Chung Fu v CA (GR 96283) Respondent Climax Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc.
Respondent Climax Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc. (APMI) entered into a Memorandum
Facts:
Petitioner Chung Fu entered into a construction agreement with Roblecor Phil. Inc. for the corporation’s industrial factory with a total
consideration of P42,000,000.00. Also, said companies entered into 2 other ancillary construction contracts amounting to P3,875,285.00
and P12,100,000.00. The said construction agreement contained a stipulation that in the event of disputes arising from the performance
of the contract, such issue shall be submitted for resolution before a single arbitrator chosen by the parties. However, Roblecor failed to
complete the work despite the extension of time provided by Chung Fu, which later on had to take over the said construction. Roblecor
then claimed for the unsatisfied account of P10,500,000 and unpaid progress billings of P2,370,179.23 and filed a petition for the
compulsory arbitration with a prayer for a TRO, while Chung Fu prayed for the dismissal of such petition. The RTC approved the arbitration
agreement and Engr. Asuncion was latter appointed as the sole arbitrator. He then ordered the petitioners to pay the respondent
contractor P16,108,801.00 and declared such award as final and unappealable. Chung Fu moved to remand the case for further hearing
but the lower court denied the motion and granted the Confirmation of the award in favour of Roblecor. Chung Fu elevated the case to
the CA via a petition for certiorari but the CA only assailed the resolution of the lower court assailing that the signatories of the Arbitration
Agreement are bound to observe the stipulations thereof for the finality of the award.
Issue:
Whether or not the decision of the arbitrator shall be deemed final and unappealable and beyond the ambit of the court’s power of
judicial review.
Held:
No. As per Art 2044 of the Civil Code, the finality of the arbitrators award is not absolute and without exceptions. It is also stated in
Sections 24, 25 of the Arbitration Law (R.A. 876, year 1953) that there are grounds for vacating, modifying or rescinding an arbitrator’s
award. Thus, if there are factual circumstances which are referred to in the said provisions be present, judicial review of the award is
properly warranted. Also, even decisions of an administrative agency which are declared as “final” are not exempt from judicial review
when so warranted. That is why a voluntary arbitrator, by the very nature of their function, acts in a quasi-judicial capacity in deciding
such cases, is not to be construed as beyond the scope of the power of judicial review. The Court then provided that the lower court
committed grave abuse of discretion by not looking into the merits of the case despite a prima facie showing of the existence of grounds
warranting judicial review. Finally, the case was remanded back to the court of origin for further hearing.
Voluntary arbitrators by the nature of their functions act in a quasi-judicial capacity.—It should be stressed too, that voluntary arbitrators,
by the nature of their functions, act in a quasi-judicial capacity. It stands to reason, therefore, that their decisions should not be beyond
the scope of the power of judicial review of this Court.
________________________________________________________________________________________________________________
Gonzales v Climax Mining Ltd. (GR 161957)
Facts:
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum Area of Influence in Didipio, in the provinces
of Quirino and Nueva Vizcaya, entered into a co-production, joint venture and/or production-sharing letter-agreement designated as the
May 14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner, as claimowner, granted to
Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to explore and survey the mining claims for a period of thirty-six (36)
months within which the latter could decide to take an operating agreement on the mining claims and/or develop, operate, mine and
otherwise exploit the mining claims and market any and all minerals that may be derived therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same into the February 28, 1989 Agreement
whereby the exploration of the mining claims was extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex Ltd., and Aumex Philippines, Inc. signed a
document designated as the Addendum to the May 14, 1987 Letter of Intent and February 28, 1989 Agreement with Express Adhesion
Thereto (hereafter, the Addendum Contract).1 Under the Addendum Contract, Arimco Mining Corporation would apply to the
Government of the Philippines for permission to mine the claims as the Government’s contractor under a Financial and Technical
Assistance Agreement (FTAA). On 20 June 1994, Arimco Mining Corporation obtained the FTAA2 and carried out work under the FTAA.
Respondents executed the Operating and Financial Accommodation Contract3 (between Climax-Arimco Mining Corporation and Climax
Mining Ltd., as first parties, and Australasian Philippines Mining Inc., as second party) dated 23 December 1996 and Assignment,
Accession Agreement4 (between Climax-Arimco Mining Corporation and Australasian Philippines Mining Inc.) dated 3 December 1996.
of Agreement5 dated 1 June 1991 whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau of the
Department of Environment and Natural Resources, against respondents Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and
APMI,6 a Complaint7 seeking the declaration of nullity or termination of the Addendum Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession Agreement, and the Memorandum of Agreement. Petitioner Gonzales prayed for an
unspecified amount of actual and exemplary damages plus attorney’s fees and for the issuance of a temporary restraining order and/or
writ of preliminary injunction to restrain or enjoin respondents from further implementing the questioned agreements. He sought said
releifs on the grounds of "FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the CONSTITUTION perpetrated by these
foreign RESPONDENTS, conspiring and confederating with one another and with each other…."
