Roxaco-Asia Hospitality Corporation vs. Gulf Canary Construction and Development, Inc. and Asia United Insurance, Inc.

A CIAC arbitral award is final and unappealable except on questions of law; judicial review of the tribunal’s factual findings is confined to challenges directed at the integrity of the arbitral tribunal itself or allegations of a violation of the Constitution or positive law, and mere disagreement with the tribunal’s appreciation of evidence does not justify reversal. Further, a waiver of contractual requirements must be clear, unequivocal, and decisively shown; mere continuation of works after the lapse of the completion date, without more, does not constitute a valid extension of time or a waiver of the contractually prescribed notice requirement.

Roxaco-Asia Hospitality Corporation (Roxaco) undertook the construction of a 12-storey hotel on its property in Parañaque City. It engaged Gulf Canary Construction and Development, Inc. (Gulf Canary) as contractor under a Memorandum of Agreement (MOA) and subsequently a FIDIC Conditions of Contract. Asia United Insurance, Inc. (Asia United) issued a performance bond securing Gulf Canary’s obligations. The project was not completed by the agreed date of March 31, 2015. Roxaco eventually called on the performance bond and terminated the contracts. Gulf Canary denied liability, claiming the completion date had been extended to January 31, 2016. The dispute was submitted to the Construction Industry Arbitration Council (CIAC), which ruled for Roxaco. The Court of Appeals set aside the award, prompting Roxaco’s appeal to the Supreme Court on the scope of judicial review over CIAC awards and the interpretation of the parties’ acts regarding extension of time.

• The Construction Contracts: On June 30, 2014, Roxaco (as employer) and Gulf Canary (as contractor) executed a Memorandum of Agreement (MOA) for the construction of a 12-storey hotel with 199 rooms on an 848-square meter lot in Parañaque City. The contract price was PHP 219,822,703.36, with a 20% downpayment payable upon execution. The MOA also required Gulf Canary to post a performance bond equivalent to 30% of the contract price. The parties agreed to subsequently enter into a Fédération Internationale des Ingénieurs-Conseils (FIDIC) Contract, which they executed on September 17, 2014. The MOA stipulated that construction would be completed by March 31, 2015, “unless an extension of time has been authorized and approved by the Employer in writing in accordance with the conditions stated in the FIDIC Contract.”

• Performance Bond: Gulf Canary submitted a Performance Bond dated July 4, 2014, issued by Asia United, in the amount of PHP 65,946,811.06, with liability expiring on July 8, 2015, and requiring written notice of any claim within 15 days from that expiration date. The bond answered for Gulf Canary’s failure to perform any obligation under the MOA and the FIDIC Contract.

• Downpayment and Commencement: Roxaco paid the downpayment of PHP 45,638,494.74 on September 3, 2014. Roxaco appointed Pure Projects as project manager/engineer under the FIDIC Contract.

• Delays and Communications: Construction was not completed by the March 31, 2015 deadline. To mitigate delay, the parties agreed to augment manpower through subcontractor Vision Properties Development Corporation. On March 16, 2015, Mike Armstrong, programme manager of Pure Projects, wrote to Gulf Canary summarizing a meeting held on March 13, 2015. The letter stated that Roxaco would not terminate Gulf Canary under Sub-Clause 15.2, that Gulf Canary acknowledged it was unable to meet the time for completion, and that this would result in a claim for delay damages. The letter did not state that the completion date was extended. Construction delays persisted.

• Call on Performance Bond and Termination: On July 7, 2015, Roxaco wrote to Asia United calling on the Performance Bond, asserting that Gulf Canary was in breach of its obligations. The letter mentioned that “the extended work completion would be until January 31, 2016” and that Gulf Canary had failed to deliver a new or extended performance bond. Asia United did not respond. Roxaco terminated the Construction Contracts on September 18, 2015, at which point only 34.92% of the works were completed. Roxaco took over construction and engaged Vision to rectify defects and complete the project. A demand letter was sent to Gulf Canary on September 22, 2017, without response.

• CIAC Findings: The CIAC Tribunal found that Gulf Canary did not comply with the contractual requirements for a valid extension of the completion date (notably the notice under Sub-Clause 20.1 of the FIDIC Contract), that the delays were attributable to Gulf Canary, that Roxaco validly terminated the contracts, and that Gulf Canary’s work was defective, entitling Roxaco to liquidated damages, recoupment of the unapplied balance of the downpayment, and rectification costs.

• Scope of Judicial Review: Roxaco maintained that the CA exceeded its review authority because the issue of whether the completion date was extended was a question of fact requiring calibration of the evidence, not a pure question of law. It argued that the exceptions allowing factual review of CIAC awards are narrow and require a showing of grave abuse of discretion amounting to lack or excess of jurisdiction, which was absent.

