Cagayan De Oro City Water District v. Pasal
REITERATIONFacts
The Antecedents: The Cagayan de Oro City Water District (COWD) entered into a Bulk Water Supply Agreement (BWSA) with Rio Verde Water Consortium, Inc. (Rio Verde) for the supply of bulk water. The BWSA was later amended by a Supplemental Agreement. COWD questioned the water rate charged by Rio Verde, citing deviations from the Model Contract used in the bidding. The Office of the Government Corporate Counsel (OGCC) advised COWD to pursue reformation of the BWSA. The Commission on Audit (COA) issued a Notice of Disallowance against payments made to Rio Verde, finding that Rio Verde was a disqualified bidder and that fraud attended the execution of the contracts. Despite this, COWD resolved to continue paying Rio Verde due to public need. COA's Fraud Audit and Investigation Office (FAIO) issued an Audit Observation Memorandum (AOM) finding that the public bidding for the BWSP failed to comply with Republic Act No. 9184, that the BWSA substantially deviated from the Model Contract, and that fraud was committed. Subsequently, COWD and Rio Verde agreed to be bound by the Model Contract, with Rio Verde charging P10.45 per cubic meter. Rio Verde later requested a price adjustment, which COWD denied, citing the COA findings. Rio Verde then proposed arbitration, to which COWD did not respond. Procedural History: Rio Verde filed a petition before the Regional Trial Court (RTC), Branch 38, Cagayan de Oro City, to compel COWD to arbitrate pursuant to the arbitration clause in the BWSA. COWD opposed, arguing that the ongoing COA investigation constituted a prejudicial question and that the BWSA, including the arbitration clause, was void. The RTC granted Rio Verde's petition, ordering COWD to submit to arbitration, citing the doctrine of separability and the principle of competence-competence. COWD's motion for reconsideration was merely noted. The Petition: COWD assailed the RTC's orders via a petition for certiorari, arguing that the trial court committed grave abuse of discretion by compelling arbitration despite the pending COA investigation, the alleged voidness of the BWSA due to fraud, and the overriding public interest in ensuring government contracts are above board. COWD contended that the COA investigation presented a prejudicial question and that the doctrine of separability was inapplicable.
Issue(s)
Whether the trial court's directive to arbitrate may be properly challenged via a petition for certiorari. Whether the trial court gravely abused its discretion in ordering arbitration despite the ongoing COA investigation. Whether the COA's recommendation to file criminal charges and a civil case for nullity of the BWSA legally precludes the parties from proceeding to arbitration.
Ruling
The petition is dismissed. The Orders dated March 23, 2012 and May 3, 2012 of the RTC-Cagayan de Oro, Branch 38, are affirmed.
Ratio Decidendi
On the propriety of challenging the order to arbitrate via certiorari: The petition for certiorari is not sanctioned by the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules). Rule 3.11 and Rule 4.6 of the Special ADR Rules explicitly prohibit a motion for reconsideration, appeal, or petition for certiorari against a court's prima facie determination upholding an arbitration agreement or an order referring a dispute to arbitration. Such orders are immediately executory. The prohibition is rooted in the policy of promoting party autonomy and the principle of competence-competence, which grants the arbitral tribunal the primary authority to rule on its own jurisdiction. COWD's status as a government entity does not exempt it from these rules. Leapfrogging the judicial process in defiance of the Special ADR Rules violates these principles. On whether the trial court gravely abused its discretion in ordering arbitration despite the ongoing COA investigation: The trial court did not commit grave abuse of discretion. The doctrine of separability dictates that an arbitration agreement is independent of the main contract. Therefore, the alleged invalidity of the BWSA does not automatically render the arbitration clause invalid. Rule 2.2 of the Special ADR Rules reinforces this by stating that courts shall not refuse to refer parties to arbitration. The ongoing COA examination does not constitute a prejudicial question that would necessarily suspend the arbitration proceedings, as the validity of the contract and the arbitration clause are matters that can be initially determined by the arbitral tribunal itself. On whether the COA's recommendation precludes arbitration: The COA's recommendation to file criminal charges and a civil case for nullity of the BWSA does not preclude arbitration. The COA's power is limited to audit matters and does not extend to passing upon the validity of contracts, which remains a judicial question. However, the arbitral tribunal, under Article 19 of the BWSA, is empowered to resolve disputes, including the "invalidity hereof." Therefore, if COWD wishes to pursue the nullification of the BWSA as recommended by the COA, the proper forum is the arbitral tribunal. The arbitral tribunal has the primary jurisdiction to rule on its competence, including the validity of the arbitration agreement and the main contract.
Main Doctrine
An order compelling parties to submit to arbitration, issued by a trial court pursuant to Section 6 of Republic Act No. 876, is immediately executory and not subject to a motion for reconsideration, appeal, or petition for certiorari under the Special Rules of Court on Alternative Dispute Resolution (A.M. No. 07-11-08-SC). The arbitral tribunal, under the principle of competence-competence, has primary jurisdiction to rule on its own jurisdiction, including the validity of the arbitration agreement and the main contract.