Arbitration 2011
1. CHUNG FU INDUSTRIES v. CA
G.R. No. 96283 February 25, 1992
Facts:
Chung Fu and private respondent Roblecor forged a construction
agreement 1 whereby respondent contractor committed to construct
Chung Fu COrp’s industrial/factory complex in Cavite for P42M. Two
other construction contracts were enetered into. In the event of
disputes arising from the performance of the contract, it was
stipulated that the issue(s) shall be submitted for resolution before
an arbitrator chosen by both parties. Roblecor failed to complete the
work despite the extension of time and so Chung Fu took over the
construction when it had become evident that Roblecor was not in a
position to fulfill its obligation.
Claiming an unsatisfied account of P10.5M and unpaid progress
billings of P2.3 M, Roblecor filed a petition for Compulsory
Arbitration with prayer for TRO before RTC. Chung Fu moved to
dismiss the petition and further prayed for the quashing of the
restraining order.
The parties entered into an arbitration agreement providing that:
“The parties mutually agree that the decision of the
arbitrator shall be final and unappealable. Therefore, there
shall be no further judicial recourse if either party disagrees
with the whole or any part of the arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties
mutually agree that either party is entitled to seek judicial
assistance for purposes of enforcing the arbitrator's award;”
When the arbitrator ordered petitioners to pay respondent
contractor P16M and declared the award as final and unappealable
pursuant to the Arbitration Agreement, which precluded judicial
review of the award, Chung Fu moved to remand the case for
further hearing claiming (12) instances of grave error by
disregarding the provisions of the parties' contract.
CA concurred with the RTC resolving that Chung Fu and its officers,
as signatories to the Arbitration Agreement are bound to observe
the stipulations thereof providing for the finality of the award and
precluding any appeal therefrom. Hence, the instant petition for
certiorari to the SC.
Issue: Is the award beyond the power of judicial review on the basis
of a stipulation that the award is final and unapppealable?
Held: NO.
Pertinent topic: Evolution of arbitration as a mode of
dispute settlement.
Legal history discloses that "the early judges called upon to solve
private conflicts were primarily the arbiters, persons not specially
trained but in whose morality, probity and good sense the parties in
conflict reposed full trust. Thus, in Republican Rome, arbiter and
judge (judex) were synonymous. The magistrate or praetor, after
noting down the conflicting claims of litigants, and clarifying the
issues, referred them for decision to a private person designated by
the parties, by common agreement, or selected by them from an
apposite listing (the album judicium) or else by having the arbiter
chosen by lot. The judges proper, as specially trained state officials
endowed with own power and jurisdiction, and taking cognizance of
litigations from beginning to end, only appeared under the Empire,
by the so-called cognitio extra ordinem." 5
Sparse though the law and jurisprudence may be on the subject of
arbitration in the Philippines, it was nonetheless recognized in the
Spanish Civil Code and now reinstated in the present Civil Code. 9
Although early on, CA No. 103 (1936) provided for compulsory
arbitration administered by the CIR in case of labor-mgt disputes,
such was converted to voluntary arbitration. The Industrial Peace
Act which was passed in 1953 favoring the policy of free collective
bargaining, and resort to grievance procedure. It was accepted and
enunciated more explicitly in the present Labor Code.
RA No. 876 (1953) the Arbitration Law, was passed to regulate the
arbitration process. "Said Act was obviously adopted to supplement
— not to supplant — the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force." 11
In recognition of the pressing need for an arbitral machinery in the
construction industry, a Construction Industry Arbitration
Commission (CIAC) was created by Executive Order No. 1008,
enacted on February 4, 1985.
Recourse to an extrajudicial means of settlement is not intended to
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completely deprive the courts of jurisdiction. In fact, the early cases
on arbitration carefully spelled out the prevailing doctrine at the
time, thus: ". . . 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." But certainly, the stipulation to refer all future disputes
to an arbitrator or to submit an ongoing dispute to one is valid.
Being part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or refuses to
arbitrate. In case of a declaration to refer their differences to
arbitration first before taking court action, this constitutes a
condition precedent, such that where a suit has been instituted
prematurely, the court shall suspend the same and the parties shall
be directed forthwith to proceed to arbitration.
the award under Section 24 (d) of the Arbitration Law.
But the respondent trial court's refusal to look into the merits of the
case, despite prima facie showing of the existence of grounds
warranting judicial review, effectively deprived petitioners of their
opportunity to prove or substantiate their allegations. In so doing,
the trial court itself committed grave abuse of discretion. Likewise,
the appellate court, in not giving due course to the petition,
committed grave abuse of discretion.
WHEREFORE, the petition is GRANTED. Accordingly, this case is
REMANDED to the court of origin for further hearing on this matter.

Is the subject arbitration award indeed beyond the ambit of

the court's power of judicial review? NO.