• No Extension or Waiver: Roxaco contended that the CIAC’s factual finding that the completion date was not extended was supported by substantial evidence. The documentary evidence relied upon by the CA, when read in context, did not establish a waiver of the notice requirement under Sub-Clause 20.1. The July 7, 2015 letter was a call on the performance bond precisely due to breach, not a confirmation of a mutually agreed extension. Continuing works after the deadline was merely consistent with the duty to mitigate damages under Article 2203 of the Civil Code.

• Independent Claims: Roxaco argued that its claims for downpayment recoupment and rectification costs were based on separate provisions of the Construction Contracts and did not depend on the extension issue; the CA erred in summarily dismissing them.

• Gulf Canary — Extension of Completion Date: Gulf Canary argued that the completion date was validly extended to January 31, 2016, as shown by the minutes of the March 13, 2015 meeting, the March 16, 2015 Letter, Roxaco’s July 7, 2015 letter to Asia United, the extension of the Performance Bond validity, and the Notices to Correct issued months after the original deadline. It insisted that the issue was a question of law because the documents were admitted and uncontroverted.

• Gulf Canary — Partiality of CIAC Tribunal: Even if the issue were factual, Gulf Canary asserted that the CIAC Tribunal was so partial to Roxaco that it disregarded overwhelming evidence of an extension, thereby falling within the exception of arbitrators exceeding their powers or imperfectly executing them.

• Gulf Canary — Malicious Termination: Gulf Canary claimed that Roxaco had no real reason to terminate the contracts, and that the termination was triggered by Gulf Canary’s refusal to use magnesium boards and fiberglass toilets suggested by the project manager.

• Asia United — Novation: Asia United contended that the Construction Contracts were varied or novated without its knowledge and consent, particularly through the March 16, 2015 Letter, which allegedly modified key terms. This novation, it argued, extinguished its obligation as surety under Article 1215 of the Civil Code.

• Judicial Review of CIAC Award: Whether the Court of Appeals correctly reviewed and reversed the CIAC Tribunal’s Final Award on the ground that the completion date was extended, in light of the limited scope of judicial review over CIAC arbitral awards.

• Extension of Completion Date and Waiver: Whether the evidence on record established that the parties agreed to extend the completion date and waived the contractual notice requirement under Sub-Clause 20.1 of the FIDIC Contract.

• Liability for Liquidated Damages and Validity of Termination: Whether Gulf Canary is liable for liquidated damages and whether Roxaco validly terminated the Construction Contracts.

• Downpayment Recoupment and Rectification Costs: Whether Roxaco is entitled to recoupment of the unapplied balance of its downpayment and payment of rectification costs for defective work, irrespective of the extension issue.

• Attorney’s Fees and Costs of Arbitration: Whether Roxaco is entitled to attorney’s fees and costs of arbitration.

• Surety Liability of Asia United: Whether Asia United remained solidarily liable under the Performance Bond despite alleged variations of the contracts without its consent.

• Judicial Review of CIAC Award: The CA correctly characterized the central issue—whether the documentary evidence sufficed to prove an extension of the completion date and waiver of contractual requirements—as a question of law, because it did not require reexamination of the probative value of evidence but rather a determination of the legal significance of admitted documents. However, the CA erred in its conclusion that the evidence proved an extension and waiver. As to the other issues (delay, validity of termination, entitlement to downpayment recoupment and rectification costs), those involved questions of fact that the CA could review only upon a challenge to the integrity of the CIAC Tribunal or a showing of a violation of the Constitution or positive law. Neither the CA nor Gulf Canary adduced sufficient basis to impugn the CIAC Tribunal’s impartiality; mere disagreement with its appreciation of evidence does not constitute “exceeding powers” within the meaning of the recognized exceptions. The factual findings of the CIAC Tribunal were therefore binding and not subject to reversal.

• Extension of Completion Date and Waiver: The evidence did not establish a valid extension. Under the MOA and Sub-Clause 20.1 of the FIDIC Contract, any extension required written notice from Gulf Canary within 28 days. Gulf Canary failed to give such notice, as both the CA and the CIAC acknowledged. A waiver of this requirement must be “clear and unequivocal.” The minutes of the March 13, 2015 meeting, the March 16, 2015 letter, the extension of the Performance Bond validity, and the later Notices to Correct did not unequivocally show that Roxaco intended to waive the notice requirement and extend the completion date. The March 16, 2015 letter itself confirmed that Gulf Canary acknowledged it could not meet the completion date and that a claim for delay damages would ensue. Allowing Gulf Canary to continue works after the deadline merely reflected the employer’s right to hold the contractor to its completion obligation while reserving claims for delay damages, consistent with the duty to minimize damages under Article 2203 of the Civil Code. The July 7, 2015 letter called on the bond precisely because of breach and did not constitute a confirmation of an agreed extension. Thus, no valid extension was granted.

