FIESTA WORLD MALL CORP v. LINDBERG PHILS Inc.

G.R 152471; August 18, 2006

Ponente: Sandoval-Guiterrez

FACTS:

Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located 

at Barangay Maraouy, Lipa City;while Linberg Philippines,Inc., respondent, is a corporation that builds and operates power plants.

On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a Complaint for Sum of Money against petitioner.

The complaint alleges that on November 12, 1997, petitioner and respondent executed a build-own-operate agreement, entitled “Contract Agreement for Power Supply Services, 3.8 MW Base Load Power Plant” (the Contract).  

Under this Contract, respondent will construct, at its own cost, and operate as owner a power plant,and to supply petitioner power/electricity at its shopping mall in Lipa City.   

Petitioner, on the other hand, will pay respondent “energy fees” to be computed in accordance with the Seventh Schedule of the Contract

The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of about P130,000,000.00.   In November 1997, the power plant became operational and started supplying power/electricity to petitioner’s shopping mall in Lipa City.   In December 1997, respondent started billing petitioner.

As of May 21, 1999, petitioner’s unpaid obligation amounted to P15,241,747.58, exclusive of interest.   However, petitioner questioned the said amount and refused to pay despite respondent’s repeated demands.

In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply all its power/fuel needs.   

From November 10, 1998 until May 21, 1999, petitioner personally shouldered the cost of fuel.   Petitioner also disputed the amount of energy fees specified in the billings made by respondent because the latter failed to monitor, measure, and record the quantities of electricity delivered by taking photographs of the electricity meter reading prior to the issuance of its invoices and billings, also in violation of the Contract.  

Moreover, in the computation of the electrical billings, the minimum off-take of energy (E2) was based solely on the projected consumption as computed by respondent. 

However, based onpetitioner’s actual experience, it could not consume the energy pursuant to the minimum off-take even if it kept open all its lights and operated all its machinery and equipment for twenty-four hours a day for a month.   This fact was admitted by respondent.   While both parties had discussions on the questioned billings, however, “there were no earnest efforts to resolve the differences in accordance with the arbitration clause provided for in the Contract.”             

Finally, as a special affirmative defense in its answer, petitioner alleged that respondent’s filing of the complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of the Contract which provides:

                   
7.4       Disputes
If  FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount on or before such date(s), and the disputed amount shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves, within fourteen (14) days after the due date for such invoice and all or any part of the disputed amount paid to LINBERG shall be paid together with interest pursuant to Article XXV from the due date of the invoice.   It is agreed, however, that both parties must resolve the disputes within thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when converted to $US as a result of depreciation of the Pesos shall be for the account of FIESTA WORLD.   Corollarily, in case of erroneous billings, however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such deterioration, plus interest computed pursuantto Art. XXV from the date FIESTA WORLD paid for the erroneous billing.  (Underscoring supplied)      

 Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that respondent violated the arbitration clause provided in the Contract, thereby rendering its cause of action premature.  

This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the provision applicable to this case; and that since the parties failed to settle their dispute, then respondent may resort to court action pursuant to paragraph 17.2 of the same Contract which provides:

17.2          Amicable Settlement
The parties hereto agree that in the event there is any dispute or difference between them arising out of this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet together in an effort to resolve such dispute by discussion between them but failing such resolution the Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference and the joint decision of such shall be binding upon the parties hereto, and in the event that a settlement of any such dispute or difference is not reached, then the provisions of Article XXI shall apply.
 

 In its Order dated October 3, 2000, the trial court denied petitioner’s motion for lack of merit.

Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001.       

Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari. 

On December 12, 2001, the appellate court rendered its Decision dismissing the petition and affirming the challenged Orders of the trial court.

Petitioner’s Motion for Reconsideration of the above Decision was likewise denied by the appellate.

Hence, the instant Petition for Review on Certiorari.

ISSUE:
Whether the filing with the trial court of respondent’s complaint is premature

HELD:

YES, the filing with the trial court of the complaint is premature.

Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of energy fees in the invoice and billings made by respondent, the same“shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves.”   The parties, in incorporating such agreement in their Contract, expressly intended that the said matter in dispute must first be resolved by an arbitration panel before it reaches the court.  They made such arbitration mandatory.  

It is clear from the records that petitioner disputed the amount of energy fees demanded by respondent.  However, respondent, without prior recourse to arbitration as required in the Contract, filed directly with the trial court its complaint, thus violating the arbitration clause in the Contract.  

It bears stressing that such arbitration agreement is the law between the parties.   Since that agreement is binding between them, they are expected to abide by it in good faith.  And because it covers the dispute between them in the present case, either of them may compel the other to arbitrate. Thus, it is well within petitioner’s right to demand recourse to arbitration.          

We cannot agree with respondent that it can directly seek judicial recourse by filing an action against petitioner simply because both failed to settle their differences amicably.   Suffice it to state that there is nothing in the Contract providing that the parties may dispense with the arbitration clause.   Article XXI on jurisdiction cited by respondent, i.e., that “the parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City” merely provides for the venue of any action arising out of or in connection with the stipulations of the parties in the Contract.

Moreover, we note that the computation of the energy fees disputed by petitioner also involves technical matters that are better left to an arbitration panel who has expertise in those areas.  Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are encouraged by this Court.   By enabling the parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships