THIRD DIVISION
|
KEPPEL CEBU SHIPYARD, INC., Petitioner, - versus - PIONEER INSURANCE AND
SURETY CORPORATION, Respondent. X - - - - - - - - - - - - - - - - - - - - - - - -
- - - - X PIONEER INSURANCE AND
SURETY CORPORATION, Petitioner, - versus - KEPPEL CEBU SHIPYARD, INC., Respondent. |
G.R.
Nos. 180880-81
G.R.
Nos. 180896-97
Present: YNARES-SANTIAGO, J.,*
Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ. Promulgated: September
25, 2009 |
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before
us are the consolidated petitions filed by the parties—Pioneer Insurance and
Surety Corporation[1]
(Pioneer) and Keppel Cebu Shipyard, Inc.[2]
(KCSI)—to review on certiorari the
Decision[3]
dated December 17, 2004 and the Amended Decision[4]
dated December 20, 2007 of the Court of Appeals (CA) in CA-G.R. SP Nos. 74018
and 73934.
On
January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement[5]
wherein KCSI would renovate and reconstruct WG&A’s M/V “Superferry 3” using
its dry docking facilities pursuant to its restrictive safety and security
rules and regulations. Prior to the
execution of the Shiprepair Agreement, “Superferry 3” was already insured by
WG&A with Pioneer for US$8,472,581.78.
The Shiprepair Agreement reads—
SHIPREPAIR AGREEMENT[6]
Company: WG
& A JEBSENS SHIPMANAGEMENT INC.
Address: Harbour
Center II, Railroad & Chicago Sts.
Port
Area, City of
We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V “SUPERFERRY 3”
and KEPPEL CEBU SHIPYARD, INC. (KCSI)
enter into an agreement that the Drydocking and Repair of the above-named
vessel ordered by the Owner’s Authorized Representative shall be carried out under
the Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair,
guidelines and regulations on safety and security issued by Keppel Cebu
Shipyard. In addition, the following are
mutually agreed upon by the parties:
1.
The
Owner shall inform its insurer of Clause 20[7]
and 22 (a)[8]
(refer at the back hereof) and shall include Keppel Cebu Shipyard as a
co-assured in its insurance policy.
2.
The
Owner shall waive its right to claim for any loss of profit or loss of use or
damages consequential on such loss of use resulting from the delay in the
redelivery of the above vessel.
3.
Owner’s
sub-contractors or workers are not permitted to work in the yard without the
written approval of the Vice President – Operations.
4.
In
consideration of Keppel Cebu Shipyard allowing Owner to carry out own repairs
onboard the vessel, the Owner shall indemnify and hold Keppel Cebu Shipyard
harmless from any or all claims, damages, or liabilities arising from death or
bodily injuries to Owner’s workers, or damages to the vessel or other property
however caused.
5.
On
arrival, the Owner Representative, Captain, Chief Officer and Chief Engineer
will be invited to attend a conference with our Production, Safety and Security
personnel whereby they will be briefed on, and given copies of Shipyard safety
regulations.
6.
An
adequate number of officers and crew must remain on board at all times to
ensure the safety of the vessel and compliance of safety regulations by crew
and owner employed workmen.
7.
The
ship’s officers/crew or owner appointed security personnel shall maintain watch
against pilferage and acts of sabotage.
8.
The yard
must be informed and instructed to provide the necessary security arrangement
coverage should there be inadequate or no crew on board to provide the
expressed safety and security enforcement.
9.
The
Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodily
injuries for the [K]eppel Cebu Shipyard’s employees and/or contract workers;
theft and/or damages to Keppel Cebu Shipyard’s properties and other liabilities
which are caused by the workers of the Owner.
10. The invoice shall be based on quotation
reference 99-KCSI-211 dated December 20, 1999 tariff dated March
15, 1998.
11. Payment term shall be as follows:
12. The Owner and Keppel Cebu Shipyard shall
endeavor to settle amicably any dispute that may arise under this
Agreement. Should all efforts for an
amicable settlement fail, the disputes shall be submitted for arbitration in
Metro Manila in accordance with provisions of Executive Order No. 1008 under
the auspices of the Philippine Arbitration Commission.
