Alnor G.

Budi LLB-2A
Case Digest The Philippine Mining Act of 1995

SECOND DIVISION

[G.R. NO. 161957 : February 28, 2005]

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners, v. CLIMAX MINING LTD., CLIMAX-
ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC., Respondents.

DECISION

TINGA, J.:

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 Contract 3 (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
Alnor G. Budi LLB-2A
Case Digest The Philippine Mining Act of 1995

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: A.) Whether the complaint filed by petitioner raises a mining dispute over which the Panel of
Arbitrators has jurisdiction.

RULING: No. It was not a mining dispute. 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.

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.

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.

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 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.

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.

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.