Issues:
(a) Whether the complaint filed by petitioner raises a mining dispute over which the Panel of Arbitrators has jurisdiction, or a judicial
question which should properly be brought before the regular courts.
(b) Whether the dispute between the parties should be brought for arbitration under Rep. Act No. 876.
Ruling:
A judicial question is a question that is proper for determination by the courts, as opposed to a moot question or one properly decided by
the executive or legislative branch.18 A judicial question is raised when the determination of the question involves the exercise of a
judicial function; that is, the question involves the determination of what the law is and what the legal rights of the parties are with
respect to the matter in controversy.19
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements, FTAAs, or permits, and (c)
surface owners, occupants and claimholders/concessionaires.20 Under Republic Act No. 7942 (otherwise known as the Philippine Mining
Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction to hear and decide these mining disputes.21 The Court of
Appeals, in its questioned decision, correctly stated that the Panel’s jurisdiction is limited only to those mining disputes which raise
questions of fact or matters requiring the application of technological knowledge and experience.22
In Pearson v. Intermediate Appellate Court,23 this Court observed that the trend has been to make the adjudication of mining cases a
purely administrative matter.24 Decisions25 of the Supreme Court on mining disputes have recognized a distinction between (1) the
primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting,
reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be adjudicated only by the courts of justice. This distinction is
carried on even in Rep. Act No. 7942.
The Complaint charged respondents with disregarding and ignoring the provisions of the Addendum Contract, violating the purpose and
spirit of the May 14, 1987 Letter of Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive manner against
petitioner and practicing fraud and deception against the Government.26 Petitioner alleged in his Complaint that under the original
agreements (the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent Climax-Arimco had committed to complete
the Bankable Feasibility Study by 28 February 1992, but the same was not accomplished. Instead, respondent Climax-Arimco, through
false and insidious representations and machinations by alleging technical and financial capacity, induced petitioner to enter into the
Addendum Contract and the FTAA in order to repeatedly extend the option period within which to conduct the feasibility study. In
essence, petitioner alleges that respondents, conspiring and confederating with one another, misrepresented under the Addendum
Contract and FTAA that respondent Climax-Arimco possessed financial and technical capacity to put the project into commercial
production, when in truth it had no such qualification whatsoever to do so. By so doing, respondents have allegedly caused damage not
only to petitioner but also to the Republic of the Philippines.
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by petitioner. The basic issue in petitioner’s
Complaint is the presence of fraud or misrepresentation allegedly attendant to the execution of the Addendum Contract and the other
contracts emanating from it, such that the contracts are rendered invalid and not binding upon the parties. It avers that petitioner was
misled by respondents into agreeing to the Addendum Contract. This constitutes fraud which vitiated petitioner’s consent, and under
Article 1390 of the Civil Code, is one of the grounds for the annulment of a voidable contract. Voidable or annullable contracts, before
they are set aside, are existent, valid, and binding, and are effective and obligatory between the parties.28 They can be ratified.
-whether the case involves void or voidable contracts is still a judicial question. It may, in some instances, involve questions of fact
especially with regard to the determination of the circumstances of the execution of the contracts. But the resolution of the validity or
voidness of the contracts remains a legal or judicial question as it requires the exercise of judicial function. It requires the ascertainment
of what laws are applicable to the dispute, the interpretation and application of those laws, and the rendering of a judgment based
thereon. Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint was not merely for the determination of rights
under the mining contracts since the very validity of those contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute involving claimholders or concessionaires. The
main question raised was the validity of the Addendum Contract, the FTAA and the subsequent contracts. The question as to the rights of
petitioner or respondents to the mining area pursuant to these contracts, as well as the question of whether or not petitioner had ceded
his mining claims in favor of respondents by way of execution of the questioned contracts, is merely corollary to the main issue, and may
not be resolved without first determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute should involve FTAAs. The Complaint is not
exclusively within the jurisdiction of the Panel of Arbitrators just because, or for as long as, the dispute involves an FTAA. The Complaint
raised the issue of the constitutionality of the FTAA, which is definitely a judicial question. The question of constitutionality is exclusively
within the jurisdiction of the courts to resolve as this would clearly involve the exercise of judicial power. The Panel of Arbitrators does
not have jurisdiction over such an issue since it does not involve the application of technical knowledge and expertise relating to mining.
This the Panel of Arbitrators has even conceded in its Orders dated 18 October 2001 and 25 June 2002. At this juncture, it is worthy of
note that in a case,31 which was resolved only on 1 December 2004, this Court upheld the validity of the FTAA entered into by the
Republic of the Philippines and WMC (Philippines), Inc. and constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-
40.32 In fact, the Court took the case on an original petition, recognizing "the exceptional character of the situation and the paramount
public interest involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing the mining industry and the
affected communities as a result of doubts case upon the constitutionality and validity of the Mining Act, the subject FTAA and future
FTAAs, and the need to avert a multiplicity of suits."
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the
contract between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the parties repudiates the existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud
and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are legal in
nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.