(Signed)
BARRY CHIA SOO HOCK _________(Signed)__________
(Printed Name/Signature Above Name)
(Printed Name/Signature Above Name)
Vice President – Operations Authorized Representative
Keppel Cebu Shipyard, Inc. for and in behalf of:
WG & A Jebsens Shipmgmt.
JAN. 26, 2000
. ________________________
Date Date
On
February 8, 2000, in the course of its repair, M/V “Superferry 3” was gutted by
fire. Claiming that the extent of the
damage was pervasive, WG&A declared the vessel’s damage as a “total
constructive loss” and, hence, filed an insurance claim with Pioneer.
On
June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of
US$8,472,581.78. WG&A, in turn,
executed a Loss and Subrogation Receipt[9] in
favor of Pioneer, to wit:
LOSS AND SUBROGATION RECEIPT
16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
------------------------------------------------
RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of U.S. DOLLARS EIGHT MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE HUNDRED EIGHTY-ONE & 78/100 (US$ 8,472,581.78) equivalent to PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php 360,000,000.00), in full satisfaction, compromise and discharge of all claims for loss and expenses sustained to the vessel “SUPERFERRY 3” insured under Policy Nos. MH-H0-99-0000168-00-D (H&M) and MH-H0-99-0000169 (I.V.) by reason as follows:
Fire on board at Keppel Cebu Shipyard
on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers to the said company each and all claims and demands against any person, persons, corporation or property arising from or connected with such loss or damage and the said company is subrogated in the place of and to the claims and demands of the undersigned against said person, persons, corporation or property in the premises to the extent of the amount above-mentioned.
WILLIAM, GOTHONG & ABOITIZ, INC.
&/OR
ABOITIZ SHIPPING CORP.
By: (Signed)
______________________________________
Witnesses: (Signed)
______________________________________
(Signed)
______________________________________
Armed with the subrogation receipt,
Pioneer tried to collect from KCSI, but the latter denied any responsibility
for the loss of the subject vessel. As
KCSI continuously refused to pay despite repeated demands, Pioneer, on August
7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the
following reliefs:
1.
To pay
to the claimant Pioneer Insurance and Surety Corporation the sum of
U.S.$8,472,581.78 or its equivalent amount in Philippine Currency, plus
interest thereon computed from the date of the “Loss and Subrogation Receipt”
on 16 June 2000 or from the date of filing of [the] “Request for Arbitration,”
as may be found proper;
2.
To pay
to claimant WG&A, INC. and/or Aboitiz Shipping Corporation and WG&A
Jebsens Shipmanagement, Inc. the sum of P500,000,000.00 plus interest
thereon from the date of filing [of the] “Request for Arbitration” or date of
the arbitral award, as may be found proper;
3.
To pay
to the claimants herein the sum of P3,000,000.00 for and as attorney’s
fees; plus other damages as may be established during the proceedings,
including arbitration fees and other litigation expenses, and the costs of
suit.
It is likewise further prayed that Clauses 1
and 2 on the unsigned page 1 of the “Shiprepair Agreement” (Annex “A”) as well
as the hardly legible Clauses 20 and 22 (a) and other similar clauses printed
in very fine print on the unsigned dorsal page thereof, be all declared illegal
and void ab initio and without any
legal effect whatsoever.[10]
KCSI and WG&A reached an amicable
settlement, leading the latter to file a Notice of Withdrawal of Claim on April
17, 2001 with the CIAC. The CIAC granted
the withdrawal on October 22, 2001, thereby dismissing the claim of WG&A
against KCSI. Hence, the arbitration
proceeded with Pioneer as the remaining claimant.
