Impossibility: DMCI-PDI argued BCDA breached the agreement by failing to apply the P300 million deposit to subscriptions, which was rendered impossible by the loan requirement that Northrail be wholly government-owned and by withdrawal of the application for increase in authorized capital stock.
• Nominee-Assignee Status and Extension of Clause: DMCI-PDI argued it is the assignee and nominee of D.M. Consunji, Inc. and thus a party to the arbitration clause, whose effect extends to the amendment and Memorandum of Agreement relating to the same project.
• Estoppel and Recognition: DMCI-PDI argued BCDA always recognized it as assignee in correspondences with the OGCC and with DMCI's president describing its participation as joint venture partner and co-investor, and is now estopped from denying its personality.

• Propriety of Rule 45: Whether the Rule 45 petitions raise purely questions of law through construction of the scope of the arbitration clause.
• Single Contract and Scope of Arbitration Clause: Whether the arbitration clause in the June 10, 1995 Joint Venture Agreement extends to the amended Joint Venture Agreement and Memorandum of Agreement.
• Nomination vs. Assignment: Whether DMCI-PDI as designated nominee of D.M. Consunji, Inc. became a party entitled to invoke the arbitration clause without need for consent to assignment under Section 17.1.
• Non-Signatory Beneficiary: Whether Northrail, although not a signatory, is bound by the arbitration agreement as beneficiary that accepted funds and invoked the agreements.

• Propriety of Rule 45: Yes. Construction of the arbitration clause to determine if it binds DMCI-PDI and Northrail is a question of law determinable without evaluating probative value of evidence.
• Single Contract and Scope of Arbitration Clause: Yes. The three documents form one whole contract for the same railroad project, the latter two merely amending and supplementing the original, so the clause covers all agreements and parties.
• Nomination vs. Assignment: Yes. DMCI-PDI was a nominee, not an assignee-transferee, and Section 17.2 expressly binds designees or nominees, so prior-consent requirement for assignment does not apply.
• Non-Signatory Beneficiary: Yes. Northrail demanded and accepted subscription funds under the agreements and is deemed to have accepted their terms including arbitration, and efficiency requires avoiding multiplicity of suits.

• Propriety of Rule 45: There is a question of law when doubt concerns what the law is on a certain set of facts and the appellate court can resolve the issue without reviewing probative value of evidence. Because BCDA and Northrail sought construction of the arbitration clause and determination of its scope as to DMCI-PDI and Northrail, the remedy was proper and resolved in light of the State policy favoring arbitration.
• Single Contract and Scope of Arbitration Clause: A whole contract may be contained in several consistent documents, and amendments change or add provisions while supplements expand terms without inconsistency. The original agreement defined the project, parties, equity and responsibilities; the amendment only changed equity and added D.M. Consunji, Inc. and/or its nominee; the Memorandum raised seed capitalization from P100 million to P600 million to accelerate the same project defined in the June 10, 1995 agreement. Interpreted liberally in favor of arbitration, the clause was rendered effective over all three documents read together.
• Nomination vs. Assignment: Section 17.1 prohibits assignment, transfer or conveyance without prior written consent, while Section 17.2 separately provides the agreement inures to and binds successors, permitted assignees and designees or nominees. Assignment involves transfer of rights after perfection, whereas nomination names a trusted representative without transfer of ownership. The amended agreement and Memorandum expressly included D.M. Consunji, Inc. and/or its nominee as party, and the April 4, 1997 letters designated PDI as nominee to assume rights and obligations, making lack of consent to assignment irrelevant.
• Non-Signatory Beneficiary: Non-signatories may be compelled to arbitrate when allowed to invoke rights or obligations under the contract. Northrail was established pursuant to the agreement, its capitalization and subscriptions governed by the three documents, and it demanded infusion and accepted D.M. Consunji, Inc.'s funds for privatization. Having enforced favorable provisions, acceptance was communicated by receipt of funds under Civil Code Article 1311 on stipulations in favor of third persons, and splitting arbitration from trial would cause multiplicity of suits and delay.