Where the conditions described in Articles 2038, 2039 and 2040

applicable to both compromises and arbitrations are obtaining, the
arbitrators' award may be annulled or rescinded. 19 Additionally,
under Sections 24 and 25 of the Arbitration Law, there are grounds
for vacating, modifying or rescinding an arbitrator's award. 20
Similarly, the Construction Industry Arbitration Law provides that
the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court." 16

If courts (such as RTC in this case) refuse or neglect to inquire into

the factual milieu of an arbitrator's award to determine whether it is
in accordance with law or within the scope of his authority, judicial
review be invoked through Rule 65 certiorari. However, the Court
will not engage in a review of the facts found nor even of the law as
interpreted or applied by the arbitrator unless the supposed errors
of fact or of law are so patent and gross and prejudicial as to
amount to a grave abuse of discretion or an exces de pouvoir on the
part of the arbitrator." 21

The SC after closely studying the list of errors finds that petitioners
have amply made out a case where the voluntary arbitrator failed to
apply the terms and provisions of the Construction Agreement
which forms part of the law applicable as between the parties, thus
committing a grave abuse of discretion in granting unjustified extra
compensation to respondent for several items, he exceeded his
powers — all of which would have constituted ground for vacating
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2. PUROMINES v COURT OF APPEALS and PHILIPP BROTHERS
OCEANIC INC.
G.R. No. 91228, March 22, 1993
FACTS
Puromines Inc and Makati Agro Trading (not a party to this case)
entered into a contract with Philipp Brothers Oceanic Inc for the sale
of prilled Urea (organic compound used as animal feeder additive
and fertilizer) in bulk. The sales contract provided for an arbitration
clause, which states that any dispute arising under the contract
should be settled by arbitration in London in accordance with its
arbitration law.
In 1988, vessel M/V Liliana Dimitrova loaded a shipment of 15,500
metric tons of prilled Urea in bulk from Yuzhny, USSR to be
transported to Iloilo and Manila. Three (3) bills of lading were issued
—Bill of Lading #1 covered 10,000 metric tons for Manila; Bill of
Lading #2 covered 4,000 metric tons for Iloilo; and Bill of Lading #3
covered 1,500 metric tons for Manila.
Except for those under Bill of Lading #2, the shipments covered by
the other Bills of Lading (bound for Manila) were discharged in bad
order and condition, to which damages were valued at P683,056.29.
Because of this, Puromines filed a complaint with the RTC of Manila
for breach of contract of carriage against Maritime Factors Inc as
ship agent in the Philippines for the owners of the vessel. Philipp
Brothers Oceanic was impleaded as charterer of the vessel and
proper party for complete relief.
Maritime Factors filed an answer while Philipp Brothers Oceanic filed
a Motion to Dismiss on the ground that the complaint was
prematurely filed because of non-compliance with the arbitration
clause provided in the sales contract. Puromines opposed this
motion contending that the arbitration clause is inapplicable since
the cause of action arose for the claims of cargo damages (no
arbitration agreement) and not from the sales contract (with
arbitration clause). RTC denied the motion; CA reversed.
ISSUE
Whether the phrase “any dispute arising under this contract”
stipulated in the arbitration clause of the sales contract covers a
cargo claim against the vessel (owners and charters) for breach of
contract of carriage—YES.
RULING
The Supreme Court agreed with the Court of Appeals that the sales
contract is comprehensive enough to include claims for damages
arising from carriage and delivery of the goods. Generally, the seller
has the obligation to transmit the goods to the buyer, and thus, the
contracting of a carrier to deliver the goods.
As correctly argued by Philipp Brothers Oceanic, Puromines derived
its right to the cargo from the bill of lading, which is the contract of
affreightment, together with the sales contract. Thus, it is bound by
the provisions of both the bill of lading and the sales contract.
The Court also ruled that the parties are nevertheless obligated to
respect the arbitration clause on the sales contract and/or bill of
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lading. Puromines, being a signatory and party to the sales contract,
cannot escape from his obligation under the arbitration clause.
Neither can petitioner contend that the arbitration clause in the bills
of lading should not have been discussed as an issue because it was
not raised as a special or affirmative defense. However, the bills of
lading were attached as annexes to the complaint and may be
considered as evidence although not introduced as such. Hence, it
was proper for the CA to discuss the contents of the bills of lading,
having been made part of the record.
Arbitration has been held valid and constitutional that even before
the enactment of RA 876, the Court has allowed the settlement of
disputes through arbitration. The rule now is that unless the
agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts will
look with favor upon such amicable arrangements and will only
interfere with great reluctance to anticipate or nullify the action of
the arbitrator.
3. BF Corp v CA, Shangri-La Properties Inc (SPI)| Romero
G.R. No. 120105, March 27, 1998 | 288 SCRA 267
FACTS
• BF Corp and SPI entered into an agreement to where BF was to
construct the main structure of EDSA Plaza Project (Shangri-La Mall).
This was contained in the ARTICLES OF AGREEMENT.
