Department of Public Works and Highways vs. CMC/Monark/Pacific/Hi-Tri Joint Venture

Mutual termination of a construction contract does not extinguish the employer's obligation to pay the contractor for works executed prior to termination, equipment losses caused by employer-assumed risks under Clause 20.4 of the FIDIC Conditions of Contract, and additional costs incurred due to the employer's breach or delay; furthermore, findings of fact by the Construction Industry Arbitration Commission, when affirmed by the Court of Appeals, are entitled to great respect and finality absent compelling reasons.

DPWH and the Joint Venture entered into a contract for the construction of a road section in Zamboanga del Sur, funded by an Asian Development Bank loan. The contract incorporated the FIDIC Conditions of Contract (Red Book). During execution, the project faced peace and order problems, including a bombing incident attributed to the Moro Islamic Liberation Front and the burning of equipment. The Joint Venture encountered delayed payments from DPWH and sought various claims including the foreign currency component, time extensions, price adjustments, and damages for equipment losses.

• The Contract: On April 29, 1999, DPWH and the Joint Venture executed a contract for the construction of Contract Package 6MI-9, Pagadian-Buug Section, Zamboanga del Sur, under the Sixth Road Project, with a total contract amount of P713,330,885.28. The contract incorporated Parts I and II of the FIDIC "Conditions of Contract for Works of Civil Engineering Construction" (Red Book). BCEOM French Engineering Consultants was hired to oversee the project.
• Peace and Order Incidents: On October 23, 2002, the Joint Venture's truck and equipment were set on fire. On March 11, 2003, a bomb exploded at the Joint Venture's batching plant in Brgy. West Boyogan, Kumalarang, Zamboanga del Sur, allegedly caused by members of the Moro Islamic Liberation Front.
• Payment Demands and Termination: The Joint Venture sent at least 17 demand letters for payment and extension requests. On July 8, 2004, the Joint Venture sent a "Notice of Mutual Termination of Contract" to DPWH, which was accepted by DPWH Acting Secretary Florante Soriquez on July 16, 2004. The notice explicitly stated that the mutual termination was without prejudice to the Joint Venture's right to be paid for works done and outstanding claims.
• CIAC Proceedings: The Joint Venture filed a complaint before CIAC on March 3, 2004, claiming the foreign component of US$358,227.95, equipment and financial losses of P5,080,000.00, additional costs under Clause 69.4 of P20,311,072.66, price adjustment under PD 1594 of P18,626,805.81, and damages from the bombing incident of P6,267,410.48.
• CIAC Findings: CIAC found that the Joint Venture was entitled to the foreign component despite the non-renewal of the Letter of Credit because the delay was attributable to DPWH's failure to extend the contract period and the Asian Development Bank's suspension of loan disbursement. CIAC also awarded equipment losses and additional costs under Clause 69.4, but denied the price adjustment claim under PD 1594 because the Asian Development Bank Guidelines governed the project.

• Mootness: DPWH argued that the mutual termination of the contract prior to the CIAC award rendered the proceedings moot and academic because there was no more contract to enforce, and the principle of unjust enrichment did not apply due to the Joint Venture's negative slippage.
• Prematurity: DPWH contended that the case was premature because the Joint Venture failed to exhaust administrative remedies under Clause 67.1 of the Conditions of Contract, which required referral of disputes to the Engineer before arbitration.
• Foreign Component: DPWH maintained that the foreign component was not yet legally demandable because the Joint Venture failed to renew its Letter of Credit as required under Clause 60.11, which was a condition sine qua non for payment.
• Time Extensions: DPWH argued that the Joint Venture failed to prove entitlement to time extensions for Variation Order No. 2 (133 days) and delayed payments (108 days), and that subsequent payments made after arbitration hearings were not considered.
• Additional Costs: DPWH claimed that the award for additional costs under Clause 69.4 was improper because the Engineer had not yet consulted with the parties to determine the amount as required by the contract.
• Interest: DPWH argued that the award of legal interest was erroneous because there was no provision for interest in the contract, and the 24% claimed by the Joint Venture was unwarranted.