In the course of the proceedings,
Pioneer and KCSI stipulated, among others, that: (1) on January 26, 2000, M/V
“Superferry 3” arrived at KCSI in Lapu-Lapu City, Cebu, for dry docking and
repairs; (2) on the same date, WG&A signed a ship repair agreement with
KCSI; and (3) a fire broke out on board M/V “Superferry 3” on February 8, 2000,
while still dry docked in KCSI’s shipyard.[11]
As regards the disputed facts, below
are the respective positions of the parties, viz.:
Pioneer’s Theory of the Case:
First, Pioneer (as Claimant) is the real
party in interest in this case and that Pioneer has been subrogated to the
claim of its assured. The Claimant claims
that it has the preponderance of evidence over that of the Respondent. Claimant cited documentary references on the Statutory Source of the Principle of
Subrogation. Claimant then proceeded
to explain that the Right of Subrogation:
Is
by Operation of Law
exists
in Property Insurance
is
not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of
Rights to Insurer and that the Right
of Subrogation Entitles Insurer to Recover from the Liable Party.
Second, Respondent Keppel had custody of and
control over the M/V “Superferry 3” while said vessel was in Respondent
Keppel’s premises. In its Draft
Decision, Claimant stated:
A.
The
evidence presented during the hearings indubitably proves that respondent not
only took custody but assumed responsibility and control over M/V Superferry 3
in carrying out the dry-docking and repair of the vessel.
B.
The
presence on board the M/V Superferry 3 of its officers and crew does not
relieve the respondent of its responsibility for said vessel.
C.
Respondent
Keppel assumed responsibility over M/V Superferry 3 when it brought the vessel
inside its graving dock and applied its own safety rules to the dry-docking and
repairs of the vessel.
D.
The
practice of allowing a shipowner and its sub-contractors to perform maintenance
works while the vessel was within respondent’s premises does not detract from
the fact that control and custody over M/V Superferry 3 was transferred to the
yard.
From the preceding statements, Claimant
claims that Keppel is clearly liable for the loss of M/V Superferry 3.
Third, the Vessel’s Safety Manual cannot be
relied upon as proof of the Master’s continuing control over the vessel.
Fourth, the Respondent Yard is liable under
the Doctrine of Res Ipsa Loquitur. According to Claimant, the Yard is liable
under the ruling laid down by the Supreme Court in the “
Fifth, the liability of Respondent does not
arise merely from the application of the Doctrine of Res Ipsa Loquitur, but from its negligence
in this case.
Sixth, the Respondent Yard was the employer
responsible for the negligent acts of the welder. According to Claimant;
In contemplation of law, Sevillejo was not a
loaned servant/employee. The yard, being
his employer, is solely and exclusively liable for his negligent acts. Claimant proceeded to enumerate its reasons:
A.
The “Control Test” – The yard exercised
control over Sevillejo. The power of
control is not diminished by the failure to exercise control.
B.
There
was no independent work contract between Joniga and Sevillejo – Joniga was not
the employer of Sevillejo, as Sevillejo remained an employee of the yard at the
time the loss occurred.
C.
The mere
fact that Dr. Joniga requested Sevillejo to perform some of the Owner’s hot
works under the 26 January 2000 work order did not make Dr. Joniga the employer
of Sevillejo.
Claimant proffers that Dr. Joniga was not a
Contractor of the Hot Work Done on Deck A. Claimant argued that:
A.
The
yard, not Dr. Joniga, gave the welders their marching orders, and
B.
Dr.
Joniga’s authority to request the execution of owner’s hot works in the
passenger areas was expressly recognized by the Yard Project Superintendent
Orcullo.
Seventh, the shipowner had no legal duty to
apply for a hotworks permit since it was not required by the yard, and the
owner’s hotworks were conducted by welders who remained employees of the
yard. Claimant contends that the need,
if any, for an owner’s application for a hot work permit was canceled out by
the yard’s actual knowledge of Sevillejo’s whereabouts and the fact that he was
in deck A doing owner’s hotworks.
Eight[h], in supplying welders and equipment
as per The Work Order Dated 26 January
2000, the Yard did so at its own risk, and acted as a Less Than Prudent Ship Repairer.
The Claimant then disputed the statements of
Manuel Amagsila by claiming that Amagsila was a disgruntled employee. Nevertheless, Claimant claims that Amagsila
affirmed that the five yard welders never became employees of the owner so as
to obligate the latter to be responsible for their conduct and performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:
A. Yard’s water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were
Inadequate.
C. Yard Safety Practices and Procedures Were
Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were
Overworked.
Finally, Claimant disputed the theories
propounded by the Respondent (The Yard).
