Arbitration in General, ADR Act of 2004

Benguet Corp vs Department of Environment and Natural Resources – Mines Adjudication board 545
SCRA 196 (2008)

FACTS:  

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.

The Executive Vice-President of Benguet, Antonio N. Tachuling, issued a letter informing J.G. Realty of
its intention to develop the mining claims. However, , J.G. Realty, through its President, Johnny L. Tan,
then sent a letter to the President of Benguet informing the latter that it was terminating the RAWOP
on the ground that petitioner-corporation has failed to perform the obligation set forth in the
agreement.

In response, Benguet's Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter
alleging that Benguet complied with its obligations under the RAWOP by investing PhP42.4 million to
rehabilitate the mines, and that the commercial operation was hampered by the non-issuance of a
Mines Temporary Permit by the Mines and Geosciences Bureau (MGB) which must be considered as
force majeure, entitling Benguet to an extension of time to prosecute such permit.

J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP. The Panel of
Arbitrators (POA) issued a decision, dwelling upon the issue, among many, whether the arbitrators had
jurisdiction over the case holding that the RAWOP and its supplemental agreement is cancelled and
without effect.

ISSUE: 

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

RULING:

Yes. The case should have first been brought to voluntary arbitration before the POA.

The RAWOP provides for an arbitration clause which states that “any disputes, difference or
disagreements between Benguet and the Owner with reference to anything whatsoever pertaining to
this agreement ….shall not be a cause of any action…but shall be referred to a board of arbitrators.”

Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration before
taking cognizance of the case.

Sec. 2 of RA 876 (Arbitration Law) elucidates the scope of arbitration:

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. Thus, petitioner correctly cites several cases whereby arbitration clauses have been
upheld by this Court.

Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the two
laws. Such is not the case here. To reiterate, 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. As stated in Secs. 6 and 7 of RA 876:

Section 6. Hearing by court. –– A party aggrieved by the failure, neglect or refusal of another to
perform under an agreement in writing providing for arbitration may petition the court for an order
directing that such arbitration proceed in the manner provided for in such agreement….. The court
shall hear the parties, and upon being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the making of the agreement or default be in issue the
court shall proceed to summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and
there is a default in proceeding thereunder, an order shall be made summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof.

In other words, 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.

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. A distinction must
be made between voluntary and compulsory arbitration. In Ludo and Luym Corporation v. Saordino,
the Court had the occasion to distinguish between the two types of arbitrations:

Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has been defined
both as "the process of settlement of labor 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." While a voluntary arbitrator is not part of the governmental unit or labor department's
personnel, said arbitrator renders arbitration services provided for under labor laws.

There is a clear distinction between compulsory and voluntary arbitration. 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. Thus, J.G. Realty's argument on this matter must fail.

As to J.G. Realty's contention that the provisions of RA 876 cannot apply to the instant case which
involves an administrative agency, it must be pointed out that Section 11.01 of the RAWOP states that:

[Any controversy with regard to the contract] 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

There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered into by
the parties, must be held binding against them.

In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we find
that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the arbitration
law.

However, we find that Benguet is already estopped from questioning the POA's jurisdiction. As it were,
when J.G. Realty filed DENR Case No. 2000- 01, Benguet filed its answer and participated in the
proceedings before the POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision was
rendered, it filed an appeal with the MAB in Mines Administrative Case No. R-M-2000-01 and again
participated in the MAB proceedings. When the adverse December 2, 2002 MAB Decision was
promulgated, it filed a motion for reconsideration with the MAB. When the adverse March 17, 2004
MAB Resolution was issued, Benguet filed a petition with this Court pursuant to Sec. 79 of RA 7942
impliedly recognizing MAB's jurisdiction. In this factual milieu, the Court rules that the jurisdiction of
POA and that of MAB can no longer be questioned by Benguet at this late hour. 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.