• Liability for Liquidated Damages and Validity of Termination: Since there was no valid extension, Gulf Canary was in delay. The CIAC Tribunal’s factual finding that the delay was attributable to Gulf Canary and that Roxaco validly terminated the Construction Contracts under Sub-Clause 15.2 of the FIDIC Contract are binding factual determinations not subject to judicial review absent any of the narrow exceptions. Accordingly, the award of liquidated damages and the declaration of valid termination were affirmed.

• Downpayment Recoupment and Rectification Costs: The claims for recoupment of the downpayment and rectification costs were independent of the extension issue. The downpayment functioned as an interest-free loan to be repaid through percentage deductions; because the project was not completed, the CIAC Tribunal’s computation of the unpaid balance of PHP 29,701,532.37, based on total billings, was a factual finding binding on the Court. The CIAC Tribunal also found that Gulf Canary’s work was defective and that Roxaco incurred PHP 16,964,858.38 in rectification costs, which was supported by the MOA and FIDIC Contract provisions holding the contractor liable for defects at its own cost. The CA had no basis to dismiss these claims.

• Attorney’s Fees and Costs of Arbitration: The award of attorney’s fees and costs of arbitration was reversed. There was no finding of bad faith on the part of Gulf Canary or Asia United in resisting the claims. Merely being compelled to litigate does not automatically justify attorney’s fees; a party may be in error as to the merit of its defense without acting in bad faith. For the same reason, the award of arbitration costs under Section 16.5 of the CIAC Revised Rules of Procedure was deleted.

• Surety Liability of Asia United: The CIAC Tribunal had already made a binding factual finding that no variation or novation of the MOA or Construction Contracts occurred, and that Pure Projects had no authority to modify contract terms without Roxaco’s consent. The March 16, 2015 letter did not prove any consent to modification. Thus, Asia United’s obligation as surety was not extinguished, and it remained solidarily liable with Gulf Canary up to the amount of the Performance Bond.

• Judicial Review of CIAC Arbitral Awards — Under Section 19 of Executive Order No. 1008, CIAC arbitral awards are final and unappealable except on questions of law. Factual findings may be reviewed only in the following narrow, tribunal-centered exceptions: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption of the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone a hearing or in refusing to hear material evidence; (4) an arbitrator was disqualified under Republic Act No. 876 and willfully failed to disclose it; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final, and definite award was not made. In addition, an allegation that the arbitral tribunal violated the Constitution or positive law may trigger factual review. These exceptions are not satisfied by mere disagreement with the tribunal’s appreciation of evidence; they require a showing of compromise of the tribunal’s integrity or a legal violation. In this case, the exceptions were not substantiated, so the CIAC’s factual findings were upheld.

• Waiver of Contractual Requirements — Waiver must be “clear and unequivocal”; there can be no implied waiver when there is no clear, unequivocal, and decisive act showing such purpose. The continuation of works after the stipulated completion date, without more, does not constitute a waiver of the contractual notice requirement for extension of time nor an agreement to extend the deadline. The employer’s act of allowing the contractor to continue working after the deadline, while reserving claims for delay damages, is consistent with the contractor’s continuing obligation to complete the works and the employer’s duty to minimize damages under Article 2203 of the Civil Code.

• Attorney’s Fees under Article 2208 of the Civil Code — Attorney’s fees are not awarded simply because a party was compelled to litigate; there must be a showing of bad faith or one of the enumerated grounds in Article 2208. A party’s erroneous conviction in the righteousness of its cause, without more, does not justify an award of attorney’s fees.

• Liability of Surety — Novation — A surety’s liability is not extinguished by alleged variations in the principal contract absent proof that the creditor consented to such variations without the surety’s knowledge and consent. The CIAC’s factual finding that no novation took place is binding on appellate courts within the limits of judicial review.

• “The exceptions which allow for a review of the CIAC’s factual findings are narrow and must not be interpreted to mean that mere disagreements as to the findings of an arbitral tribunal or even perceived errors in its findings of fact warrant judicial review. The Court will not allow the parties to relitigate factual issues already argued before and resolved by the CIAC.”

• “Thus, in ascertaining whether a CIAC arbitral award may be the subject of an appeal, there must first be a determination of whether the issue sought to be raised is a question of law or a question of fact. If the question is one of law, the arbitral award may be appealed. However, if the issue sought to be raised in the appeal is a question of fact, a further determination must be made as to whether the issue is ‘fact-centered,’ involving only a disagreement as to the tribunal’s factual conclusions, or whether the issue goes into the integrity of the tribunal in a manner that constitutes grave abuse of discretion. A party may only seek judicial review of a factual issue in the latter scenario.”

