NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN INTERNATIONAL UNDERWRITER (PHIL.) INC. PETITIONER, VS. STOLT-NIELSEN PHILIPPINES, INC. AND COURT OF APPEALS, RESP…

We uphold the ruling of respondent Court of Appeals that the
claim or dispute herein is arbitrable.

On 9 January 1985, United Coconut Chemicals, Inc. (hereinafter
referred to as SHIPPER) shipped 404.774 metric tons of distilled C6-C18 fatty
acid on board MT “Stolt Sceptre,”
a tanker owned by Stolt-Nielsen Philippines Inc.
(hereinafter referred to as CARRIER), from Bauan, Batangas, Philippines, consigned to “Nieuwe Matex” at Rotterdam,
Netherlands, covered by Tanker Bill of Lading B/L No. BAT-1.  The shipment was insured under a marine cargo
policy with Petitioner National Union Fire Insurance Company of Pittsburg
(hereinafter referred to as INSURER), a non-life American insurance
corporation, through its settling agent in the Philippines, the American
International Underwriters (Philippines), Inc., the other petitioner herein.

It appears that the Bill of Lading issued by the CARRIER
contained a general statement of incorporation of the terms of a Charter Party
between the SHIPPER and Parcel Tankers, Inc., entered into in Greenwich,
Connecticut, U.S.A.

Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it
was found to be discolored and totally contaminated.  The claim filed by the SHIPPER-ASSURED with
the CARRIER having been denied, the INSURER indemnified the SHIPPER pursuant to
the stipulation in the marine cargo policy covering said shipment.

On 21 April 1986, as subrogee of the
SHIPPER-ASSURED, the INSURER filed suit against the CARRIER, before the
Regional Trial Court of Makati, Branch 58 (RTC), for
recovery of the sum of P1,619,469.21, with interest, representing the amount
the INSURER had paid the SHIPPER-ASSURED. 
The CARRIER moved to dismiss/suspend the proceedings on the ground that
the RTC had no jurisdiction over the claim the same being an arbitrable one; that as subrogee
of the SHIPPER-ASSURED, the INSURER is subject to the provisions of the Bill of
Lading, which includes a provision that the shipment is carried under and
pursuant to the terms of the Charter Party, dated 21 December 1984, between the
SHIPPER-ASSURED and Parcel Tankers, Inc. providing for arbitration.

The INSURER opposed the dismissal/suspension of the proceedings
on the ground that it was not legally bound to submit the claim for arbitration
inasmuch as the arbitration clause provided in the Charter Party was not
incorporated into the Bill of Lading, and that the arbitration clause is void
for being unreasonable and unjust.  On 28
July 1987, the RTC^[1]
denied the Motion, but subsequently reconsidered its action on 19 November
1987, and deferred resolution on the Motion to Dismiss/Suspend Proceedings
until trial on the merits “since the ground alleged in said motion does
not appear to be indubitable.”

The CARRIER then resorted to a Petition for Certiorari and
Prohibition with prayer for Preliminary Injunction and/or Temporary Restraining
Order before the respondent Appellate Court seeking the annulment of the 19
November 1987 RTC Order.  On 12 April
1989, the respondent Court^[2]
promulgated the Decision now under review, with the following dispositive tenor:

“WHEREFORE, the order of respondent Judge dated November 19,
1987 deferring resolution on petitioner Stolt-Nielsen’s
Motion to Dismiss/Suspend Proceedings is hereby SET ASIDE; private respondent
NUFIC (the INSURER) is ordered to refer its claims for arbitration; and
respondent Judge is directed to suspend the proceedings in Civil Case No. 13498
pending the return of the corresponding arbitral award.”

On 21 August 1989, we resolved to give due course and required
the parties to submit their respective Memoranda, which they have done, the
last filed having been Noted on 23 October 1989.

First, herein petitioner-INSURER alleges that the RTC Order
deferring resolution of the CARRIER’S Motion to Dismiss constitutes an
interlocutory order, which can not be the subject of a special civil action on certiorari
and prohibition.

