District v. Mactan Rock Industries

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 assailing the February 20, 2006 Decision1 and the March 30, 2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. CEB SP. No. 00623. THE FACTS Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled corporation (GOCC) created pursuant to Presidential Decree (PD) No. 198,3 as amended, with its principal office address at the MCWD Building, Magallanes corner Lapu-Lapu Streets, Cebu City.4 It is mandated to supply water within its service area in the cities of Cebu, Talisay, Mandaue, and Lapu-Lapu and the municipalities of Compostela, Liloan, Consolacion, and Cordova in the Province of Cebu.5 Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal office address at the 2nd Level of the Waterfront Cebu Hotel and Casino, Lahug, Cebu City.6 On May 19, 1997, MCWD entered into a Water Supply Contract7 (the Contract) with MRII wherein it was agreed that the latter would supply MCWD with potable water, in accordance with the World Health Organization (WHO) standard or the Philippine national standard, with a minimum guaranteed annual volume.8 On March 15, 2004, MRII filed a Complaint9 against MCWD with the Construction Industry Arbitration Commission (CIAC), citing the arbitration clause (Clause 18)10 of the Contract.

The case was docketed as CIAC Case No. 12-2004. In the said complaint, MRII sought the reformation of Clause 17 of the Contract, or the Price Escalation/De-Escalation Clause, in order to include Capital Cost Recovery in the price escalation formula, and to have such revised formula applied from 1996 when the bidding was conducted, instead of from the first day when MRII started selling water to MCWD. It also sought the payment of the unpaid price escalation/adjustment, and the payment of unpaid variation/extra work order and interest/cost of money up to December 31, 2003.11 On May 7, 2002, MCWD filed its Answer12 dated April 27, 2004, which included a motion to dismiss the complaint on the ground that the CIAC had no jurisdiction over the case, as the Contract was not one for construction or infrastructure.

The CIAC thereafter issued an order13 denying MCWD's motion to dismiss, and calling the parties to a preliminary conference for the review and signing of the Terms of Reference.14 MCWD, thus, filed a petition for certiorari15 under Rule 65 with the CA, questioning the jurisdiction of the CIAC. The petition was docketed as CA-G.R. SP. No. 85579 (First Petition).

Meanwhile, the CIAC proceeded with the preliminary conference scheduled on June 10 and July 22, 2004 which MWCD opted not to attend. MRII and the CIAC both signed the Terms of Reference. Pursuant to the Terms of Reference and the CIAC Order dated July 22, 2004, MRII submitted its documentary evidence and affidavits of its witnesses.16 On August 27, 2004, MRII submitted its Formal Offer of Evidence and its memorandum of arguments in the form of a proposed/draft decision.

MCWD did not attend the hearings. It did not submit evidence other than those annexed to its Answer. Neither did it file a formal offer of evidence, or a memorandum of legal arguments.17 Decision of the CIAC The CIAC promulgated its Decision18 on April 14, 2005, the dispositive portion of which reads:

WHEREFORE[ ,] premises considered, judgment is hereby rendered as follows: 1. Ordering the reformation of Clause 17 of the Water Supply Contract to read: 17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula: 17.1 Power Rate Price Adjustment/Power Cost Adjustment Current Power Rate - Base Power Rate