• BF incurred delay in the completion of the project, which SPI considered
to be serious and substantial while BF holds that it was in faithful
compliance with their FIRST AGREEMENT. Later, Phase I of the project
was gutted by fire (in Nov 1990) which further exacerbated their
situation. SPI proposed a re-negotiation.
• May 30 1991: BF and SPI entered into an Agreement (Agreement for the
Execution of Builder’s Work for Edsa Plaza Project). This agreement
covers the construction until it’s eventual completion, set on October
31, 1991.
• SPI said there was failure to complete the project, which sparked
disagreement between the parties
• November 1991: BF billed SPI and demanded payment. Instead of
paying, SPI counterclaimed P220M for the delay in the construction
(pursuant to penalty clause of the agreement: Php80K for every day of
delay from Nov. 1 1991 up to 5% of the contract price)
• July 12, 1993: SPI initiated a conference but they failed to agree.
• July 14, 1993: BF filed a complaint to collection of the balance due (110,
883, 101.52).
• August 3, 1993: SPI filed motion to suspend proceedings (instead of
filing an answer) claiming that their agreement contained an arbitration
clause—(that there should be prior resort to arbitration before resorting
to judicial proceedings). BF opposed this motion claiming:
o there was no formal contract to arbitrate because the
CONDITIONS OF THE CONTRACT which contained the
arbitration clause did not comply with the formal requisites of
an arbitration contract pursuant to Sec 4 of RA876 (this
instrument did not bear the signature of representative of SPI
and Bayani Fernando, Pres. of BF Corp only initialed it), hence
there is no arbitration clause to speak of.
• TC: denied the motion to suspend proceedings. It also said that
assuming there was an arbitration clause, demand to arbitrate was not
reasonably made because SPI failed to file a written demand to
arbitrate for 1 year and 8 mos already (counted from the time BF billed
them to pay until the filing of collection complaint)
• SPI filed a petition for certiorari under R65 to the CA.
• CA: granted the petition and set aside the orders of the TC, hence this
Petition for Review on Certiorari
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ISSUES & ARGUMENTS
• Whether the ARBITRATION CLAUSE EXISTS?
• Does the CA have the jurisdiction to determine this issue
even if on it’s face , the existence of an arbitration clause
is a factual matter?
HOLDING & RATIO DECIDENDI
ARBITRATION CLAUSE EXISTS. The CA have jurisdiction.
Although on its face, the existence of an arbitration clause
is a factual matter, in this case, the existence of the
arbitration clause depends upon the interpretation of Sec 4
of RA 876 (Formal Requisite of an Arbitration Clause) which
is a question of law. It became the proper subject of a
petition for certiorari because the CA had to determine (by
settling the question of law) whether the TC prematurely
assumed jurisdiction over the case.
• (ARBITRATION PART) The Court finds that, upon a scrutiny of
the records of this case, these requisites were complied with in
the contract in question. The Articles of Agreement, which
incorporates all the other contracts and agreements between
the parties, was signed by representatives of both parties and
duly notarized. The failure of the private respondent's
representative to initial the "Conditions of Contract" would
therefore not affect compliance with the formal requirements for
arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the
Articles of Agreement.
• Petitioner's contention that there was no arbitration clause
because the contract incorporating said provision is part of a
"hodge-podge" document, is therefore untenable. A contract
need not be contained in a single writing. It may be
collected from several different writings which do not conflict
with each other and which, when connected, show the parties,
subject matter, terms and consideration, as in contracts entered
into by correspondence. A contract may be encompassed in
several instruments even though every instrument is not signed
by the parties, since it is sufficient if the unsigned
instruments are clearly identified or referred to and
made part of the signed instrument or instruments.
Similarly, a written agreement of which there are two copies,
one signed by each of the parties, is binding on both to the same
extent as though there had been only one copy of the
agreement and both had signed it.
• Court also ruled that reasonable time is relative. In this case,
the 1-mo period from the time they held a conference (July 12,
1993) that SPI invoked the arbitration clause is within a
reasonable time.
• Court highlighted: that arbitration is “the wave of the future”
and that this is recognized worldwide. To brush aside the
contractual agreement between the parties calling for arbitration
in case of disagreement between the parties would therefore be
a step backward.
• (REMEDIAL PART) Where a rigid application of the rule that
certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of the
Rules of Court which are technical rules may be relaxed. As we
shall show hereunder, had the CA dismissed the petition for
certiorari, the issue of whether or not an arbitration clause exists
in the contract would not have been resolved in accordance with
evidence extant in the record of the case. Consequently, this
would have resulted in a judicial rejection of a contractual
provision agreed by the parties to the contract. In the same
vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private
respondents is a legal issue that must be determined in this
petition for review on certiorari.
WHEREFORE, premises considered, the instant petition is
DENIED. The Decisions of the CA is AFFIRMED.
