GONZALES vs.

CLIMAX MINING LTD

G.R. No. 161957 February 28, 2005
. JORGE GONZALES and PANEL OF ARBITRATORS, vs.CLIMAX
MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN
PHILIPPINES MINING INC.,
G.R. No. 161957 February 28, 2005
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. Respondent Climax Mining Corporation (Climax) and respondent
Australasian Philippines Mining Inc. (APMI) entered into a Memorandum 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…."8
Issues:
(c) 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.
(d) 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.27
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.29
-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."33
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.