Claimant presented its case against:
(i)
Non-removal of the life jackets theory.
(ii)
Hole-in-the[-]floor theory.
(iii)
Need for a plan theory.
(iv)
The unauthorized hot works theory.
(v)
The
The Claimant called the attention of the
Tribunal (CIAC) on the non-appearance of the welder involved in the cause of
the fire, Mr. Severino Sevillejo.
Claimant claims that this is suppression of evidence by Respondent.
KCSI’s Theory of the Case
1.
The
Claimant has no standing to file the Request for Arbitration and the Tribunal
has no jurisdiction over the case:
(a)
There is no valid arbitration agreement
between the Yard and the Vessel Owner.
On January 26, 2000, when the ship repair agreement (which includes the
arbitration agreement) was signed by WG&A Jebsens on behalf of the Vessel,
the same was still owned by Aboitiz Shipping.
Consequently, when another firm, WG&A, authorized WG&A Jebsens
to manage the MV Superferry 3, it had no authority to do so. There is, as a result, no binding arbitration
agreement between the Vessel Owner and the Yard to which the Claimant can claim
to be subrogated and which can support CIAC jurisdiction.
(b)
The
Claimant is not a real party in interest and has no standing because it has not
been subrogated to the Vessel Owner. For
the reason stated above, the insurance policies on which the Claimant bases its
right of subrogation were not validly obtained.
In any event, the Claimant has not been subrogated to any rights which
the Vessel may have against the Yard because:
i.
The Claimant
has not proved payment of the proceeds of the policies to any specific
party. As a consequence, it has also not
proved payment to the Vessel Owner.
ii.
The
Claimant had no legally demandable obligation to pay under the policies and did
so only voluntarily. Under the policies,
the Claimant and the Vessel agreed that there is no Constructive Total Loss
“unless the expense of recovering and repairing the vessel would exceed the
Agreed Value” of P360 million assigned by the parties to the Vessel, a
threshold which the actual repair cost for the Vessel did not reach. Since the Claimant opted to pay contrary to
the provisions of the policies, its payment was voluntary, and there was no
resulting subrogation to the Vessel.
iii.
There
was also no subrogation under Article 1236 of the Civil Code. First, if the Claimant asserts a right of
payment only by virtue of Article 1236, then there is no legal subrogation
under Article 2207 and it does not succeed to the Vessel’s rights under
the Ship [R]epair Agreement and the arbitration agreement. It does not have a right to demand
arbitration and will have only a purely civil law claim for reimbursement to
the extent that its payment benefited the Yard which should be filed in court. Second, since the Yard is not liable for the
fire and the resulting damage to the Vessel, then it derived no benefit from
the Claimant’s payment to the Vessel Owner.
Third, in any event, the Claimant has not proved payment of the proceeds
to the Vessel Owner.
2.
The Ship
[R]epair Agreement was not imposed upon the Vessel. The Vessel knowingly and voluntarily accepted
that agreement. Moreover, there are no
signing or other formal defects that can invalidate the agreement.
3.
The
proximate cause of the fire and damage to the Vessel was not any negligence
committed by Angelino Sevillejo in cutting the bulkhead door or any other
shortcoming by the Yard. On the
contrary, the proximate cause of the fire was Dr. Joniga’s and the Vessel’s
deliberate decision to have Angelino Sevillejo undertake cutting work in
inherently dangerous conditions created by them.
(a)
The
Claimant’s material witnesses lied on the record and the Claimant presented no
credible proof of any negligence by Angelino Sevillejo.
(b)
Uncontroverted
evidence proved that Dr. Joniga neglected or decided not to obtain a hot work
permit for the bulkhead cutting and also neglected or refused to have the
ceiling and the flammable lifejackets removed from underneath the area where he
instructed Angelino Sevillejo to cut the bulkhead door. These decisions or oversights guaranteed that
the cutting would be done in extremely hazardous conditions and were the
proximate cause of the fire and the resulting damage to the Vessel.