• “The rule is settled that for a waiver to be valid, the waiver must be ‘clear and unequivocal.’ Further, there can be no implied waiver when there is no clear, unequivocal and decisive act showing such purpose.”

• “Given the nature of this exception, a party invoking it must, it cannot be overemphasized, satisfactorily show that the CIAC arbitrators were indeed compromised, impartial, or that their integrity could not be relied upon in a manner that will allow a fair determination of the dispute.”

• Global Medical Center of Laguna, Inc. v. Ross Systems International, Inc., 902 Phil. 935 (2021) En Banc — Reiterated as the controlling exposition on the scope of judicial review of CIAC awards. The ruling that appeals from CIAC awards must be brought to the Supreme Court via Rule 45 for questions of law and to the Court of Appeals via Rule 65 for grave abuse of discretion was given prospective application and not applied here, but its extensive discussion of the exceptions to the finality of CIAC factual findings and the tribunal-centered nature of those exceptions was applied squarely.

• Wyeth Philippines, Inc. v. Construction Industry Arbitration Commission, 874 Phil. 730 (2020) Third Division — Cited as the source of the five traditional exceptions that allow factual review of CIAC awards, and for the principle that the CIAC possesses specialized technical expertise in construction disputes.

• New Rural Bank of Guimba Inc. v. Abad, 584 Phil. 481 (2008) First Division — Cited for the distinction between questions of law and questions of fact.

• Republic v. Vega, 654 Phil. 511 (2011) Third Division — Applied for the rule that a question of law arises when the issue is whether the evidence on record sufficiently supports a legal conclusion, without delving into probative value.

• R.V. Santos Company, Inc. v. Belle Corp., 696 Phil. 96 (2012) First Division — Cited for the principle that mere disagreement with CIAC factual findings does not justify judicial review.

• Sanico v. Colipano, 818 Phil. 981 (2017) Second Division — Cited for the requirement that waiver be “clear and unequivocal.”

• New Sampaguita Builders Construction v. Philippine National Bank, 479 Phil. 483 (2004) Third Division — Cited for the rule that there can be no implied waiver absent clear, unequivocal, and decisive acts.

• President of Church of Jesus Christ of Latter Day Saints v. BTL Construction Corp., 724 Phil. 354 (2014) Second Division — Applied for the standard that attorney’s fees require factual, legal, and equitable justification, and are not awarded absent bad faith.

• Section 19, Executive Order No. 1008 (Construction Industry Arbitration Law) — Provides that CIAC arbitral awards are binding, final, and unappealable except on questions of law. Applied as the statutory anchor for the limited review doctrine.

• Sub-Clause 20.1, FIDIC Conditions of Contract — Requires the contractor to give written notice to the engineer within 28 days of becoming aware of an event or circumstance entitling it to an extension of time, failing which the time for completion shall not be extended. Applied as the basis for holding that no valid extension occurred absent such notice.

• Sub-Clause 8.7, FIDIC Conditions of Contract — Provides for liquidated/delay damages when the contractor fails to comply with the time for completion, and clarifies that delay damages do not relieve the contractor of its obligation to complete the works. Applied to show that allowing the contractor to continue working after the deadline did not constitute a waiver of delay claims.

• Sub-Clause 15.2, FIDIC Conditions of Contract — States the grounds for termination by the employer. The CIAC Tribunal found that the factual predicates for termination were satisfied; this finding was held binding.

• Sub-Clause 14.2, FIDIC Conditions of Contract — Governs the repayment of the advance payment (downpayment) through percentage deductions in payment certificates. Applied to support Roxaco’s claim for recoupment of the unapplied balance.

• Sub-Clause 11.2, FIDIC Conditions of Contract — Makes the contractor liable for the cost of remedying defects attributable to its design, materials, workmanship, or other breaches. Applied to uphold the award of rectification costs.

• Articles 2203 and 2208, Civil Code — Article 2203 imposes on the aggrieved party the duty to minimize damages. Article 2208 enumerates the grounds for awarding attorney’s fees. The Court found that allowing Gulf Canary to continue works was consistent with Article 2203, and that no ground under Article 2208 justified the CIAC’s award of attorney’s fees.

• Section 16.5, CIAC Revised Rules of Procedure — Empowers the arbitral tribunal to fix the costs of arbitration and determine which party shall bear them. The award of costs to Roxaco was deleted for lack of showing of bad faith.

Associate Justice Rodil V. Zalameda, Associate Justice Jose Midas P. Marquez, and Associate Justice Ramon Paul L. Hernando (Acting Chairperson) concurred. Chief Justice Alexander G. Gesmundo was on official leave.