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SC Upholds Arbitral Ruling Ordering CJH Dev’t Corp. to Vacate John Hay Special Economic Zone

April 10, 2024

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)

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JUDICIARY’S DATA PROTECTION OFFICER
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1987Constitution

The Supreme Court Under
the 1987 Constitution

As in the 1935 and 1973 Constitutions, the 1987 Constitution provides that “[t]he judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.” (Art. VII, Sec. 1). The exercise of judicial power is shared by the Supreme Court with all lower courts, but it is only the Supreme Court’s decisions that are vested with precedential value or doctrinal authority, as its interpretations of the Constitution and the laws are final and beyond review by any other branch of government.

Unlike the 1935 and 1973 Constitutions, however, the 1987 Constitution defines the concept of judicial power. Under paragraph 2 of Section 1, Article VIII, “judicial power” includes not only the “duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable” but also “to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government.” This latter provision dilutes the effectivity of the “political question” doctrine which places specific questions best submitted to the political wisdom of the people beyond the review of the courts.

Building on previous experiences under former Constitutions, the 1987 Constitution provides for specific safeguards to ensure the independence of the Judiciary. These are found in the following provisions:

    • The grant to the Judiciary of fiscal autonomy. “Appropriations for the Judiciary may not be reduced by the legislature below the amount appropriated for the previous year, and, after approval, shall be automatically and regularly released.” (Art. VIII, Sec. 3).
    • The grant to the Chief Justice of authority to augment any item in the general appropriation law for the Judiciary from savings in other items of said appropriation as authorized by law. (Art. VI, Sec. 25[5])
    • The removal from Congress of the power to deprive the Supreme Court of its jurisdiction over cases enumerated in Section 5 of Article VIII.
    • The grant to the Court of the power to appoint all officials and employees of the Judiciary in accordance with the Civil Service Law (Art. VIII, Sec. 5 [6])
    • The removal from the Commission of Appointments of the power to confirm appointments of justices and judges (Art. VIII, Sec. 8)
    • The removal from Congress of the power to reduce the compensation or salaries of the Justices and judges during their continuance in office. (Art. VIII, Sec. 10)
    • The prohibition against the removal of judges through legislative reorganization by providing that “(n)o law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its members. (Art. VIII, Sec. 2)
    • The grant of sole authority to the Supreme Court to order the temporary detail of judges. (Art. VIII, Sec. 5[3])
    • The grant of sole authority to the Supreme Court to promulgate rules of procedure for the courts. (Art. VIII, Sec. 5[5])
    • The prohibition against designating members of the Judiciary to any agency performing quasi-judicial or administrative function. (Art. VIII, Sec. 12)
    • The grant of administrative supervision over the lower courts and its personnel in the Supreme Court. (Art. VIII, Sec. 6)

The Supreme Court under the present Constitution is composed of a Chief Justice and 14 Associate Justices. The members of the Court are appointed by the President from a list, prepared by the Judicial and Bar Council, of at least three nominees for every vacancy. This new process is intended to “de-politicize” the courts of justice, ensure the choice of competent judges, and fill existing vacancies without undue delay.

RevolutionaryGovernment

The Supreme Court Under
the Revolutionary Government

Shortly after assuming office as the seventh President of the Republic of the Philippines after the successful People Power Revolution, then President Corazon C. Aquino declared the existence of a revolutionary government under Proclamation No. 1 dated February 25, 1986. Among the more significant portions of this Proclamation was an instruction for “all appointive officials to submit their courtesy resignations beginning with the members of the Supreme Court.” The call was unprecedented, considering the separation of powers that the previous Constitutions had always ordained, but understandable considering the revolutionary nature of the post-People Power government. Heeding the call, the members of the Judiciary—from the Supreme Court to the Municipal Circuit Courts—placed their offices at the disposal of the President and submitted their resignations. President Corazon C, Aquino proceeded to reorganize the entire Court, appointing all 15 members.