• Forum Shopping: The Joint Venture initially argued that the petition suffered from a fatal defect because the certification against forum shopping was signed only by counsel and not by the party-principal.
• Mootness: The Joint Venture countered that the mutual termination did not waive its right to payment for works done and materials delivered, as explicitly stated in the termination notice.
• Exhaustion of Remedies: The Joint Venture maintained that it had complied with Clause 67.1 by sending 17 demand letters to DPWH, including four to the Secretary directly, and that further referral would be futile given DPWH's inaction.
• Foreign Component: The Joint Venture argued that the non-renewal of the Letter of Credit was due to banks' refusal to renew because the contract period had expired without DPWH's extension, and that the ADB's suspension of disbursement was the primary reason for non-payment.
• Time Extensions: The Joint Venture claimed entitlement to 133 days under Variation Order No. 2, 108 days for delayed payments, and 29 days for peace and order problems, supported by the DPWH Bureau of Construction's evaluation and the foreign consultant's recommendations.
• Equipment Losses: The Joint Venture argued that the peace and order disturbances were assumed risks of the employer under Clause 20.4 of the FIDIC Conditions, making DPWH liable for equipment losses.
• Specific Denial: The Joint Venture contended that DPWH failed to specifically deny the claims for additional costs under Clause 69.4 in its Answer, thereby admitting the claims under the Rules of Court.

• Mootness: Whether the mutual termination of the construction contract rendered the arbitration proceedings moot and academic.
• Exhaustion of Administrative Remedies: Whether the Joint Venture complied with the doctrine of exhaustion of administrative remedies under Clause 67.1 of the Conditions of Contract before filing the complaint with CIAC.
• Foreign Component: Whether the Joint Venture is entitled to the foreign component of US$358,227.95 despite the non-renewal of the Letter of Credit.
• Time Extensions: Whether the Joint Venture is entitled to time extensions due to Variation Order No. 2, delayed payments, and peace and order problems.
• Applicability of PD 1594: Whether Presidential Decree No. 1594 or the Asian Development Bank Guidelines on Procurement applies to price adjustments for delay in the issuance of the Notice to Proceed.
• Equipment and Financial Losses: Whether the Joint Venture is entitled to claims for equipment and financial losses due to peace and order situations.
• Additional Costs under Clause 69.4: Whether the Joint Venture is entitled to additional costs under Clause 69.4 of the General Conditions of Contract.
• Interest: Whether the Joint Venture is entitled to actual damages and interest on its claims, and at what rate.