Generally, this would be true. 
However, the case before us falls under the exception.  While a Court Order deferring action on a
motion to dismiss until the trial is interlocutory and cannot be challenged
until final judgment, still, where it clearly appears that the trial Judge or
Court is proceeding in excess or outside of its jurisdiction, the remedy of
prohibition would lie since it would be useless and a waste of time to go ahead
with the proceedings (University of Sto. Tomas vs.
Villanueva, 106 Phil. 439, [1959] citing Philippine International Fair, Inc.,
et al., vs. Ibanez, et al., 94 Phil. 424 [1954]; Enrique vs. Macadaeg, et al., 84 Phil. 674 [1949]; San Beda College vs. CIR, 97 Phil. 787. [1955]).  Even a cursory reading of the subject Bill of
Lading, in relation to the Charter Party, reveals the Court’s patent lack of
jurisdiction to hear and decide the claim.

We proceed to the second but more crucial issue:  Are the terms of the Charter Party,
particularly the provision on arbitration, binding on the INSURER?

The INSURER postulates that it cannot be bound by the Charter
Party because, as insurer, it is subrogee only with
respect to the Bill of Lading; that only the Bill of Lading should regulate the
relation among the INSURER, the holder of the Bill of Lading, and the CARRIER;
and that in order to bind it, the arbitral clause in the Charter Party should
have been incorporated into the Bill of Lading.

We rule against that submission.

The pertinent portion of the Bill of Lading in issue provides in
part:

“This shipment is carried under and pursuant to the terms of
the Charter dated December 21st 1984 at Greenwich, Connecticut, U.S.A. between
Parcel Tankers, Inc. and United Coconut Chemicals, Inc. as Charterer
and all the terms whatsoever of the said Charter except the rate and
payment of freight specified therein apply to and govern the rights of the
parties concerned in this shipment.  Copy
of the Charter may be obtained from the Shipper or Charterer.”
(Emphasis ours)

While the provision on arbitration in the Charter Party reads:

“H. Special Provisions.

x x x                       x x x

4.       Arbitration.  Any dispute arising from the making,
performance or termination of this Charter Party shall be settled in New York,
Owner and Charterer each appointing an arbitrator,
who shall be a merchant, broker or individual experienced in the shipping
business; the two thus chosen, if they cannot agree, shall nominate a third
arbitrator who shall be an admiralty lawyer. 
Such arbitration shall be conducted in conformity with the provisions
and procedure of the United States arbitration act,
and a judgment of the court shall be entered upon any award made by said
arbitrator.  Nothing in this clause shall
be deemed to waive Owner’s right to lien on the cargo for freight, deed of
freight, or demurrage.”

Clearly, the Bill of Lading incorporates by reference the terms
of the Charter Party.  It is settled law
that the charter may be made part of the contract under which the goods are
carried by an appropriate reference in the Bill of Lading (Wharton Poor,
Charter Parties and Ocean Bills of Lading (5th ed., p. 71). This should include
the provision on arbitration even without a specific stipulation to that
effect.  The entire contract must be read
together and its clauses interpreted in relation to one another and not by
parts.  Moreover, in cases where a Bill
of Lading has been issued by a carrier covering goods shipped aboard a vessel
under a charter party, and the charterer is also the
holder of the bill of lading, “the bill of lading operates as the receipt
for the goods, and as document of title passing the property of the goods, but
not as varying the contract between the charterer and
the shipowner” (In re Marine Sulphur
Queen, 460 F 2d 89, 103 [2d Cir. 1972]; Ministry of Commerce vs. Marine Tankers
Corp. 194 F Supp 161, 163 [S.D.N.Y. 1960]; Greenstone Shipping Co., S.A. vs. Transworld Oil Ltd., 588 F Supp [D.E1. 1984]).  The Bill of Lading becomes, therefore, only a
receipt and not the contract of carriage in a charter of the entire vessel, for
the contract is the Charter Party (Shell Oil Co. vs. M/T Gilda, 790 F 2d 1209,
1212 [5th Cir. 1986]; Home Insurance Co. vs. American Steamship Agencies, Inc.,
G. R. No. L-25599, 4 April 1968, 23 SCRA 24), and is the law between the
parties who are bound by its terms and condition provided that these are not
contrary to law, morals, good customs, public order and public policy (Article
1306, Civil Code).

