(G.R. No. 141833) L.M. Power Engineering vs. Capitol Industrial Construction (Digest)
(G.R. No. 141833) L.M. Power Engineering vs. Capitol Industrial Construction (Digest)
Facts:
On February 22, 1983, 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.
On April 25, 1985, respondent took over some of the work contracted to petitioner. Allegedly, the
latter had failed to finish it because of its inability to procure materials.
Upon completing its task, petitioner billed respondent. However, the latter contested the accuracy of
the amount. Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint for the collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss, alleging
that the Complaint was premature, because there was no prior recourse to arbitration.
In its Order dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did
not involve the interpretation or the implementation of the Agreement and was, therefore, not covered
by the arbitral clause.
The Court of Appeals (CA) reversed the RTC and ordered the referral of the case to arbitration.
Issue
Whether or not there exists a controversy/dispute between petitioner and respondent regarding the
interpretation and implementation of the Sub-Contract Agreement which requires prior recourse to
voluntary arbitration.
Ruling
The controversy/dispute between the parties involve the interpretation and implementation of the
Sub-Contract Agreement. Hence, prior recourse to arbitration is required.
The issue as to the correct amount of petitioner’s advances and billable accomplishments involves an
evaluation of the manner in which the parties completed the work, the extent to which they did it,
and the expenses each of them incurred in connection therewith. Arbitrators also need to look into
the computation of foreign and local costs of materials, foreign and local advances, retention fees and
letters of credit, and taxes and duties as set forth in the Agreement. These data can be gathered from
a review of the Agreement.
The courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.