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JORGE GONZALES and PANEL OF ARBITRATORS vs. CLIMAX MINING LTD.,CLIMAX-ARIMCO MINING CORP.

and
AUSTRALASIAN PHILIPPINES MINING INC.,G.R. No. 161957, January 22, 2007

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 Panel’s 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. Theyargued 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-Arimcocontended 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: Whether or not arbitration is proper even though issues of validity and nullity of the Addendum Contract and,
consequently, of the arbitration clause were raised.

Ruling: Positive.

In La Naval Drug Corporation v. Court of Appeals, the Court held that R.A. No. 876 explicitly confines the court's authority
only to the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order "summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed." The cited case also stressed that the proceedings are summary in nature.

Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration
clause or agreement.

The doctrine of separability or severability enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, 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. Irrespective of the
fact that the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.

The validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would suggest that a party’s mere repudiation of the main contract is sufficient
to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks
to avoid.

TheCourt added that when it declared that the case should not be brought for arbitration, it should be clarified that the
case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification
of the main contract on the ground of fraud, as it had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues.
Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004

The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement like
for instance a typical standby; or (b) independence may be only as to the justification aspect like in a
commercial letter of credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the
credit the payment of the credit would constitute fraudulent abuse of the credit.

Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp. (LHC).Under the
contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning, testing and completion of the Project. The contract provides for
a period for which the project is to be completed and also allows for the extension of the period provided that the
extension is based on justifiable grounds such as fortuitous event. In order to guarantee performance by Transfield, two
stand-by letters of credit were required to be opened. During the construction of the plant, Transfield requested for
extension of time citing typhoon and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. Because of the delay in the
construction of the plant, LHC called on the stand-by letters of credit because of default. However, the demand was
objected by Transfield on the ground that there is still pending arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the pending arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the parties, whether through negotiations or
arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into
a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b)
independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which
is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a
dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement
of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and
beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called “independence principle” assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing bank from determining whether the
main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the
description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other person whomsoever.

G.R. No. 169332 February 11, 2008


ABS-CBN vs. WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., LTD.

FACTS: Petitioner ABS-CBN entered into an agreement with respondent World Interactive Network Systems (WINS).
Under the agreement, respondent was granted the exclusive license to distribute and sublicense the distribution of the
television service known as "The Filipino Channel" (TFC) in Japan.

A dispute arose when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, into the TFC
programming from March to May 2002, claiming that such insertions were unauthorized thus constituting a material
breach of their agreement. As a result, petitioner notified respondent of its intention to terminate their licensing
agreement.

Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with petitioner and
contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It also alleged that petitioner only
threatened to terminate their agreement because it wanted to renegotiate the terms thereof to allow it to demand higher
fees. Respondent also prayed for damages for petitioner's alleged grant of an exclusive distribution license to another
entity, NHK (Japan Broadcasting Corporation).
The parties appointed a sole arbitrator in the person of Professor Alfredo F. Tadiar and the latter reached a decision in
favor of respondent.

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, a petition for
certiorari under Rule 65 of the same Rules, with application for temporary restraining order and writ of preliminary
injunction.

The CA rendered the assailed decision dismissing ABS-CBN’s petition for lack of jurisdiction. It ruled that it is the RTC
which has jurisdiction over questions relating to arbitration. It held that the only instance it can exercise jurisdiction over
an arbitral award is an appeal from the trial court's decision confirming, vacating or modifying the arbitral award. It
further stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the
courts refuse or neglect to inquire into the facts of an arbitrator's award.

ISSUE: Whether or not an aggrieved party in a voluntary arbitration dispute may avail of, directly in the CA, a petition
for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court, instead of filing a petition to
vacate the award in the.

RULING: The CA’s decision is sound. A petition for review under Rule 43 or a petition for certiorari under Rule 65 directly
in the CA is NOT the proper remedy.

RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over questions relating to
arbitration, such as a petition to vacate an arbitral award.

As RA 876 did not expressly provide that errors of fact and/or law and grave abuse of discretion, which is the proper
grounds for a petition for review under Rule 43 and a petition for certiorari under Rule 65, This means that such ground
is not acceptable for maintaining a petition to vacate an arbitral award in the RTC. Thus, it follows that a party may not
avail of the remedies under Rule 43 and Rule 65 on the grounds of errors of fact and/or law or grave abuse of discretion
to overturn an arbitral award.