-We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different reason. The question of validity
of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot
rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions. As previously discussed, the complaint should have been filed before the regular courts as it
involved issues which are judicial in nature.
WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45 is DENIED. The Orders dated 18 October 2001
and 25 June 2002 of the Panel of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.
Doctrines:
- Alternative Dispute Resolution; Arbitration; R.A. No. 876; Appeals; Pleadings and Practice; Statutory Construction; It is elementary in
remedial law that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it has been repeatedly
stressed that a petition for certiorari is not a substitute for a lost appeal; The Arbitration Law specifically provides for an appeal by
certiorari, i.e., a petition for review on certiorari under Rule 45 of the Rules of Court that raises pure questions of law; Proper
interpretation of Sec. 29 of R.A. No. 876 shows that the term “may” refers only to the filing of an appeal, not to the mode of review to be
employed—the use of “may” merely reiterates the principle that the right to appeal is not part of due process of law but is a mere
statutory privilege to be exercised only in the manner and in accordance with law.
- Arbitration; Conflict of Laws; Foreign arbitration, as a system of settling commercial disputes of an international character, was
recognized when the Philippines adhered to the United Nations “Convention on the Recognition and the Enforcement of Foreign Arbitral
Awards of 1958.”
- Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrator’s decision—necessarily, a contract is
required for arbitration to take place and to be binding.
- The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main
contract—the doctrine denotes that the invalidity of the main contract, also referred to as the “container” contract, does not affect the
validity of the arbitration agreement which still remains valid and enforceable.
- Arbitration; R.A. No. 876; The proceeding in a petition for arbitration under R.A. No. 876 is limited only to the resolution of the question
of whether the arbitration agreement exists.
- The Court now holds that the validity of the contract containing the agreement to submit to arbitration does not affect the applicability
of the arbitration clause itself.
Manila Electric Co. v. Pasay Transport Co.(GR L-37878)
Facts:
Act No. 1446 was passed. Section 11 of the Act provides: "Whenever any franchise or right of way is granted to any other person or
corporation, now or hereafter in existence, over portions of the lines and tracks of the grantee herein, the terms on which said other
person or corporation shall use such right of way, and the compensation to be paid to the grantee herein by such other person or
corporation for said use, shall be fixed by the members of the Supreme Court, sitting as a board of arbitrators, the decision of a majority
of whom shall be final."
Pursuant to said Act, Meralco filed a petition requesting the members of the Supreme Court, sitting as a board of arbitrators, to fix the
terms upon which certain transportation companies shall be permitted to use the Pasig bridge of the Manila Electric Company and the
compensation to be paid to the Manila Electric Company by such transportation companies.
Copies of the petition were directed to be sent to transportation companies affected by the petition. Opposition was entered to the
petition by a number of public utility operators.
Issue:
Can the members of the Supreme Court sit as arbitrators and fix the terms and compensation as is asked of them in this case?
Held:
The Supreme Court of the Philippine Islands represents one of the three divisions of power in our government. It is judicial power and
judicial power only which is exercised by the Supreme Court. Just as the Supreme Court, as the guardian of constitutional rights, should
not sanction usurpations by any other department of the government, so should it as strictly confine its own sphere of influence to the
powers expressly or by implication conferred on it. The Supreme Court and its members should not and cannot be required to exercise
any power or to perform any trust or to assume any duty not pertaining to or connected with the administering of judicial functions.
Section 11 of Act No. 1446 contravenes the maxims which guide the operation of a democratic government constitutionally established,
and that it would be improper and illegal for the members of the Supreme Court, sitting as a board of arbitrators, the decision of a
majority of whom shall be final, to act on the petition of the Manila Electric Company.
Doctrines:
- Constitutional Law; Act No. 1446, Section 11, Validity of; Members of the Supreme Court Sitting as a Board of Ar-bitrators; Division of
Powers.—The Supreme Court of the Philippine Islands represents one of the three divisions of power in the Philippine Government. It is
judicial power and judicial power only which is exercised by the Supreme Court. The Supreme Court and its members should not and
cannot be required to exercise any power or to perform any trust or to assume any duty not pertaining to or connected with the
administering of judicial functions.
- Jurisdiction of the Supreme Court.—The Supreme Court exercises jurisdiction as a court and this juris-diction does not include the
exercise of jurisdiction by the members of the Supreme Court sitting as a board of arbitrators.
-A board of arbitrators is not a "court" in any proper sense of the term and possesses none of the ju-risdiction which the Organic Act
contemplates shall be exer-cised by the Supreme Court.
-Arbitration represents a method of the parties' own choice. A submission to arbitration is a contract. A clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust
the courts of jurisdiction. However, unless the ar-bitration agreement is such as absolutely to close the doors of the courts against the
parties, the courts should look with favor upon such amicable arrangements.

-It would be improper and illegal for the members of the Supreme Court, to sit as a board of arbi-trators the decision of a majority of
whom shall be final.

Eastboard Navigation Ltd. v Juan Ysmael and Co. (GRL-9090)