• Mootness: The mutual termination did not render the case moot because an unresolved justiciable controversy remained regarding the payment of amounts due for works executed prior to termination, equipment losses, and other claims. The Joint Venture explicitly reserved its rights to payment in the termination notice, and practical value existed in resolving these issues.
• Exhaustion of Administrative Remedies: The Joint Venture complied with Clause 67.1 by sending 17 demand letters to DPWH. Requiring further administrative action would be unreasonable and futile given DPWH's failure to act on the demands and the financial hardship suffered by the Joint Venture.
• Foreign Component: The Joint Venture is entitled to the foreign component of US$358,227.95. The non-renewal of the Letter of Credit was justified because banks refused renewal due to the expired contract period, which resulted from DPWH's failure to grant time extensions. Moreover, the ADB's suspension of loan disbursement due to right-of-way issues was the primary cause of non-payment, not the Letter of Credit.
• Time Extensions: The Joint Venture is entitled to time extensions: (1) 133 days under Variation Order No. 2; (2) 108 days due to delayed payments; and (3) 29 days due to peace and order problems. These findings of fact by CIAC, affirmed by the Court of Appeals, are entitled to great respect and finality.
• Price Adjustment under PD 1594: The Joint Venture is not entitled to price adjustment under PD 1594. The project being funded by the Asian Development Bank, the ADB Guidelines on Procurement govern, not PD 1594. The contract explicitly provided that Clause 70 (price adjustment) would apply according to the Conditions of Contract, and the parties were bound by the ADB Guidelines which they agreed upon at the inception of the project.
• Equipment and Financial Losses: The Joint Venture is entitled to equipment and financial losses caused by the peace and order disturbances. Under Clause 20.4 of the FIDIC Conditions, the employer assumes risks for "rebellion, revolution, insurrection, or military or usurped power, or civil war," which includes the MILF bombing and arson incidents.
• Additional Costs under Clause 69.4: The Joint Venture is entitled to additional costs under Clause 69.4. DPWH failed to specifically deny these claims in its Answer as required by Rule 8, Section 10 of the Rules of Court, thereby admitting the allegations. The Joint Venture established that it incurred costs due to DPWH's delay and breach.
• Interest and Currency: The Joint Venture is not entitled to 24% interest as actual damages because no causal relation was established between the alleged losses and the injury, and the contract contained no stipulation for such interest. However, legal interest is awarded at 6% per annum from the date of extrajudicial demand until finality of the award, and 12% per annum from finality until June 30, 2013, then 6% per annum thereafter until full satisfaction pursuant to Nacar v. Gallery Frames. The awards should be paid in Philippine pesos, as the parties subsequently agreed that payments after March 31, 2003 would be in pesos only.

• Finality of CIAC Findings — Findings of fact by the Construction Industry Arbitration Commission (CIAC), a quasi-judicial body with expertise in construction disputes, are entitled to great respect and even finality when affirmed by the Court of Appeals, absent compelling reasons such as findings drawn from a vacuum, arbitrarily reached, grounded on speculation, or manifestly mistaken.
• Exceptions to the Mootness Doctrine — A case is not moot and academic when there remains an unresolved justiciable controversy that would provide practical value or substantial relief to the parties, such as the determination of monetary liabilities despite the termination of the underlying contract.
• Exhaustion of Administrative Remedies — The doctrine is satisfied when the party has made sufficient efforts to seek administrative relief, and strict application is excused when it would be unreasonable or futile under the circumstances, such as when the administrative agency has consistently failed to act on demands.
• Specific Denial under the Rules of Court — Under Rule 8, Section 10, a defendant must specify each material allegation of fact the truth of which he does not admit. Using the word "specifically" in a general denial does not convert it into a specific denial; the denial must be definite as to what is admitted and what is denied.
• Interest Rates under Nacar v. Gallery Frames — Monetary awards earn legal interest at the rate of 6% per annum from the date of extrajudicial demand until finality of judgment. From finality until satisfaction, the rate is 12% per annum for judgments that became final before July 1, 2013, and 6% per annum for those becoming final on or after July 1, 2013 (per BSP Circular No. 799).
• Assumed Risks in Construction Contracts — Under Clause 20.4 of the FIDIC Conditions of Contract, the employer assumes risks for war, hostilities, rebellion, revolution, insurrection, military or usurped power, civil war, and other force majeure events, making the employer liable for losses caused by such events.
• Governing Law in Foreign-Funded Projects — For projects funded by international financial institutions like the Asian Development Bank, the procurement guidelines of the funding institution govern over local laws such as Presidential Decree No. 1594, especially when the contract explicitly incorporates such guidelines.