4. FIESTA WORLD MALL CORPORATION vs. LINBERG
PHILIPPINES, INC.
G.R. NO. 152471 August 18, 2006
FACTS:
Fiesta World Mall Corporation, petitioner, owns and operates
Fiesta World Mall located at Barangay Maraouy, Lipa City; while
Linberg Philippines, Inc., respondent, is a corporation that builds and
operates power plants.
On January 19, 2000, respondent filed with the Regional Trial
Court (RTC), Pasig City, a Complaint for Sum of Money against
petitioner. The complaint alleges that on November 12, 1997,
petitioner and respondent executed a build-own-operate
agreement, entitled "Contract Agreement for Power Supply
Services, 3.8 MW Base Load Power Plant" (the Contract). Under this
Contract, respondent will construct, at its own cost, and operate as
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owner a power plant, and to supply petitioner power/electricity at its
shopping mall in Lipa City. Petitioner, on the other hand, will pay
respondent "energy fees" to be computed in accordance with the
Seventh Schedule of the Contract.
The complaint further alleges that respondent constructed
the power plant in Lipa City at a cost of about P130,000,000.00. In
November 1997, the power plant became operational and started
supplying power/electricity to petitioner’s shopping mall in Lipa City.
In December 1997, respondent started billing petitioner. As of May
21, 1999, petitioner’s unpaid obligation amounted to
P15,241,747.58, exclusive of interest. However, petitioner
questioned the said amount and refused to pay despite
respondent’s repeated demands.
In its Answer with Compulsory Counterclaim, petitioner
specifically denied the allegations in the complaint, claiming that
respondent failed to fulfill its obligations under the Contract by
failing to supply all its power/fuel needs. From November 10, 1998
until May 21, 1999, petitioner personally shouldered the cost of fuel
(Lindberg should supply the fuel under the contract). Petitioner also
disputed the amount of energy fees specified in the billings made by
respondent because the latter failed to monitor, measure, and
record the quantities of electricity delivered by taking photographs
of the electricity meter reading prior to the issuance of its invoices
and billings, also in violation of the Contract. Moreover, in the
computation of the electrical billings, the minimum off-take of
energy (E2) was based solely on the projected consumption as
computed by respondent. However, based on petitioner’s actual
experience, it could not consume the energy pursuant to the
minimum off-take even if it kept open all its lights and operated all
its machinery and equipment for twenty-four hours a day for a
month. This fact was admitted by respondent. While both parties
had discussions on the questioned billings, however, "there
were no earnest efforts to resolve the differences in
accordance with the arbitration clause provided for in the
Contract."
Finally, as a special affirmative defense in its answer,
petitioner alleged that respondent’s filing of the complaint
is premature and should be dismissed on the ground of non-
compliance with paragraph 7.4 of the Contract which
provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any
invoice, it shall pay the undisputed amount on or before such
date(s), and the disputed amount shall be resolved by arbitration of
three (3) persons, one (1) by mutual choice, while the other two (2)
to be each chosen by the parties themselves, within fourteen (14)
days after the due date for such invoice and all or any part of the
disputed amount paid to LINBERG shall be paid together with
interest pursuant to Article XXV from the due date of the invoice. It
is agreed, however, that both parties must resolve the disputes
within thirty (30) days, otherwise any delay in payment resulting to
loss to LINBERG when converted to $US as a result of depreciation
of the Pesos shall be for the account of FIESTA WORLD. Corollarily,
in case of erroneous billings, however, LINBERG shall be liable to
pay FIESTA WORLD for the cost of such deterioration, plus interest
computed pursuant to Art. XXV from the date FIESTA WORLD paid
for the erroneous billing.
Thereafter, petitioner filed a Motion to Set Case for
Preliminary Hearing on the ground that respondent violated the
arbitration clause provided in the Contract, thereby rendering its
cause of action premature.
This was opposed by respondent, claiming that paragraph
7.4 of the Contract on arbitration is not the provision applicable to
this case; and that since the parties failed to settle their dispute,
then respondent may resort to court action pursuant to paragraph
17.2 of the same Contract which provides:
17.2 Amicable Settlement
The parties hereto agree that in the event there is any
dispute or difference between them arising out of this Agreement or
in the interpretation of any of the provisions hereto, they shall
endeavor to meet together in an effort to resolve such dispute by
discussion between them but failing such resolution the Chief
Executives of LINBERG and FIESTA WORLD shall meet to resolve
such dispute or difference and the joint decision of such shall be
binding upon the parties hereto, and in the event that a settlement
of any such dispute or difference is not reached, then the provisions
of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:
ARTICLE XXI (JURISDICTION)
The parties hereto submit to the exclusive jurisdiction of the
proper courts of Pasig City, Republic of the Philippines for the
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hearing and determination of any action or proceeding arising out of them may compel the other to arbitrate. Thus, it is well within
or in connection with this Agreement. petitioner’s right to demand recourse to arbitration.

