The Supreme Court has upheld the arbitral ruling ordering CJH Development Corporation (CJH DevCo) to vacate a portion of the John Hay Special Economic Zone (John Hay SEZ) it leased from the Bases Conversion Development Authority (BCDA).

In a Decision penned by Associate Justice Japar B. Dimaampao, the Supreme Court En Banc granted the petition for review on certiorari filed by BCDA assailing the rulings of the Court of Appeals (CA) which had reversed the Regional Trial Court (RTC)’s confirmation of the arbitral ruling.

The Court also denied the petition for certiorari filed by CJH DevCo challenging the rulings of the Commission on Audit (COA) for dismissing CJH DevCo’s money claim arising from the arbitral ruling.

BCDA was created in 1992 to implement the government’s policy to accelerate the sound and balanced conversion of former United States (US) military bases into alternative productive uses and enhance derived benefits to promote economic and social development.

Among BCDA’s powers is to own, hold, and/or administer several former US military reservations, including Camp John Hay in Baguio City.

Following the transformation of Camp John Hay into the 625-hectare John Hay SEZ, the lease and development of a 247-hectare portion (Leased Property) was awarded to CJH DevCo.

BCDA, as lessor, then entered into a lease agreement with CJH DevCo, Fil-Estate Management, Inc., and Penta Capital Investment Corporation, as lessees, for the use, management, and operation of the Leased Property.

Under the lease agreement, BCDA shall remain the owner of the Leased Property, while CJH DevCo shall own improvements it will introduce. However, at the end of the lease agreement, CJH DevCo is obligated to transfer the ownership of the improvements to BCDA.

CJH DevCo was also authorized under the agreement to sublease the Leased Property to third persons.

Prompted by disputes as to the parties’ respective obligations under the lease agreement, CJH DevCo filed against BCDA a complaint in arbitration with the Philippine Dispute Resolution Center, Inc. (PDRCI).

The PDRCI arbitral tribunal found that both parties were guilty of breaches of their obligations under the agreement, thus its mutual rescission was warranted. The arbitral ruling (Final Award) thus ordered mutual restitution, with the parties reverted to their original position prior to the execution of the agreement as far as practicable.

CJH DevCo was specifically ordered to return to BCDA the Leased Property, together with all improvements. BCDA, in turn, must refund to CJH DevCo the rent the latter had already paid, amounting to PHP 1,421,096,052.

In an Order, the RTC confirmed the Final Award. When the Order became final and executory, the RTC issued a Writ of Execution. A Notice to Vacate was thus served upon CJH DevCo and its sub-lessees occupying the Leased Property. BCDA, on the other hand, was served a demand to pay CJH DevCo the amount of PHP 1,421,096,052 within 30 days.

BCDA opened an escrow account in the amount fixed in the Final Award. CJH DevCo, however, filed a Very Urgent Omnibus Motion praying that the Notice to Vacate be enforced only on CJH DevCo, and not its sub-lessees.

But before the RTC could rule on the Omnibus Motion, CJH DevCo filed a petition for certiorari and prohibition before the CA. The sub-lessees filed a separate petition-in-intervention, claiming that their inclusion in the RTC Order and Writ of Execution was unfounded and violative of due process.

The CA subsequently nullified the Notice to Vacate and Writ of Execution, finding grave abuse of discretion on the part of the RTC for enforcing the Final Award against the sub-lessees who were excluded from the arbitration. 

The CA further enjoined the RTC from enforcing the Final Award, Writ of Execution, and Notice to Vacate against the sub-lessees, “until their respective rights and interests are determined upon compulsory arbitration or as may be adjudicated by the regular courts.”

BCDA was thus prompted to file its present petition before the Court.

CJH DevCo, meanwhile, filed before the COA a petition for enforcement and payment of a final and executory arbitral award. The COA, however, dismissed CJH DevCo’s money claim “without prejudice to its refiling upon the final determination by the Supreme Court of the rights and obligations of the contracting parties.”

Hence, CJH DevCo’s recourse to the Court.

Premature certiorari petition

The Court ruled that the certiorari petition filed by CJH DevCo before the CA was premature.

Without waiting for the RTC to rule on the pending Omnibus Motion, CJH DevCo filed a certiorari petition before the CA. The Court thus found that the CA hastily acted on CJH DevCo’s certiorari petition. By granting CJH DevCO’s petitions for certiorari and prohibition, the CA, in effect, already ruled on the merits of the proceedings still pending before the RTC.