On March 25, 1986, President Corazon Aquino, through Proclamation No. 3, also abolished the 1973 Constitution and put in place a Provisional “Freedom” Constitution. Under Article I, Section 2 of the Freedom Constitution, the provisions of the 1973 Constitution on the judiciary were adopted insofar as they were not inconsistent with Proclamation No. 3.

Article V of Proclamation No. 3 provided for the convening of a Constitutional Commission composed of 50 appointive members to draft a new constitution; this would be implemented by Proclamation No. 9. Under the leadership of retired SC Justice Cecilia Muñoz Palma as its President, the Constitutional Commission of 1986 submitted its output of to the people for ratification.

By a vote of 76.30%, the Filipino people then ratified the Constitution submitted to them in a national plebiscite on February 2, 1987.

President Aquino, other civilian officials, and members of the Armed Forces of the Philippines, upon the announcement of the ratification of the 1987 Constitution, swore allegiance to the new charter on February 11, 1987 thereby putting an end to the revolutionary government.

1973

The Supreme Court Under
the 1973 Constitution

The declaration of Martial Law through Proclamation No. 1081 by former President Ferdinand E, Marcos in 1972 brought about the transition from the 1935 Constitution to the 1973 Constitution. This transition had implications on the Court’s composition and functions.

This period also brought in many legal issues of transcendental importance and consequence. Among these were the legality of the ratification of a new Constitution, the assumption of the totality of government authority by President Marcos, and the power to review the factual basis for a declaration of Martial Law by the Chief Executive, among others. Also writ large during this period was the relationship between the Court and the Chief Executive who, under Amendment No. 6 to the 1973 Constitution, had assumed legislative powers even while an elected legislative body continued to function.

The 1973 Constitution increased the number of the members of the Supreme Court from 11 to 15, with a Chief Justice and 14 Associate Justices. The Justices of the Court were appointed by the President alone, without the consent, approval, or recommendation of any other body or officials.

Ayuntamiento

The Supreme Court of
the Second Republic

Following liberation from the Japanese occupation at the end of the Second World War and the Philippines’ subsequent independence from the United States, Republic Act No. 296 or the Judiciary Act of 1948 was enacted. This law grouped together the cases over which the Supreme Court could exercise exclusive jurisdiction for review on appeal, certiorari, or writ of error.

SupremeCourt

The Supreme Court During
the Commonwealth

Following the ratification of the 1935 Philippine Constitution in a plebiscite, the principle of separation of powers was adopted, not by express and specific provision to that effect, but by actual division of powers of the government—executive, legislative, and judicial—in different articles of the 1935 Constitution.

As in the United States, the judicial power was vested by the 1935 Constitution “in one Supreme Court and in such inferior courts as may be established by law.” It devolved on the Judiciary to determine whether the acts of the other two departments were in harmony with the fundamental law.

The Court during the Commonwealth was composed of “a Chief Justice and ten Associate Justices, and may sit en banc or in two divisions, unless otherwise provided by law.”

ArellanoCourt

The Establishment of
the Supreme Court of the Philippines

On June 11, 1901, the Second Philippine Commission passed Act No. 136 entitled “An Act Providing for the Organization of Courts in the Philippine Islands” formally establishing the Supreme Court of the Philippine Islands and creating Courts of First Instance and Justices of the Peace Courts throughout the land. The judicial organization established by the Act was conceived by the American lawyers in the Philippine Commission, with its basic structures patterned after similar organizations in the United States.

The Supreme Court created under the Act was composed of a Chief Justice and six Judges. Five members of the Court could form a quorum, and the concurrence of at least four members was necessary to pronounce a judgment.

Act No. 136 abolished the Audiencia established under General Order No. 20 and declared that the Supreme Court created by the Act be substituted in its place. This effectively severed any nexus between the present Supreme Court and the Audiencia.