• Liberal construction of arbitration clauses — Arbitration agreements are liberally construed in favor of proceeding to arbitration; where the clause is susceptible of an interpretation covering the asserted dispute, arbitration should be ordered and any doubt resolved in favor of arbitration, pursuant to the State policy under Republic Act No. 9285. Applied to extend Article XVI to the dispute over return of the P300 million deposit.
• Single contract in multiple documents — A whole contract may be embodied in several consistent documents, with amendments modifying and supplements expanding but forming part of the same agreement. Applied to treat the Joint Venture Agreement, its amendment, and the Memorandum of Agreement as one contract for the railroad project in Bases Conversion Development Authority vs. DMCI Project Developers, Inc.
• Distinction between assignment and nomination — Assignment transfers rights after perfection and may require consent, while nomination designates one to act representatively without transfer of ownership. Applied to hold Section 17.1 consent inapplicable and Section 17.2 binding on DMCI-PDI as nominee.
• Non-signatory bound by acceptance of benefits — A non-signatory that invokes contract rights, accepts funds thereunder, or as third-party beneficiary communicates acceptance before revocation may be compelled to abide by its terms including arbitration, and courts avoid multiplicity of suits by adjudicating related rights in a single arbitral proceeding. Applied to bind Northrail which demanded and received the deposit.

• "An arbitration clause in a document of contract may extend to subsequent documents of contract executed for the same purpose. Nominees of a party to and beneficiaries of a contract containing an arbitration clause may become parties to a proceeding initiated based on that arbitration clause." — States the core ratio on extension of the clause to amendments and to nominees and beneficiaries.
• "Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration." — Recites the canonical liberal-construction rule from LM Power Engineering Corporation vs. Capitol Industrial Construction Groups, Inc. applied to compel arbitration.
• "Where action is commenced by or against multiple parties, one or more of whom are parties to an arbitration agreement, the court shall refer to arbitration those parties who are bound by the arbitration agreement although the civil action may continue as to those who are not bound by such arbitration agreement." — Quotes Section 25 of Republic Act No. 9285 to support referral to arbitration in multi-party disputes under the pro-arbitration policy.

• Lanuza vs. BF Corporation, G.R. No. 174938, October 1, 2014 — Controlling precedent for compelling non-signatories to arbitrate when they invoke contract rights and for policy against multiplicity of suits; followed as to Northrail's liability and judicial economy.
• LM Power Engineering Corporation vs. Capitol Industrial Construction Groups, Inc., 447 Phil. 705 (2003) — Authority for liberal construction of arbitration clauses and resolution of doubts in favor of arbitration; followed.
• Philippine Coconut Producers Federation, Inc. (COCOFED) vs. Republic, G.R. Nos. 177857-58, January 24, 2012 — Source of definition of nominee as representative without transfer of ownership; followed to distinguish nomination from assignment.
• Villamor vs. Balmores, G.R. No. 172843, September 24, 2014 — Authority for distinguishing questions of law from questions of fact; applied to sustain Rule 45 as proper remedy.
• BF Corporation vs. Court of Appeals, 351 Phil. 507 (1998) — Authority that a contract may be contained in several consistent documents; cited to support single-contract treatment.
• Heirs of Augusto Salas, Jr. vs. Laperal Realty Corporation, 378 Phil. 369 (1999) — Authority for policy against multiplicity of suits and duplicitous procedure; cited through Lanuza vs. BF Corporation.

• Section 2, Republic Act No. 9285 — Declares State policy to promote party autonomy and alternative dispute resolution for speedy justice and decongestion; applied as interpretive lens favoring arbitration.
• Section 25, Republic Act No. 9285 — Requires courts in interpreting the Act to have due regard to pro-arbitration policy and to refer bound parties to arbitration even with multiple parties; applied to compel BCDA and Northrail.
• Republic Act No. 876, Philippine Arbitration Law — Recognizes validity and enforceability of submission to arbitration and was designated in Article XVI as supplemented by International Chamber of Commerce Rules; applied as governing arbitral procedure.
• Articles 2028-2046, Civil Code — Early expression of policy favoring arbitration and compromise; cited as historical basis for pro-arbitration stance.
• Article 1311, Civil Code — Provides contracts bind parties, assigns and heirs, and third persons favored by stipulation may demand fulfillment after communicating acceptance before revocation; applied reciprocally to bind Northrail as beneficiary that accepted funds.

Carpio (Chairperson), Brion, Del Castillo, Mendoza, and Leonen, JJ., concur. No separate concurring opinion with additional reasoning appears in the text.