The Philippines formally established the Construction Industry Arbitration Commission (CIAC) in February 1985 under Executive Order No. 1008, which granted the new body original and exclusive jurisdiction over all construction-related disputes.
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Partner
Zhong Lun Law Firm
To quote section 4 of Executive Order No. 1008: “The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes arise before or after the completion of the contract, or after the abandonment or breach thereof.”
The only requirement is that the parties agreed to submit their disputes to arbitration. Such disputes may involve government or private contracts, and the parties may be property owners, contractors, subcontractors, quality supervisors, guarantors or construction project insurers.
Does this mean that the CIAC has jurisdiction over all construction-related disputes within the Philippines, even if the parties have expressly agreed to submit to another arbitral institution?
Original and exclusive
In China Chang Jiang Energy v Rosal Infrastructure Builders (1996), the Supreme Court of the Philippines held that as long as both parties to the construction engineering dispute had agreed to resolve the issue via arbitration, regardless of whether any other arbitral institution had been selected, the CIAC would have jurisdiction based on the existence of an arbitration agreement (including arbitration clause), provided that one of the parties had voluntarily submitted the dispute to the commission.
In the Chang Jiang case, even though the parties had agreed on the ICC as the arbitral institution, the supreme court sided with the CIAC. This decision was further corroborated by subsequent rulings in similar cases. In the more recent case of HUTAMA-RSEA Joint Operations v Citra Metro Manila Tollways (2009), the court held that the very inclusion of an arbitration clause in the engineering, procurement and construction (EPC) contract was sufficient basis to grant the CIAC jurisdiction.
Associate
Zhong Lun Law Firm
Given that the CIAC derives its jurisdiction directly from law, as long as both sides agreed to resolve any construction-related dispute via arbitration, or included an arbitration clause in the contract, the commission shall have jurisdiction. Such jurisdiction is not limited by any conditions and cannot be exempted or reduced via any agreement, action or non-action by either party.
However, the CIAC’s jurisdiction over construction-related disputes in the Philippines does not preclude or restrict parties from voluntarily submitting their disputes to other international arbitral institutions. According to the 1958 New York Convention, except for extreme cases, the rulings made by an international arbitral institution agreed upon by all parties in a dispute shall be recognised and enforceable in the Philippines.
To sum up, the following are the important takeaways regarding the CIAC’s jurisdiction:
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- The CIAC’s jurisdiction covers all disputes related to construction contracts.
- It has jurisdiction over a dispute as long as the parties agreed to resolve their disputes via arbitration, whether in the form of an arbitration agreement or an arbitration clause in the construction contract.
- The jurisdiction is granted by law, and so cannot be precluded by any arbitration agreement under which the party had selected another arbitral institution, as long as one party voluntarily submitted it to the CIAC.
- The CIAC’s jurisdiction does not preclude or restrict the parties’ rights to voluntarily select other arbitral institutions, and the rulings of foreign arbitral institutions can be recognised and enforced in the Philippines.
Effects on international EPCs
Based on the above, it would seem that taking into account the CIAC is inevitable for foreign contractors or investors looking to undertake or invest in construction projects in the country.
It is common for international EPC projects to be divided into offshore procurement and onshore construction and installation contracts, due to reasons of function, as well as tax and costs for property owners and contractors. Nevertheless, section 4 granted the CIAC overarching jurisdiction over all disputes related to construction contracts.
Ostensibly, the offshore portion of a divided EPC contract is not directly related to the construction portion in the Philippines, but if there is a bridging agreement or umbrella agreement that connects the two, and an arbitration clause in these, courts in the Philippines may still support the CIAC’s jurisdiction over the whole EPC contract, including the offshore portion, on the grounds that it on the whole involves onshore construction.
Moreover, even if the EPC contract is divided into offshore and onshore portions, offshore contracts in practice often contain onshore content anyway, such as provisions for enforcement within the region. Therefore, it is probable that the CIAC will consider disputes under offshore contracts well within its own jurisdiction.
There is no easy way to bypass the CIAC by splitting up international EPC contracts.
The CIAC was established for the purpose of optimising construction-related dispute resolution in the Philippines. Judging from the end results, however, although the commission technically allows foreign contractors and investors to opt for international arbitral institutions, when it comes to construction engineering disputes, it has in every practical sense become a hindrance.
Wang Jihong is a partner and Zhao Huiqi is an associate at Zhong Lun Law Firm
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