As the respondent Appellate Court found, the INSURER “cannot
feign ignorance of the arbitration clause since it was already charged with
notice of the existence of the charter party due to an appropriate reference thereof
in the bill of lading and, by the exercise of ordinary diligence, it could have
easily obtained a copy thereof either from the shipper or the charterer.”

We hold, therefore, that the INSURER cannot avoid the binding
effect of the arbitration clause.  By
subrogation, it became privy to the Charter Party as fully as the SHIPPER
before the latter was indemnified, because as subrogee,
it stepped into the shoes of the SHIPPER-ASSURED and is subrogated merely to
the latter’s rights.  It can recover only
the amount that is recoverable by the assured. 
And since the right of action of the SHIPPER-ASSURED is governed by the
provisions of the Bill of Lading, which includes by reference the terms of the
Charter Party, necessarily, a suit by the INSURER is subject to the same
agreements (see St. Paul Fire and Marine Insurance Co. vs. Macondary,
G.R. No. L-27796, 25 March 1976, 70 SCRA 122).

Stated otherwise, as the subrogee of
the SHIPPER, the INSURER is contractually bound by the terms of the Charter
party.  Any claim of inconvenience or
additional expense on its part should not render the arbitration clause
unenforceable.

Arbitration, as an alternative mode of settling disputes, has
long been recognized and accepted in our jurisdiction (Chapter 2, Title XIV,
Book IV, Civil Code). 
Republic Act No. 876 (The Arbitration Law) also expressly authorizes
arbitration of domestic disputes. 
Foreign arbitration as a system of settling commercial disputes of an
international character was likewise recognized when the Philippines adhered to
the United Nations “Convention on the Recognition and the Enforcement of
Foreign Arbitral Awards of 1958,” under the 10 May 1965 Resolution No. 71
of the Philippine Senate, giving reciprocal recognition and allowing enforcement
of international arbitration agreements between parties of different
nationalities within a contracting state. 
Thus, it pertinently provides:

“1.     Each Contracting State shall recognize an
agreement in writing under which the parties undertake to submit to arbitration
all or any differences which have
arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not, concerning a subject matter capable
of settlement by arbitration.

“2.     The term ‘agreement in writing’ shall include
an arbitral clause in a contract or an arbitration agreement, signed by the
parties or contained in an exchange of letters or telegrams.

“3.     The court of a Contracting State, when
seized of an action in a matter in respect of which the parties have made an
agreement within the meaning of this article, shall, at the request of one of
the parties, refer the parties to arbitration, unless it finds that the said
agreement is null and void, inoperative
or incapable of being performed.”

It has not been shown that the arbitral clause in question is
null and void, inoperative, or incapable of being performed.  Nor has any conflict been pointed out between
the Charter Party and the Bill of Lading.

In fine, referral to arbitration in New York pursuant to the arbitration
clause, and suspension of the proceedings in Civil Case no. 13498 below,
pending the return of the arbitral award, is, indeed called for.

WHEREFORE, finding no
reversible error in respondent Appellate Court’s 12 April 1989 Decision, the
instant Petition for Review on Certiorari is DENIED and the said
judgment is hereby AFFIRMED.  Costs against petitioners.

SO ORDERED.

Padilla, Sarmiento, and Regalado, JJ., concur.

Paras, J., no part.

^[1] Judge Zosimo
Z. Angeles, Presiding.

^[2] Penned by Justice Santiago M. Kapunan and concurred in by Justices Ricardo J. Francisco
and Abelardo M. Dayrit.