Benguet v. DENR, G.R. No.

163101 LOJA
G.R. No. 163101
Date: February 13, 2008
Ponente: VELASCO, JR., J
 
Petitioner: BENGUET CORPORATION
Respondent: DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES
ADJUDICATION BOARD (DENR-MAB) and J.G. REALTY AND MINING CORPORATION
 
DOCTRINE: In the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the
court or quasi-judicial agency shall determine whether such contractual provision for arbitration
is sufficient and effective. If in affirmative, the court or quasi-judicial agency shall then order
the enforcement of said provision.

FACTS: On June 1, 1987, Benguet and J.G. Realty entered into a Royalty Agreement with
Option to Purchase (RAWOP), wherein J.G. Realty was acknowledged as the owner of four
mining claims respectively named as Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a total
area of 288.8656 hectares, situated in Barangay Luklukam, Sitio Bagong Bayan, Municipality of
Jose Panganiban, Camarines Norte. The parties also executed a Supplemental Agreement dated
June 1, 1987. The mining claims were covered by Mineral Production Sharing Agreement
(MPSA) application jointly filed by J.G. Realty as claimowner and Benguet as operator.

In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or
otherwise acquire the mining rights to the mineral claims. Within 24 months from the execution
of the RAWOP, Benguet should also cause the examination of the mining claims for the purpose
of determining whether or not they are worth developing with reasonable probability of
profitable production. Benguet undertook also to furnish J.G. Realty with a report on the
examination, within a reasonable time after the completion of the examination. Moreover, also
within the examination period, Benguet shall conduct all necessary exploration in accordance
with a prepared exploration program. If it chooses to do so and before the expiration of the
examination period, Benguet may undertake to develop the mining claims upon written notice
to J.G. Realty. Benguet must then place the mining claims into commercial productive stage
within 24 months from the written notice. It is also provided in the RAWOP that if the mining
claims were placed in commercial production by Benguet, J.G. Realty should be entitled to a
royalty of five percent (5%) of net realizable value, and to royalty for any production done by
Benguet whether during the examination or development periods.

On August 9, 1989, Benguet issued a letter informing J.G. Realty of its intention to develop the
mining claims. However, on February 9, 1999, J.G. Realty then sent a letter to Benguet
informing the latter that it was terminating the RAWOP on the following grounds:
a. The fact that your company has failed to perform the obligations set forth in the RAWOP,
i.e., to undertake development works within 2 years from the execution of the
Agreement;
b. Violation of the Contract by allowing high graders to operate on our claim.
c. No stipulation was provided with respect to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as provided in the RAWOP.
 J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP with the
Legaspi City Mines Adjudication Board (MAB) Panel of Arbitrators (POA). On March 19,
2001, the POA issued a decision in favor of J.G. Realty: 1) cancelling the RAWOP and
the Supplemental Agreement, and 2) excluding Benguet from the joint MPSA Application
over the mineral claims denominated as "BONITO-I", "BONITO-II", "BONITO-III" and
"BONITO-IV".

Benguet filed a Notice of Appeal with the MAB. On December 2, 2002, the MAB upheld the
March 19, 2001 Decision which canceled the RAWOP and excluded Benguet from the joint
MPSA application over four mining claims. Benguet then filed a Motion for Reconsideration but
it was denied by MAB. Benguet filed the instant petition under Rule 65 of the Rules of Court.

ISSUE: Should the controversy have first been submitted to arbitration before the POA took
cognizance of the case?

RULING: The case should have first been brought to voluntary arbitration before the POA

J.G. Realty’s contention, that prior resort to arbitration is unavailing in the instant case because
the POA’s mandate is to arbitrate disputes involving mineral agreements, is misplaced.
Compulsory arbitration has been defined both as "the process of settlement of … disputes by a
government agency which has the authority to investigate and to make an award which is
binding on all the parties, and as a mode of arbitration where the parties are compelled to
accept the resolution of their dispute through arbitration by a third party. A voluntary arbitrator
is not part of the governmental unit…, said arbitrator renders arbitration services provided for
under… law(s). The arbitration provided by the POA is compulsory, while the nature of the
arbitration provision in the RAWOP is voluntary, not involving any government agency.

The RAWOP pertinently provide:

“Any disputes, differences or disagreements between BENGUET and the OWNER with reference
to anything whatsoever pertaining to this Agreement that cannot be amicably settled by
them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a
Board of Arbitrators consisting of three (3) members, one to be selected by BENGUET,
another to be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.

No action shall be instituted in court as to any matter in dispute as hereinabove stated, except
to enforce the decision of the majority of the Arbitrators.”

In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof
that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Availment of voluntary arbitration before resort is
made to the courts or quasi-judicial agencies of the government is a valid contractual stipulation
that must be adhered to by the parties.
Moreover, RA 876 provides that ”if any suit or proceeding be brought upon an issue arising out
of an agreement providing for the arbitration thereof, the court in which such suit or proceeding
is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to
arbitration, shall stay the action or proceeding until an arbitration has been had in accordance
with the terms of the agreement. Thus, in the event a case that should properly be the subject
of voluntary arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion
of the defendant, the court or quasi-judicial agency shall determine whether such contractual
provision for arbitration is sufficient and effective. If in affirmative, the court or quasi-judicial
agency shall then order the enforcement of said provision.

However, Benguet is already estopped from questioning the POA’s jurisdiction. For participating
in the proceedings, it impliedly recognized the MAB’s jurisdiction. What Benguet should have
done was to immediately challenge the POA’s jurisdiction by a special civil action for certiorari
when POA ruled that it has jurisdiction over the dispute. To redo the proceedings fully
participated in by the parties after the lapse of seven years from date of institution of the
original action with the POA would be anathema to the speedy and efficient administration of
justice.