• "As the administrative agency tasked with resolving issues pertaining to the construction industry, the Construction Industry Arbitration Commission enjoys a wide latitude in recognition of its technical expertise and experience. Its factual findings are, thus, accorded respect and even finality, particularly when they are affirmed by an appellate court."
• "Indeed, the rule is that courts will not rule on moot cases. However, the moot and academic principle is 'not a magical formula that can automatically dissuade the courts in resolving a case.' Exceptions exist that would not prevent a court from taking cognizance of cases seemingly moot and academic."
• "A case could not be deemed moot and academic when there remains an unresolved justiciable controversy... there are actual substantial reliefs that respondent is entitled to. There is a practical use or value to decide on the issues raised by the parties despite the mutual termination of the Contract between them."
• "Under the doctrine of exhaustion of administrative remedies, the concerned administrative agency must be given the opportunity to decide a matter within its jurisdiction before an action is brought before the courts... strict application of the doctrine will be set aside when requiring it would only be unreasonable under the circumstances."
• "The renewal of the Letter of Credit hinged on the extension of the contract period. Despite notice by respondent of the bank's requirement for the renewal of the Letter of Credit, petitioner chose to ignore respondent's requests for time extensions. Therefore, petitioner cannot shift the blame to respondent and claim that the Letter of Credit was a condition sine qua non for the payment of the dollar component of the project."
• "It is clear from the above provision that the assumed risks of the employer under Clause 20.4 of the Conditions of Contract include rebellion, revolution, insurrection, or military or usurped power, or civil war."
• "Using 'specifically' in a general denial does not automatically convert that general denial to a specific one. The denial in the answer must be definite as to what is admitted and what is denied, such that the adverse party will not have to resort to guesswork over 'what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.'"
• "The monetary awards, as computed by the CIAC, should earn legal interest at the rate of 12% per annum until June 30, 2013, after which, it shall earn legal interest at the rate of 6% per annum until full satisfaction."

• National Housing Authority v. First United Constructors Corp., 672 Phil. 621 (2011) — Established that CIAC's factual findings, when affirmed by the Court of Appeals, will not be overturned except for compelling reasons; cited regarding the contractor's entitlement to payment despite non-posting of a Payment Guarantee Bond when the inaction was attributable to the employer.
• Carpio v. Court of Appeals, 705 Phil. 153 (2013) — Applied the exception to the mootness doctrine when there remains an unresolved justiciable controversy that would provide practical value to the parties.
• Abaya v. Ebdane, Jr., 544 Phil. 645 (2007) — Upheld the applicability of international funding institutions' procurement guidelines (Japan Bank for International Cooperation) over local procurement laws for foreign-funded projects.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Modified the guidelines for imposing legal interest rates; established the 12% (pre-July 1, 2013) and 6% (post-July 1, 2013) rates for monetary awards.
• Eastern Shipping Lines, Inc. v. Court of Appeals, 304 Phil. 236 (1994) — Previous standard for legal interest at 12% per annum from finality until satisfaction, modified by Nacar.
• Freuhauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific, G.R. No. 204197, November 23, 2016 — Distinguished commercial arbitration from construction arbitration, noting that CIAC derives its authority from statute and possesses quasi-judicial powers.

• Executive Order No. 1008 (Construction Industry Arbitration Law), Section 4 — Defines the original and exclusive jurisdiction of CIAC over disputes arising from construction contracts.
• Republic Act No. 9184 (Government Procurement Reform Act), Section 59 — Recognizes CIAC's competence to resolve disputes arising from government contracts.
• Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), Sections 34 and 35 — Confirms CIAC's jurisdiction over construction disputes and that such jurisdiction continues even if the arbitration is "commercial."
• Presidential Decree No. 1594, Section 7 and Implementing Rules — Provides for price adjustment in case of delay in issuance of Notice to Proceed; held inapplicable to ADB-funded projects governed by international guidelines.
• Rules of Court, Rule 8, Section 10 — Governs specific denials; failure to specifically deny material allegations constitutes admission.
• Bangko Sentral ng Pilipinas Circular No. 799 (Series of 2013) — Implements Monetary Board Resolution No. 796, setting the legal interest rate at 6% per annum in the absence of stipulation, effective July 1, 2013.
• Civil Code, Articles 1169 and 2199 — Provisions on default and actual damages.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Alexander C. Gesmundo, and Jose C. Martires.