Department of Public Works and Highways vs. Italian-Thai Development Public Company, Ltd. and Katahira & Engineers International

A CIAC arbitral award is binding, final, and unappealable except on pure questions of law appealable to the Supreme Court; factual findings of CIAC arbitral tribunals are not reviewable under Rule 45 absent exceptional circumstances. A party seeking factual review must prove one of the recognized narrow grounds—such as corruption, fraud, evident partiality, misconduct, disqualification, exceeding powers, deprivation of due process, or conflict between the findings of the Court of Appeals and the CIAC—not merely assert grave abuse of discretion or misapprehension of facts.

DPWH engaged the Joint Venture of Katahira & Engineers International and others as engineering consultant for the Detailed Engineering Design and Construction Supervision of the Patapat Viaduct and related road improvement project under the Arterial Road Links Development Project V, PH-217. Italian-Thai Development Public Company, Ltd. subsequently became the civil works contractor for the Suyo-Cervantes Road Section under a Contract Agreement incorporating the FIDIC Conditions and the Conditions of Particular Application. The dispute concerned additional compensation claimed by the contractor for overrun earthwork quantities and was submitted to arbitration before the Construction Industry Arbitration Commission.

On March 15, 2002, the Department of Public Works and Highways and the Joint Venture of Katahira & Engineers International, Pertconsult International, Techniks Group Corporation, Multi-Infra Konsult, Inc., and EH Sison Engineers Co. entered into an Agreement for Consultancy Services for the Detailed Engineering Design and Construction Supervision of the Patapat Viaduct and related road sections under the Arterial Road Links Development Project V, PH-217. DPWH appointed the Joint Venture as its engineering consulting firm to carry out detailed engineering design, bidding assistance, construction supervision, monitoring of Environmental Compliance Certificate requirements, assistance in land acquisition and coordination with local government units, and other technical services.

In 2003, DPWH and KEI expanded the scope of work under Realignment No. 1 and caused the preparation of the Engineering Geological and Geohazard Assessment Report, which analyzed the geological characteristics and engineering properties of the project site. KEI, as Project Consultant and Project Engineer, created the original sloping design and a road width of 4.0 to 5.0 meters. The original sloping design was included in the bid documents, formed part of the contract documents, and became the design of the project. Subsequently, with DPWH’s agreement, KEI abandoned the original sloping design and imposed the Overhang Design.

The civil works were divided into sections, and separate biddings were conducted. Italian-Thai Development Public Company, Ltd. submitted the lowest bid for the rehabilitation and/or widening of the existing road of the Suyo-Cervantes Road Section. On March 27, 2006, the parties entered into a Contract Agreement for civil works comprising (1) construction of 45.01 kilometers of concrete road; (2) improvement of drainage system; (3) construction of slope protection structures and countermeasure works against floods; (4) construction and replacement of nine bridges, one multi-barrel RCBC spillway type and three special-type RCBC; and (5) rehabilitation and repair of one existing bridge. DPWH undertook to pay ITD P1,164,622,570.23; after approval of Variation Order No. 4, the contract amount increased to P1,184,169,948.20. The Contract Agreement consisted of Part I, General Conditions based on the FIDIC Conditions, and Part II, Conditions of Particular Application.

On December 17, 2006, KEI’s Senior Highway Engineer Hideki Yasuyama instructed ITD to widen the carriageway to a uniform width of 6.10 meters instead of the original 4.0 to 5.0 meters and to limit the height of the stone masonry to 1.0 meter. Variation Order No. 1, approved on February 22, 2007, shifted the pavement from Asphalt Cement Pavement to Portland Cement Concrete Pavement. Variation Order No. 2, approved on June 5, 2008, standardized the road width to a uniform 6.10 meters with overhang design. Variation Order No. 3, approved on February 20, 2009, added Butac Slope Protection, and Variation Order No. 4 provided additional slope protection on both sides of the road and reinstatement of a catch fence.