The Anglo-American legal system under which the Supreme Court of the Philippine Islands was expected to operate was entirely different from the old Spanish system that Filipinos were familiar with. Adjustments had to be made; hence, the decisions of the Supreme Court during its early years reflected a blend of both the Anglo-American and Spanish systems. The jurisprudence was a gentle transition from the old order to the new.

VillamorHall

The Judicial System During
the American Occupation

After Spain’s defeat in the Spanish-American War in the late 1890s, The subsequent occupation by the Americans of the Philippine Islands paved the way for considerable changes in the control, disposition, and governance of the Islands.

The judicial system established during the regime of the military government functioned as an instrument of the executive—not of the judiciary—as an independent and separate branch of government. Secretary of State John Hay, on May 12, 1899, proposed a plan for a colonial government of the Philippine Islands which would give Filipinos the largest measure of self-government. The plan contemplated an independent judiciary manned by judges chosen from qualified locals and Americans.

On May 29, 1899, General Elwell Stephen Otis, Military Governor for the Philippines, issued General Order No. 20, reestablishing the Audiencia Teritorial de Manila which was to apply Spanish laws and jurisprudence recognized by the American military governor as continuing in force.

The Audiencia was composed of a presiding officer and eight members organized into two divisions: the sala de lo civil or the civil branch, and the sala de lo criminal or the criminal branch.

It was General Otis himself who personally selected the first appointees to the Audiencia. Cayetano L. Arellano was appointed President (equivalent to Chief Justice) of the Court, with Manuel Araullo as president of the sala de lo civil and Raymundo Melliza as president of the salo de lo criminal. Gregorio Araneta and Lt. Col. E.H. Crowder were appointed associate justices of the civil branch while Ambrosio Rianzares, Julio Llorente, Major R.W. Young, and Captain W.E. Brikhimer were designated associate justices of the criminal branch. Thus, the reestablished Audiencia became the first agency of the new insular government where Filipinos were appointed side by side with Americans.

SpanishRegime

The Judicial System Under
the Spanish Regime

During the early Spanish occupation, King Philip II established the Real Audiencia de Manila which was given not only judicial but legislative, executive, advisory, and administrative functions as well. Composed of the incumbent governor general as the presidente (presiding officer), four oidores (equivalent to associate justices), an asesor (legal adviser), an alguacil mayor (chief constable), among other officials, the Real Audiencia de Manila was both a trial and appellate court. It had exclusive original, concurrent original, and exclusive appellate jurisdictions.

Initially, the Audiencia was given a non-judicial role in the colonial administration, to deal with unforeseen problems within the territory that arose from time to time—it was given the power to supervise certain phases of ecclesiastical affairs as well as regulatory functions, such as fixing of prices at which merchants could sell their commodities. Likewise, the Audiencia had executive functions, like the allotment of lands to the settlers of newly established pueblos. However, by 1861, the Audiencia had ceased to perform these executive and administrative functions and had been restricted to the administration of justice.

When the Audiencia Territorial de Cebu was established in 1886, the name of the Real Audiencia de Manila was changed to Audiencia Territorial de Manila.

Map

The Judicial System of the
Pre-Colonization Filipinos

When the Spanish colonizers first arrived in the Philippine archipelago, they found the indigenous Filipinos without any written laws. The laws enforced were mainly derived from customs, usages, and tradition. These laws were believed to be God-given and were orally transmitted from generation to generation.

A remarkable feature of these customs and traditions was that they were found to be very similar to one another notwithstanding that they were observed in widely dispersed islands of the archipelago. There were no judges and lawyers who were trained formally in the law, although there were elders who devoted time to the study of the customs, usages, and traditions of their tribes to qualify them as consultants or advisers on these matters.

The unit of government of the indigenous Filipinos was the barangay, which was a family-based community of 30 to 100 families, occupying a pook (“locality” or “area”) headed by a chieftain called datu who exercised all functions of government—executive, legislative, and judicial—a barangay was not only a political but a social and an economic organization. In the exercise of his judicial authority, the datu acted as a judge (hukom) in settling disputes and deciding cases in his barangay.