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GONZALES vs.

CLIMAX MINING
Facts: This is a consolidation of two
petitions rooted in the same disputed
Addendum Contract entered into by
the parties. In one case, the Court held
that the DENR Panel of Arbitrators had
no jurisdiction over the complaint for
the annulment of the Addendum
Contract on grounds of fraud and
violation of the Constitution and that
the action should have been brought
before the regular courts as it involved
judicial issues. Gonzales averred that
the DENR Panel of Arbitrators Has
jurisdiction because the case involves
a mining dispute that properly falls
within the ambit of the Panels
authority.
Respondents Climax Mining Ltd., et al.,
on
the
other
hand,
seek
reconsideration/clarification on the
decision holding that the case should
not be brought for arbitration under
R.A. No. 876.
They argued that the arbitration
clause in the Addendum Contract
should be treated as an agreement
independent of the other terms of the
contract, and that a claimed rescission
of the main contract does not avoid
the duty to arbitrate.
On another case, Gonzales challenged
the order of the RTC requiring him to
proceed
with
the
arbitration
proceedings while the complaint for
the nullification of the Addendum
Contract was pending before the DENR
Panel of Arbitrators. He contended that
any
issue
as
to
the
nullity,
inoperativeness, or incapability of
performance
of
the
arbitration

clause/agreement raised by one of the


parties to the alleged arbitration
agreement must be determined by the
court prior to referring them to
arbitration.
While Climax-Arimco contended that
an application to compel arbitration
under Sec. 6 of R.A. No. 876 confers
on the trial court only a limited and
special jurisdiction, i.e., a jurisdiction
solely to determine (a) whether or not
the parties have a written contract to
arbitrate, and (b) if the defendant has
failed to comply with that contract.
Issue: WON arbitration is proper even
though issues of validity and nullity of
the
Addendum
Contract
and,
consequently, of the arbitration clause
were raised.
Ruling: YES. 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.
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.