Define Arbitration. How is this distinguished from

mediation?

2.       Distinguish compulsory arbitration from voluntary

arbitration.

3.       Distinguish domestic vs international commercial vs

foreign arbitration.

4.       What is an arbitration agreement? When shall it be

considered as valid and enforceable upon the parties?
Distinguish an arbitration agreement contained in the container
contract vs one that is constituted in a separate contract.

5.       What is the doctrine of separability?

6.       What is the role of the courts in Arbitration proceedings?

When can parties in these proceedings ask the court for Judicial
Review and Intervention?

7.       What are interim measures in arbitration? Distinguish

interim measures sought under the ordinary Rules of Court vs
one sought under the ADR Act and the Special Rules on ADR.

8.       Digest the following cases :

a.       Gonzales vs Climax Mining Litd (GR 161957 and 167994)

b.       Cargill Philippines, Inc vs San Fernando Regala Trading Inc

641 SCRA 31 (2011)

Answer
1. As defined under the ADR Act, Arbitration is a voluntary dispute resolution process in
which one or more arbitrators, appointed in accordance with the agreement of the
parties or rules promulgated pursuant to the ADR Act, resolve a dispute by rendering an
award.
2. Arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to
abide by the arbitral award issued after the proceedings where both parties had
opportunity to be heard, while, compulsory arbitration is 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 parties, and as a mode of arbitration where the parties are
compelled to accept the resolution of their despite through arbitration by a third party.
3. As emphasized in the ADR Act, arbitration is domestic if the components of parties’
places of business, place of arbitration, place of performance of a substantial part of the
obligation, and place where the subject matter of the dispute is most closely located in
the Philippines. In contrast, it is considered as an international commercial arbitration if
the instances are mostly connected outside the Philippines. An international arbitration
is at the same time commercial if it covers matters arising from all relationships of a
commercial nature, whether contractual or not.
4. Arbitration agreement is the agreement of the parties to submit to arbitration all or
certain disputes which have arisen, or which may arise between them in respect of a
defined legal relationship.
By nature, an arbitration agreement is contractual. As such, it should have the essential
elements of a contract such as (1) consent of the parties freely given, (2) the cause or
consideration, and (3) the lawful object. Thus, it shall be considered valid and
enforceable when all the essential elements are present.
Arbitration agreement contained in the container contract is referred to as an
arbitration clause or a compromissoire, or maybe constituted in a separate contract.
5. The doctrine of separability enunciates that an arbitration agreement is independent of
the main contract even if it is contained in an arbitration clause
6. The role in the courts in the arbitration proceedings is to give judicial intervention in
arbitration, namely: (a) judicial assistance; (b) judicial review of arbitral awards; and (c)
judicial review of court decisions in ADR related cases.
In judicial assistance the parties can ask to secure from the court orders or processes
that will aid in the conduct of the arbitration. The second judicial review of arbitral
awards involves passing upon, to the extent allowed and on grounds provided for by
law. In judicial review of court decisions , the parties can ask for remedies available from
decisions or orders of the RTC and CA.
7. Complementation between arbitration and court action is best exemplified in the area
of interim measures in arbitration. These are ancillary remedies intended for the
protection of the subject matter of the accused.
The Special ADR Rules shall be governed when the arbitral tribunal cannot grant the
interim measure such as when the arbitral tribunal is not yet constituted. A provisional
remedy under the Rules of Court cannot exist without a principal cause of action. The
same is not true under ADR Act. A court cannot refuse to grant, implement or enforce a
 petition for an interim measure on the sole ground that the petition is merely an
ancillary relief and the principal action is pending with the arbitral tribunal.

a. Gonzales vs Climax Mining Litd (GR 161957 and 167994)

FACTS
The case is a consolidation of two petitions rooted in the same disputed Addendum Contract
entered into by the parties.
In GR No. 161957, the Court had 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.
Both parties filed separate motions for reconsideration. 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. On the other hand, Climax Mining Ltd., et al., citing American
jurisprudence and the UNCITRAL Model Law, 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.
In GR No. 167994, Gonzales challenged the order of the RTC requiring him to proceed with the
arbitration proceedings which was sought by Climax-Arimco while the complaint for the nullification of
the Addendum Contract was pending before the DENR Panel of Arbitrators. Gonzales argued that the
Addendum Contract was void, thus the arbitration clause contained therein was likewise void ab initio.
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.
However, Climax-Arimco countered that Gonzales’s attack on or repudiation of the Addendum
Contract is not a ground to deny effect to the arbitration clause in the Contract. Section 2, par. 1 of RA
876 itself considers the arbitration stipulation an independent contract in its own right whose
enforcement may be prevented only on grounds which legally make the arbitration agreement itself
revocable.
Likewise, Climax-Arimco emphasized that in Sec. 24 of RA 9285, the court, instead of trying the
case, may, on request of either or both parties, refer the parties to arbitration, unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being performed. Arbitration may
even be ordered in the same suit brought upon a matter covered by an arbitration agreement even
without waiting for the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the
UNCITRAL Model Law states that where a court before which an action is brought in a matter which is
subject of an arbitration agreement refers the parties to arbitration, the arbitral proceedings may
proceed even while the action is pending.

ISSUE
Whether the question of validity of the Addendum Contract affects the applicability or
enforceability of the arbitration clause contained therein

HELD
NO. The doctrine of separability, or severability as other writers call it, 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 separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law
and Art. 21(2) of the UNCITRAL Arbitration Rules.
The SC held in Manila Electric Co. v. Pasay Transportation Co. that a submission to arbitration is
a contract. A clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract, and in Del Monte Corporation-USA v. Court of Appeals, that “[t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is
part of that contract and is itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and heirs.”

Facts

San Fernando Regala Trading filed before the trial court a complaint for rescission of contract
with damages against Cargill Philippines, Inc. In its complaint, San Fernando Regala Trading
alleged that it was engaged in buying and selling molasses and that Cargill was one of its
suppliers. San Fernando Regala Trading alleged that it purchased from Cargill, and the latter had
agreed to sell, 12,000 tons of cane blackstrap molasses originating from Thailand at the price of
$192 per metric ton, and that delivery would be made in April or May 1997. After San Fernando
Regala Trading delivered the letter of credit, it claimed that Cargill failed to comply with its
obligations under the contract, which included an arbitration clause as follows:

"Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties."

Cargill moved to dismiss and/or suspend the court proceedings citing the arbitration clause. San
Fernando Regala Trading argued that since it was seeking rescission of the contract, it was in
effect repudiating the contract which included the arbitration clause. Further, it argued that
rescission constitutes a judicial issue, which requires the exercise of judicial function and cannot
be the subject of arbitration.

Issue:
Whether the CA erred in finding that this case cannot be brought under the arbitration law for
the purpose of suspending the proceedings in the RTC.

Decision

The Supreme Court held that the provision to submit to arbitration any dispute arising between
the parties is part of the contract and is itself a contract. The arbitration agreement is to be
treated as a separate agreement and does not automatically terminate when the contract of
which it is a part comes to an end. To reiterate 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 seeks to avoid.

San Fernando Regala Trading filed a complaint for rescission of contract and damages with the
trial court. In so doing, it alleged that a contract existed. It was that contract which provided for
an arbitration clause which expressed the parties' intention that any dispute to arise between
them, as buyer and seller, should be referred to arbitration. It is for the arbitrator and not the
court to decide whether a contract between the parties exists or is valid. Under the
circumstances, the argument that rescission is judicial in nature is misplaced.