Without the RTC’s ruling on the same, there can be no definitive pronouncement that it indeed acted capriciously under the circumstances, stressed the Court.

Invalid modification of Final Award

Under Section 40 of RA No. 9285, or the Alternative Dispute Resolution (ADR) Act, “[a] domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial Court.”

Further, Rule 11.9 of A.M. No. 07-11-08-SC, or the Special Rules of Court on ADR (Special ADR Rules), provides that “[t]he court shall not disturb the arbitral tribunal’s determination of facts and/or interpretation of law.”

The Court has consistently ruled that judicial interference is restrained under the Special ADR Rules since, as a private alternative to court proceedings, arbitration is meant to be an end, not the beginning, of litigation.

Thus, as a rule, the arbitrator’s award cannot be set aside for mere errors of judgment either as to the law or as to the facts. Judicial review is hence confined strictly to the limited exceptions under arbitration laws for the arbitration process to be effective and the basic objectives of the law to be achieved. A contrary rule would make an arbitration award the commencement, not the end, of litigation, stressed the Court.

In the present case, without a showing that any of the grounds to modify the award exist or that the same amounts to a violation of an overriding public policy, the RTC was thus correct in confirming the Final Award.

On the contrary, the CA failed to abide by the rules of arbitration when it rendered its challenged rulings.

The Court found that the CA modified the Final Award on several points: (1) it made an exception to the obligations of CJH DevCo to vacate and deliver the leased property to the BCDA in favor of the former’s sub-lessees; (2) it declared CJH DevCo’s obligation to vacate the leased property contingent only upon the BCDA’s full payment of the arbitral award; (3) it imposed additional obligations upon the BCDA, e.g., to respect and not disturb the various contracts of CJH DevCo with its sub-lessees, with whom the BCDA, as the original lessor, had no privity of contract, to assist in the processing of CJH DevCo’s claim with the COA; and (4) to arbitrate and/or litigate with CJH DevCo’s sub-lessees to determine their respective rights and interests.

However, none of the aforementioned conditions can be found in the Final Award, stressed the Court.

In requiring the BCDA to fulfill the conditions outside of the Final Award, the CA made its own findings of fact and provided its own legal interpretation of the parties’ obligations. This is clearly beyond the power of the CA, ruled the Court.

As the RTC did not commit grave abuse of discretion in issuing the Order confirming the Final Award, the CA rulings modifying the Final Award are invalid, the Court held.

CJH DevCo’s obligation to vacate not contingent upon BCDA’s full payment

The Court also stressed that nowhere in the Final Award did the arbitral tribunal make CJH DevCo’s obligation to vacate the Leased Property contingent upon BCDA’s full payment of the amount fixed in the Final Award.

Thus, the Court held that CJH DevCo should return to BCDA the Leased Property together with improvements. In turn, BCDA should refund to CJH DevCo the rent already paid. 

COA’s dismissal of CJH DevCo’s money claim

Finally, the Court found that no grave abuse of discretion may be attributed to the COA when it dismissed CJH DevCo’s money claim pending resolution of the BCDA petition before the Court.

Reiterating its 2020 ruling in Taisei Shimizu Joint Venture v. Commission on Audit, the Court held that the COA’s jurisdiction over final money judgments is necessarily limited such that its exercise of discretion in approving or disapproving money claims that have been determined by final judgment is akin to the power of an execution court.

Clearly, the jurisdiction of the COA over final money judgments rendered by the courts pertains only to the execution stage. The COA’s authority lies in ensuring that public funds are not diverted from their legally appropriated purpose to answer for such money judgments, consistent with its task to guarantee that the enforcement of these final money judgments shall be in accord with auditing laws, stressed the Court.

It thus concluded that it was proper for the COA to have dismissed the money claim since the issue of the execution of the Final Award, i.e., whether the payment of BCDA was contingent upon the return of the entire leased property and the new improvements by CJH DevCo, remains under litigation and is therefore beyond the limited jurisdiction of the COA.

The Supreme Court Public Information Office will upload a copy of the Decision in G.R. Nos. 219421 and 241772 (BCDA v. CJH Development Corporation, et al.; CJH Development Corporation v. COA and BCDA), dated April 3, 2024, once it receives the same from the Office of the Clerk of Court En Banc. (Courtesy of the Supreme Court Public Information Office)