In July 2010, ITD submitted its claim for overrun earthwork quantities to DPWH and KEI. KEI submitted to DPWH a technical evaluation report outlining reasons to deny ITD’s claims. A joint survey was then conducted on the 314 cross-sections with overhang design of the Suyo-Cervantes Road Section. On August 23, 2011, KEI informed ITD that its claim for additional compensation on the overrun earthwork quantities could not be allowed. In September 2011, ITD informed DPWH of its intention to commence arbitration before the Construction Industry Arbitration Commission. ITD claimed overrun earthwork quantities due to overhang design in the amount of P184,957,341.20, road realignment in the amount of P115,616,592.15, and road improvement in the amount of P12,138,852.37, plus miscellaneous works of P7,226,406.07 and legal expenses of P5,000,000.00. DPWH counterclaimed for temperate damages, exemplary damages, and litigation expenses, while KEI claimed attorney’s fees, litigation expenses, moral damages, and exemplary damages.

Before the CIAC, the parties disputed whether the overrun earthwork quantities resulted from the design changes or from ITD’s own blasting. The CIAC found that the change to the overhang design caused the overrun, as shown by rock collapses, slope failures, landslides, and cliff edge collapse, and that the overhang design was inappropriate because the rocks were too unstable. It further found that the widening instruction and the 1.0-meter masonry height required ITD to realign the road and excavate into the mountain. The Court of Appeals found it undisputed that neither DPWH nor KEI had disclosed the EGGAR to ITD and that DPWH had not substantiated its allegation that excessive blasting caused the overruns.

• Grave Abuse of Discretion / Factual Review: DPWH claimed that the Court of Appeals committed grave abuse of discretion and grossly misappreciated the facts, making findings contrary to the evidence, which warranted relaxation of Rule 45’s pure-question-of-law requirement.
• Overhang Design: DPWH argued that the CIAC erred in finding it liable to pay ITD for overrun earthwork quantities resulting from ITD’s implementation of the overhang design.
• Road Realignment: DPWH argued that the CIAC erred in finding it liable to pay ITD for overrun earthwork quantities due to road realignment.
• Road Improvements and Miscellaneous Works: DPWH argued that the CIAC erred in finding it liable to pay ITD for alleged overrun earthwork quantities due to road improvements and miscellaneous works.
• FIDIC and COPA Claims Procedure: DPWH argued that the CIAC erred in ruling that the FIDIC and COPA provisions on the procedure for claims had become moot and academic.
• Varying Claims: DPWH argued that the CIAC erred in holding that ITD’s varying claims did not cast doubt on its entitlement.
• Cross-Claims Against KEI: DPWH argued that the CIAC erred in holding that it was not entitled to cross-claims against KEI.
• Temperate Damages: DPWH argued that the CIAC erred in awarding temperate damages to ITD.

• Reviewability of CIAC Factual Findings: Whether the Supreme Court should relax the strict requirement of Rule 45 that a petition for review on certiorari raise only pure questions of law and admit DPWH’s claimed exception based on alleged grave abuse of discretion.
• Reversal of Court of Appeals Decision: Whether the Decision dated November 27, 2017 of the Court of Appeals should be reversed.

• Reviewability of CIAC Factual Findings: No. The factual findings of the CIAC, which possesses expertise in construction arbitration, are final and conclusive and are not reviewable under Rule 45 unless one of the recognized narrow exceptions is proven.
• Reversal of Court of Appeals Decision: No. Since no exception applied, the petition was denied and the Court of Appeals decision affirming the CIAC award was affirmed.

• Reviewability of CIAC Factual Findings: Section 1, Rule 45 limits a petition for review on certiorari to pure questions of law. Section 19 of the Construction Industry Arbitration Law provides that a CIAC arbitral award is binding, final, and unappealable except on questions of law appealable to the Supreme Court. The denial rested on the policy that voluntary arbitration provides a speedy and inexpensive alternative to litigation, and that the CIAC’s factual findings, especially when affirmed by the Court of Appeals, are final and conclusive. Recognized exceptions are narrow: the award was procured by corruption, fraud, or other undue means; evident partiality or corruption of the arbitrators; misconduct in refusing to hear pertinent and material evidence; disqualification willfully concealed; or the arbitrators exceeded or imperfectly executed their powers. Other exceptions include a very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction, findings of the Court of Appeals contrary to those of the CIAC, and deprivation of administrative due process. DPWH alleged only that the Court of Appeals grossly misappreciated the facts and made findings contrary to the evidence. That allegation did not prove any recognized exception. The Court, citing Hi-Precision Steel Center, Inc. vs. Lim Kin Steel Builders, Inc., stressed that it will not review factual findings upon an artful allegation that the arbitral tribunal misapprehended the facts, no matter how cleverly disguised as legal questions. Because DPWH did not show deprivation of a fair opportunity to present its position, fraud, corruption, or any other recognized ground, the claimed exception was denied.