(c)
The
Yard’s expert witness, Dr. Eric Mullen gave the only credible account of the
cause and the mechanics of ignition of the fire. He established that: i) the fire started when
the cutting of the bulkhead door resulted in sparks or hot molten slag which
fell through pre-existing holes on the deck floor and came into contact with
and ignited the flammable lifejackets stored in the ceiling void directly
below; and ii) the bottom level of the bulkhead door was immaterial, because
the sparks and slag could have come from the cutting of any of the sides of the
door. Consequently, the cutting itself
of the bulkhead door under the hazardous conditions created by Dr. Joniga,
rather than the positioning of the door’s bottom edge, was the proximate cause
of the fire.
(d)
The
(e)
The
Vessel’s deliberate acts and its negligence created the inherently hazardous
conditions in which the cutting work that could otherwise be done safely ended
up causing a fire and the damage to the Vessel.
The fire was a direct and logical consequence of the Vessel’s decisions
to: (1) take Angelino Sevillejo away from his welding work at the Promenade
Deck restaurant and instead to require him to do unauthorized cutting work in
Deck A; and (2) to have him do that without satisfying the requirements for and
obtaining a hot work permit in violation of the Yard’s Safety Rules and without
removing the flammable ceiling and life jackets below, contrary to the
requirements not only of the Yard’s Safety Rules but also of the demands of
standard safe practice and the Vessel’s own explicit safety and hot work
policies.
(f)
The
vessel has not presented any proof to show that the Yard was remiss in its fire
fighting preparations or in the actual conduct of fighting the 8 February 2000
fire. The Yard had the necessary
equipment and trained personnel and employed all those resources immediately
and fully to putting out the 8 February 2000 fire.
4.
Even
assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor,
and that this circumstance rather than the extremely hazardous conditions
created by Dr. Joniga and the Vessel for that activity caused the fire, the
Yard may still not be held liable for the resulting damage.
(a)
The Yard’s only contractual obligation to the
Vessel in respect of the 26 January 2000 Work Order was to supply welders for
the Promenade Deck restaurant who would then perform welding work “per
owner[‘s] instruction.” Consequently,
once it had provided those welders, including Angelino Sevillejo, its
obligation to the Vessel was fully discharged and no claim for contractual
breach, or for damages on account thereof, may be raised against the Yard.
(b)
The Yard
is also not liable to the Vessel/Claimant on the basis of quasi-delict.
i.
The
Vessel exercised supervision and control over Angelino Sevillejo when he was
doing work at the Promenade Deck restaurant and especially when he was
instructed by Dr. Joniga to cut the bulkhead door. Consequently, the Vessel was the party with
actual control over his tasks and is deemed his true and effective employer for
purposes of establishing Article 2180 employer liability.
ii.
Even
assuming that the Yard was Angelino Sevillejo’s employer, the Yard may
nevertheless not be held liable under Article 2180 because Angelino Sevillejo
was acting beyond the scope of his tasks assigned by the Yard (which was only
to do welding for the Promenade Deck restaurant) when he cut the bulkhead door
pursuant to instructions given by the Vessel.
iii.
The Yard
is nonetheless not liable under Article 2180 because it exercised due diligence
in the selection and supervision of Angelino Sevillejo.
5.
Assuming
that the Yard is liable, it cannot be compelled to pay the full amount of P360
million paid by the Claimant.
(a)
Under
the law, the Yard may not be held liable to the Claimant, as subrogee, for an amount
greater than that which the Vessel could have recovered, even if the Claimant
may have paid a higher amount under its policies. In turn, the right of the Vessel to recover
is limited to actual damage to the MV Superferry 3, at the time of the fire.
(b)
Under
the Ship [R]epair Agreement, the liability of the Yard is limited to P50
million – a stipulation which, under the law and decisions of the Supreme
Court, is valid, binding and enforceable.
(c)
The
Vessel breached its obligation under Clause 22 (a) of the Yard’s Standard Terms
to name the Yard as co-assured under the policies – a breach which makes the
Vessel liable for damages. This
liability should in turn be set-off against the Claimant’s claim for damages.
The Respondent listed what it believes the
Claimant wanted to impress upon the Tribunal.
Respondent enumerated and disputed these as follows:
1.
Claimant’s
counsel contends that the cutting of the bulkhead door was covered by the 26
January 2000 Work Order.