In its Order dated October 3, 2000, the trial court denied
petitioner’s motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it was
denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of
Appeals via a Petition for Certiorari. On December 12, 2001, the
appellate court rendered its Decision dismissing the petition and
affirming the challenged Orders of the trial court.
Petitioner’s Motion for Reconsideration of the above Decision
was likewise denied by the appellate court in its Resolution dated
February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
ISSUE:
The sole issue for our resolution is whether the filing with the
trial court of respondent’s complaint is premature.
We cannot agree with respondent that it can directly seek
judicial recourse by filing an action against petitioner simply
because both failed to settle their differences amicably. Suffice it to
state that there is nothing in the Contract providing that the parties
may dispense with the arbitration clause. Article XXI on jurisdiction
cited by respondent, i.e., that "the parties hereto submit to the
exclusive jurisdiction of the proper courts of Pasig City" merely
provides for the venue of any action arising out of or in connection
with the stipulations of the parties in the Contract.
In this connection, since respondent has already filed a
complaint with the trial court without prior recourse to arbitration,
the proper procedure to enable an arbitration panel to resolve the
parties’ dispute pursuant to their Contract is for the trial court to
stay the proceedings. After the arbitration proceeding has been
pursued and completed, then, the trial court may confirm the award
made by the arbitration panel.

