G.R. No. 219421 , April 03, 2024
BASES CONVERSION AND DEVELOPMENT AUTHORITY, PETITIONER VS. CJH DEVELOPMENT CORPORATION, ET AL., RESPONDENTS.

FACTS

The Bases Conversion and Development Authority (BCDA), created under Republic Act No. 7227 , owns and administers the former military reservation of Camp John Hay in Baguio City, transformed into the John Hay Special Economic Zone (JHSEZ). BCDA awarded the lease of a 247-hectare portion of the JHSEZ to a consortium, leading to the execution of a Lease Agreement on October 19, 1996, with CJH Development Corporation (CJH DevCo) as lessee. The agreement authorized CJH DevCo to sublease the property. Disputes arose regarding the parties’ obligations under the 1996 Lease Agreement and subsequent agreements, including a Restructured Memorandum of Agreement (RMOA) dated July 1, 2008. Pursuant to the arbitration clause in the agreements, CJH DevCo filed a complaint with the Philippine Dispute Resolution Center, Inc. (PDRCI). On February 11, 2015, the arbitral tribunal rendered a Final Award ordering the mutual rescission of the agreements and mutual restitution. It ordered CJH DevCo to vacate the leased premises and deliver the property with all improvements to BCDA, and ordered BCDA to return to CJH DevCo the total rentals paid amounting to PHP 1,421,096,052.00. Both parties filed petitions for confirmation of the Final Award with the Regional Trial Court (RTC) of Baguio City. The RTC confirmed the Final Award in toto in an Order dated March 27, 2015, which became final and executory. The RTC issued a Writ of Execution. BCDA filed a petition with the Court of Appeals (CA) seeking to nullify the RTC’s confirmation order and the writ of execution. The CA reversed the RTC’s order, finding that the arbitral tribunal committed grave abuse of discretion by ruling on the rights of the sub-lessees who were not parties to the arbitration, and that the Final Award violated the principle of mutuality of contracts. BCDA filed the present Petition for Review on Certiorari.

ISSUE

Whether the Court of Appeals erred in reversing the Regional Trial Court’s Order confirming the arbitral tribunal’s Final Award.

RULING

Yes. The Supreme Court granted the petition, reversed the Decision of the Court of Appeals, and reinstated the Regional Trial Court’s Order confirming the arbitral tribunal’s Final Award. The Court held that the CA committed reversible error. The arbitral tribunal did not rule on the rights of the sub-lessees; the Final Award only ordered CJH DevCo to vacate and deliver the property, which is a directive to the party to the arbitration agreement. The rights of the sub-lessees, who are third parties to the arbitration, remain governed by the law on obligations and contracts, as correctly stated by the RTC. Furthermore, the principle of mutuality of contracts was not violated. The arbitral tribunal found mutual breach and mutual mistake by both parties, warranting rescission under Article 1191 of the Civil Code. The award of mutual restitution—requiring CJH DevCo to return the property with improvements and BCDA to return the rentals—was a proper legal consequence of rescission to bring the parties back to their original positions. The Court emphasized the limited scope of judicial review of arbitral awards and the policy favoring arbitration. The Final Award did not contravene public policy and was in accord with law and applicable principles.