• Reversal of Court of Appeals Decision: Since DPWH did not establish any ground to relax Rule 45, the Court was duty-bound to uphold the integrity of the arbitration process and avoid undermining the mechanism the parties voluntarily elected. No basis existed to reverse the Court of Appeals’ affirmance of the CIAC Final Award.

• Finality of CIAC Arbitral Awards — Under Section 19 of the Construction Industry Arbitration Law, a CIAC arbitral award is binding upon the parties and is final and unappealable except on questions of law appealable to the Supreme Court. Factual findings of the CIAC, which has expertise in construction arbitration, are final and conclusive and are not reviewable on appeal, especially when affirmed by the Court of Appeals. Applied here, DPWH could not relitigate the CIAC’s factual findings merely by alleging misapprehension of facts.

• Narrow Exceptions to Reviewability of CIAC Factual Findings — Factual findings of construction arbitrators may be reviewed only upon affirmative proof that: (1) the award was procured by corruption, fraud, or other undue means; (2) there was evident partiality or corruption of the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified under Section 9 of Republic Act No. 876 and willfully refrained from disclosing such disqualification, or committed other misbehavior materially prejudicing a party’s rights; or (5) the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award was not made. Other recognized exceptions are a very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction, findings of the Court of Appeals contrary to those of the CIAC, and deprivation of administrative due process. The Court applied these exceptions strictly and held that none existed because DPWH did not prove any recognized ground.

• "SEC. 19. Finality of Awards. The arbitral award shall be binding upon the parties. It shall be final and [unappealable] except on questions of law which shall be appealable to the Supreme Court." — The Court anchored its denial on this statutory rule, which limits review of CIAC awards to pure questions of law.

• "The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions.". — This quoted principle from Hi-Precision Steel Center, Inc. vs. Lim Kin Steel Builders, Inc. explains why a claim that the arbitral tribunal misapprehended facts cannot open factual review under Rule 45.

• "factual findings may be reviewed only in cases where the CIAC arbitral tribunals conducted their affairs in a haphazard, immodest manner that the most basic integrity of the arbitral process was imperiled" — This formulation from CE Construction Corp. vs. Araneta Center, Inc. underscores that any exception to finality is extremely narrow and not triggered by ordinary alleged errors.

• Hi-Precision Steel Center, Inc. vs. Lim Kin Steel Builders, Inc., 298-A Phil. 361 (1993) — Followed. The Court relied on it to explain that CIAC factual findings are final and unappealable, and that review is not available on an artful allegation of misapprehended facts.

• CE Construction Corp. vs. Araneta Center, Inc., 816 Phil. 221 (2017) — Followed. The Court cited it for the narrowest-grounds standard and the duty not to undermine arbitration or set aside arbitral conclusions.

• Shinryo (Phils.) Company, Inc. vs. RRN, Inc., 648 Phil. 342 (2010) — Followed. The Court quoted its enumeration of exceptional grounds for reviewing construction arbitrators’ factual findings.

• Department of Public Works and Highways vs. Foundation Specialists, Inc., 760 Phil. 795 (2015) — Followed. Cited for the settled rule that factual findings of quasi-judicial bodies with specialized expertise are accorded respect and finality, especially when affirmed by the Court of Appeals.

• Section 1, Rule 45 of the Rules of Court — Provides that a petition for review on certiorari shall raise only pure questions of law, which must be distinctly set forth. This barred DPWH’s attempt to seek factual review.

• Section 19, Construction Industry Arbitration Law — Provides that a CIAC arbitral award is binding upon the parties, final, and unappealable except on questions of law appealable to the Supreme Court. This was the controlling statutory limit applied to dismiss the petition.

Peralta, C.J. (Chairperson), Caguioa, Lazaro-Javier, and Lopez, JJ., concurred.