LM POWER vs.

CAPITOL INDUSTRIAL

Facts:

This is a Petition for Review on Certiorari filed by the petitioner LM Power against Respondent Capitol
Industrial seeking to set aside the decision of CA.

Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc.
entered into a Subcontract Agreement involving electrical work at the Third Port of Zamboanga. Due to the
inability of the petitioner to procure materials, Capitol Industial took over some of the work contracted to the
former. After the completion of the contract, petitioner billed respondent in the amount of P6, 711,813.90 but
the respondent refused to pay.

Petitioner filed with the RTC of Makati a Complaint for the collection of the amount representing the alleged
balance due it under the subcontract. Respondent filed a Motion to Dismiss, alleging that the Complaint was
premature, due to the absence of prior recourse to arbitration.

RTC denied the Motion on the ground that the dispute did not involve the interpretation or the
implementation of the Agreement and was not covered by the arbitral clause and ruled in favor of the
petitioner.

Respondent appealed to the CA, the latter reversed the decision of the RTC and ordered the referral of the
case to arbitration.

Hence, this Petition.

ISSUE:

WON there is a need for the prior arbitration before filing of the complaint with the court.

HELD:

AFFIRMATIVE.

SC ruled that in the case at hand it involves technical discrepancies that are better left to an arbitral body that
has expertise in the subject matter. Moreover, the agreement between the parties contains arbitral clause that
“any dispute or conflict as regards to interpretation and implementation of this agreement which cannot be
settled between respondent and petitioner amicably shall be settled by means of arbitration”. The resolution
of the dispute between the parties herein requires a referral to the provisions of their agreement. Within the
scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments,
the application of the provision on termination, and the consequent set-off of expenses.

With respect to the disputes on the take-over/termination and the expenses incurred by respondent in the
take-over, the SC ruled that the agreement provides specific provisions that any delay, expenses and any
other acts in violation to such agreement, the respondent can terminate and can set off the amount it incurred
in the completion of the contract.

SC tackled also that there’s no need for the prior request for arbitration by the parties with the Construction
Industry Arbitration Commission (CIAC) in order for it to acquire jurisdiction. Because pursuant to Section 1
of Article III of the new Rules of Procedure Governing Construction Arbitration, when a contract
contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. Furthermore, the
arbitral clause in the agreement is a commitment on the part of the parties to submit to arbitration the
disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith.

Since a complaint with the RTC has been filed without prior recourse to arbitration, under RA 876
(Arbitration Law) the proper procedure is to request the stay or suspension of such action in order to settle
the dispute with the CIAC.