HELD:
Paragraph 7.4 of the Contract, quoted earlier, mandates that
should petitioner dispute any amount of energy fees in the invoice
and billings made by respondent, the same "shall be resolved by
arbitration of three (3) persons, one (1) by mutual choice, while the
other two (2) to be each chosen by the parties themselves." The
parties, in incorporating such agreement in their Contract, expressly
intended that the said matter in dispute must first be resolved by an
arbitration panel before it reaches the court. They made such
arbitration mandatory.

It is clear from the records that petitioner disputed the

amount of energy fees demanded by respondent. However,
respondent, without prior recourse to arbitration as required in the
Contract, filed directly with the trial court its complaint, thus
violating the arbitration clause in the Contract.

It bears stressing that such arbitration agreement is the law

between the parties. Since that agreement is binding between
them, they are expected to abide by it in good faith. And because it
covers the dispute between them in the present case, either of
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5. Gonzales v. Climax Mining Ltd. (2005)
FACTS: Jorge Gonzales is the claimowner of mineral deposits
located in the provinces of Quirino and Nueva Vizcaya. He entered
into a co-production, joint venture and /or production sharing letter-
agreement (May 14, 1987 Letter of Intent) with Geophilippines Ltd.
and Inmex Ltd. The agreement granted to Geophilippines and Inmex
collectively, the exclusive right to explore and survey the mining
claims for a period of 3 years within which it could decide to take an
operation agreement on the mining claims and/or develop, operate,
mine and exploit the mining claims and market minerals that may
be derived therefrom. The parties renegotiated the May 14, 1987
Letter of Intent into the Feb. 28, 1989 Agreement wherein they
extended the agreement to another 3 years.
Thereafter, 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, Addendum Contract). Under the Addendum Contract,
Arimco Mining 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).
Arimco Mining obtained the FTAA and carried out work such.
Climax Mining executed the Operating and Financial
Accommodation Contract (between Climax-Arimco Mining
Corporation and Climax Mining Ltd., and Australasian Philippines
Mining Inc. (APMI)) and Assignment, Accession Agreement (between
Climax-Arimco Mining and APMI). Climax and APMI entered into a
Memorandum of Agreement whereby the former transferred its
FTAA to the latter.
Gonzales filed before the Panel of Arbitrators a Complaint seeking
the nullity or termination of the Addendum Contract, the FTAA, the
Operating and Financial Accommodation Contract, the Assignment,
Accession Agreement, and the Memorandum of Agreement on the
grounds of fraud, oppression and violation of the constitution.
The Panel of Arbitrators dismissed the Complaint for lack of
jurisdiction. MR was filed which was granted. It held that there was a
mining dispute between the parties.
On appeal, the CA held that the Panel of Arbitrators does not have
jurisdiction.
ISSUE: Whether the complaint filed by Gonzales raises a mining
dispute over which the Panel of Arbitrators has jurisdiction? or a
judicial question which should be brought before the regular courts?
HELD/ RATIO: SC held that the complaint raises a judicial question
which should be brought before the regular courts.
A judicial question is a question that is proper for determination by
the courts. A judicial question is raised when the determination of
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. This is a question which involves the exercise of a
judicial function.
A mining dispute is a dispute involving a) rights to mining area, b)
mineral agreements, FTAAs, or permits and c) surface owners,
occupants and claimholders/ concessionaires. Under the Philippine
Mining Act of 1995 (RA No. 7942), the Panel of Arbitrators has
exclusive and original jurisdiction to hear and decide these mining
disputes.
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In this case, the complaint charged Climax Mining with disregarding
and ignoring provisions of the Addendum Contract, violating the
purpose and spirit of the May 14, 1987 Letter of Intent and Feb. 28.
1989 Agreement, and acting in fraudulent and oppressive manner
against Gonzales. It was alleged that Climax-Arimco had committed
to complete the Bankable Feasibility Study by 28 February 1992,
but the same was not accomplished. Instead, Climax-Arimco,
through false and insidious representations and machinations by
alleging technical and financial capacity, induced Gonzales to enter
into the Addendum Contract and the FTAA in order to repeatedly
extend the option period within which to conduct the feasibility
study.
It is apparent that the Panel of Arbitrators is bereft of jurisdiction
over the Complaint filed by Gonzales. The basic issue in the
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. This constitutes fraud
which vitiated Gonzales’ consent, and under Article 1390 of the Civil
Code, is one of the grounds for the annulment of a voidable
contract. Gonzales insists that the Complaint is actually one for the
declaration of nullity of void contracts. However, 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 the parties to the mining area pursuant
to these contracts is merely corollary to the main issue, and may
not be resolved without first determining the main issue.
Also, the fact that the dispute involves FTAAs does not mean that it
is exclusively within the jurisdiction of the Panel of Arbitrators. The
Complaint raised the issue of the constitutionality of the FTAA,
which is definitely a judicial question. 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.
Furthermore, 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.
Therefore, the case should not be brought under the ambit of the
Arbitration Law. The complaint should have been filed before the
regular courts as it involved issues which are judicial in nature.
6. Gonzales vs. Climax Mining (2007)
This is a consolidation of 2 previous cases in the same disputed
Addendum Contract entered into by the parties. The first case stems
from the petition to compel arbitration filed by Climax-Arimco before
the RTC of Makati while the complaint for the nullification of the
Addendum Contract was pending before the DENR Panel of
Arbitrators. Climax had sent Gonzales a demand for arbitration
pursuant to the arbitration clause of the Addendum Contract.
Gonzales filed a motion to dismiss alleging that the Addendum
Contract containing the arbitration clause is void in view of the acts
of fraud, oppression and violation of the Constitution and other acts
committed by Climax. The RTC granted Gonzales motion and set the
case for pre-trial. Another motion for reconsideration filed by Climax
claiming that RA 876 does not authorize a pre-trial but directs the
court to hear the motion summarily and resolve the same within 10
days. Judge Pimentel granted the motion and directed the parties to
arbitration. Gonzales is now assailing the order of Judge Pimentel
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Issue: Won it was proper for the RTC, in the proceeding to
compel arbitration to order the parties to arbitrate even
though the defendant therein has raised the twin issues of
validity and nullity of the Addendum Contract

Held: Yes, should go to arbitration

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.
Two or more persons may submit to the arbitration of one or more
arbitrators any controversy existing between them at the time of
the submission which may be the subject of an action, or the parties
may in such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission shall be valid,
enforceable and irrevocable, except on grounds recognized by law
for the revocation of any contract.
The reparability of the arbitration agreement is especially
significant for the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Irrespective of the
fact that the main contract is invalid, the arbitration clause or
agreement still remains valid and enforceable. 7. Agan v. PIATCO
G.R. No. 155001
The U.S. courts held that courts should not order the parties 5 May 2003
to arbitrate if the making of the arbitration agreement is in issue.
The parties should be ordered to arbitration if they have contracted Facts
to submit to arbitration. The courts have held that the validity of the Petitioners and petitioners-in-intervention filed petitions for
contract containing the agreement to submit to arbitration does not prohibition under Rule 65 to prevent MIAA and DOTC from
affect the applicability of the arbitration clause itself. A contrary implementing agreements executed by the government through
ruling would suggest that a party’s mere repudiation of the main DOTC and MIAA and PIATCO.
contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine seeks to avoid. On August 1989, DOTC engaged the services of Aeroport de Paris
(ADP) to conduct a study on NAIA to determine whether the airport
can cope with traffic development until the year 2010. ADP was to
determine:

1. traffic forecasts and capacity of existing facilities and NAIA

future development plans
2. presentation of preliminary design of passenger terminal
building.

ADP submitted a draft to DOTC on December of the same year.

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 Arbitration 2011
On 1993, 6 business leaders consisting of Gokongwei , Sy, Tan, and
Yuchengco went to FVR to explore the possibility of investing in
construction and operation of the new airport terminal. To show
their commitment to pursue the project they formed Asia’s
Emerging Dragon Corp. (AEDC) duly registered with SEC.
The next year they submitted an unsolicited business proposal to
the government through DOTC/MIAA for the development of NAIA 3
under BOT arrangement pursuant to the BOT law (RA 6957 as
amended RA 7718).
DOTC issued a department order constituting the PBAC
(Prequalification Bids and Awards Committee) for the
implementation of the NAIA 3. This was forwarded to AEDC and to
NEDA. NEDA passed a resolution approving the project.
1996 DOTC/MIAA caused publication for competitive proposals on
AEDC’s unsolicited proposal. The bidders were required to submit in
3 sealed envelopes:
1. Prequalification Documents
2. Technical Proposal
3. Financial Proposal
In PBAC Bulletin No. 1, DOTC postponed the availment of bid
documents to June 28, 1996 upon submission of a written
application and a nonrefundable fee of P50, 000.
Proponent must have :
1. adequate financial capability to sustain detailed engineering,
design, construction and maintenance of the phases of the
project
2. minimum amount of equity for the project (30% of the proj
cost)
3. capacity to secure external financing
On September, the PAIRCARGO consortium consisting of the ff,
submitted their bid.
PAIRCARGO (People’s Air Cargo and Warehousing Corp)
Security Bank
PAGS (Phil. Air & Grounds Services Inc.)
AEDC questioned the qualification of PAIRCARGO because of:
1. lack of corporate approval and financial capability of
PAIRCARGO and PAGS
2. prohibition by general banking act on amount of Security
Bank that it could legally invest
3. inclusion of Seimens as contractor of PAIRCARGO
4. appointment of Lufthansa as facility operator of a public
utility
AEDC offered the government 135million pesos as guaranteed
payment for 27 years
PAIRCARGO consortium offered 17.75 billion pesos.
PBAC formally informed AEDC that it had accepted PAIRCARGO’s
price proposal.
AEDC failed to match the bid within 30days.
Thus PAIRCARGO incorporated into PIATCO (Phil. Int’l Airport
Terminals Co. Inc.)
AEDC filed with the RTC a petitioner for declaration of nullity of the
proceedings, mandamus and injunction against DOTC secretary et
al.
On July 12, 1997 DOTC and PIATCO signed a concession agreement
to franchise, operate, and maintain NAIA 3. But on November 28,
1998, the government and PIATCO signed an amended and restated
concession agreement (ARCA) which had the ff changes:
1. definition of cert of completion
2. special obligation of RP
3. exclusivity franchise given to concessionaire
4. proceeds of concessionaire’s insurance
5. temporary takeover of the government
6. taxes and duties that may be levied on the Concessionaire
7. periodic assessment of public utility fees
8. provisions on termination of contract
9. venue of arbit proceedings in case of dispute
Subsequently government and PIATCO signed 3 supplemental
agreements.
On Sept 17, 2002 workers of international airline and service
providers claiming that they stand to lose their employment upon
implementation of the agreements filed a petition for prohibition to
enjoin enforcement of said agreements.
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 Arbitration 2011
On October 15, 2002 the service providers joining the cause of
workers filed a motion for intervention.
On October 24, 2002 several congressmen filed a similar petition.
On Novermber 6, 2002, other employees filed a petitioner assailing
the legality of the various agreements.
On December 11, 2002, another group of congressmen moved to
intervene DEFENDING the validity of the assailed agreements
OSG and OGCC filed their respective comments.
Then Former president GMA, in a speech before Shell Export Awards
declared that she will not honor PIATCO contracts.
The court heard the case on oral arguments and required the
parties to submit their memoranda and within 30days required the
parties to explore the possibility of arbit and mediation as provided
in the contracts.
In Del Monte v CA, even after finding that the arbit clause is valid
and binding and the dispute arbitrable, the court affirmed the
jurisidiction of the courts to hear the dispute. In so ruling, the court
held that the contracts produce legal effect between the parties,
assigns, and heir and only the parties to the agreement are bound
by its terms including the arbit clause. The arbit clause could be
called for but ONLY with respect to parties in the contract in
question.
In Salas Jr. v Laperal Realty, the court held that to tolerate the
splitting of proceedings by allowing arbit as to some of the parties
on the one hand and trial for the others on the other would in effect
result in multiplicity of suits, duplicitous procedure and unnecessary
delay. The interest of justice would be best served if the trail court
hears and adjudicates the case in a single and complete
proceedings.

On March 6, 2003, respondent PIATCO informed the court that on

March 4 in commenced arbit proceedings before the ICC (Int’l
Chamber of Commerce), ICA (Int’l Court of Arbit) by filing a request
with the secretariat of ICC against the government through
DOTC/MIAA.

Issue
PIATCO assails the jurisdiction of the court over the
proceedings in lieu of their agreement to first submit any
dispute to arbitration proceedings.

Held
The arbit step taken by PIATCO did not oust the court of its
jurisdiction.
It is established that petitioners in the present cases who have
presented legitimate interests in the resolution of the controversy
are not parties to the PIATCO contracts. They cannot be bound by
the arbit clause and cannot be compelled to submit to the
proceedings. A speedy and decisive resolution of all the critical
issues in the present controversy cannot be made before an arbitral
tribunal.

Doctrine
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8. Stanfilco v. Dole GR 154048
Facts:
On January 29, 1998, SEARBEMCO, as seller, and respondent
DOLE Philippines, as buyer, entered into a Banana Production
and Purchase Agreement4 (BPPA). The BPPA provided that
SEARBEMCO shall sell exclusively to DOLE, and the latter shall
buy from the former, all Cavendish bananas of required
specifications to be planted on the land owned by SEARBEMCO.
Part of the agreement states that SEARBEMCO shall exclusively
sell to the BUYER all bananas produced from the subject
plantation, except those rejected by the BUYER for failure to
meet the specifications and conditions. In the case of any such
rejected bananas, the SELLER shall have the right to sell such
rejected bananas to third parties, for domestic non-export
consumption.
Their contract also had an arbitration clause, stating that all
disputes arising in connection with their agreement shall be
finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by three (3) Arbitrators
appointed in accordance with said Rules.
On December 11, 2000, DOLE filed a complaint with RTC against
SEARBEMCO, the spouses Elly and Myrna Abujos (spouses
Abujos), and Oribanex Services, Inc. (Oribanex) for specific
performance and damages, with a prayer for the issuance of a
writ of preliminary injunction and of a temporary restraining
order. DOLE alleged that SEARBEMCO sold and delivered to
Oribanex, through the spouses Abujos, the bananas rejected by
DOLE, stating that Oribanex is an exporter of bananas.
SEARBEMCO responded with a motion to dismiss, stating that it
was the DARAB that had proper jurisdiction, that they sold to
third party buyers and not exporters, and for the prematurity of
the complaint for not being arbitrated.
The RTC and CA both ruled against SEARBEMCO, stating that the
matter was not an agrarian contract and that For DARAB to have
jurisdiction over a case, there must exist a tenancy relationship
between the parties. Further, as there were necessary parties
impleaded that weren’t in the initial deal between SEARBEMCO
and Dole, the arbitration clause would be invalid. SEARBEMCO
now raises these issues to the SC.
Issues not related to subject: W/N DARB had jurisdiction
and w/n there was a valid cause of action.
Held:
The SC held that the parties in the present case have no
tenurial, leasehold, or any other agrarian relationship that could
bring their controversy within the ambit of agrarian reform laws
and within the jurisdiction of the DARAB. Tenancy relations
cannot be presumed. The elements of tenancy must first be
proved by substantial evidence which can be shown through
records, documents, and written agreements between the
parties. The Court declared that when the question involves the
rights and obligations of persons engaged in the management,
cultivation, and use of an agricultural land covered by CARP, the
case falls squarely within the jurisdictional ambit of the DAR.
The action of [DOLE] involves and calls for the application of the
New Civil Code, in tandem with the terms and conditions of the
[BPPA] of [SEARBEMCO] and [DOLE].
Hence, the RTC’s jurisdiction was proper.
The SC also stated that there was a valid cause of action, as
hypothetically admitting the allegations in DOLE’s complaint that
SEARBEMCO sold the rejected bananas to Oribanex, a
competitor of DOLE and also an exporter of bananas, through
the spouses Abujos, a valid judgment may be rendered by the
RTC holding SEARBEMCO liable for breach of contract.
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 Arbitration 2011
Main issue for arbit: W/N the parties should resort to
arbitration first

The SC agrees with the CA ruling that the BPPA arbitration

clause does not apply to the present case since third parties are
involved. Any judgment or ruling to be rendered by the panel of
arbitrators will be useless if third parties are included in the
case, since the arbitral ruling will not bind them; they are not
parties to the arbitration agreement. In the present case, DOLE
included as parties the spouses Abujos and Oribanex since they
are necessary parties,i.e., they were directly involved in the
BPPA violation DOLE alleged, and their participation are
indispensable for a complete resolution of the dispute. To
require the spouses Abujos and Oribanex to submit themselves
to arbitration and to abide by whatever judgment or ruling the
panel of arbitrators shall make is legally untenable; no law and
no agreement made with their participation can compel them to
submit to arbitration.

The object of arbitration is to allow the expeditious

determination of a dispute. Clearly, the issue could not be
speedily and efficiently resolved in its entirety if there was
simultaneous arbitration proceedings and trial, or suspension of
trial pending arbitration. Accordingly, the interest of justice
would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.

Super short summary: SEARBEMCO is trying to dismiss Dole’s

action against them for supposed breach of contract as they
have not initiated arbitration proceedings as stated in their
contract. The SC held that a direct trial was proper since third
parties were involved.

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