2.
Claimant’s
counsel contends that Dr. Joniga told Gerry Orcullo about his intention to have
Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8
February 2000.
3.
Claimant’s
counsel contends that under Article 1727 of the Civil Code, “The contractor is
responsible for the work done by persons employed by him.”
4.
Claimant’s
counsel contends that “[t]he second reason why there was no job spec or job
order for this cutting work, [is] the cutting work was known to the yard and
coordinated with Mr. Gerry Orcullo, the yard project superintendent.”
5.
Claimant’s
counsel also contends, to make the Vessel’s unauthorized hot works activities
seem less likely, that they could easily be detected because Mr. Avelino Aves,
the Yard Safety Superintendent, admitted that “No hot works could really be
hidden from the Yard, your Honors, because the welding cables and the gas hoses
emanating from the dock will give these hotworks away apart from the assertion
and the fact that there were also safety assistants supposedly going around the
vessel.”
Respondent disputed the above by presenting
its own argument in its Final Memorandum.[12]
On October 28, 2002, the CIAC rendered
its Decision[13]
declaring both WG&A and KCSI guilty of negligence, with the following
findings and conclusions—
The Tribunal agrees that the contractual
obligation of the Yard is to provide the welders and equipment to the promenade
deck. [The] Tribunal agrees that the
cutting of the bulkhead door was not a contractual obligation of the Yard. However, by requiring, according to its own
regulations, that only Yard welders are to undertake hotworks, it follows that
there are certain qualifications of Yard welders that would be requisite of
yard welders against those of the vessel welders. To the Tribunal, this means that yard welders
are aware of the Yard safety rules and regulations on hotworks such as applying
for a hotwork permit, discussing the work in a production meeting, and
complying with the conditions of the hotwork permit prior to implementation. By the requirement that all hotworks are to
be done by the Yard, the Tribunal finds that Sevillejo remains a yard
employee. The act of Sevillejo is
however mitigated in that he was not even a foreman, and that the instructions
to him was (sic) by an authorized person.
The Tribunal notes that the hotworks permit require[s] a request by at
least a foreman. The fact that no
foreman was included in the five welders issued to the Vessel was never raised
in this dispute. As discussed earlier by
the Tribunal, with the fact that what was ask (sic) of Sevillejo was outside
the work order, the Vessel is considered equally negligent. This Tribunal finds the concurrent negligence
of the Yard through Sevillejo and the Vessel through Dr. Joniga as both contributory
to the cause of the fire that damaged the vessel.[14]
Holding
that the liability for damages was limited to P50,000,000.00, the CIAC
ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest
at 6% per annum from the time of the filing of the case up to the time the decision
is promulgated, and 12% interest per annum added to the award, or any balance
thereof, after it becomes final and executory.
The CIAC further ordered that the arbitration costs be imposed on both
parties on a pro rata basis.[15]
Pioneer
appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI likewise filed its own appeal and the
same was docketed as CA-G.R. SP No. 73934.
The cases were consolidated.
On
December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision,
disposing as follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No.
74018) is DISMISSED while the Petition
of the Yard (CA-G.R. SP No. 73934) is GRANTED, dismissing petitioner’s claims
in its entirety. No costs.
The
Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.
SO
ORDERED.[16]
Aggrieved, Pioneer sought
reconsideration of the December 17, 2004 Decision, insisting that it suffered
from serious errors in the appreciation of the evidence and from gross
misapplication of the law and jurisprudence on negligence. KCSI, for its part, filed a motion for
partial reconsideration of the same Decision.
On December 20, 2007, an
Amended Decision was promulgated by the Special Division of Five – Former Fifteenth
Division of the CA – in light of the dissent of Associate Justice Lucas P.
Bersamin,[17]
joined by Associate Justice Japar B. Dimaampao.
The fallo of the Amended
Decision reads—
WHEREFORE, premises considered, the Court hereby decrees that:
1. Pioneer’s Motion
for Reconsideration is PARTIALLY
GRANTED, ordering The Yard to pay Pioneer P25 Million, without legal
interest, within 15 days from the finality of this Amended Decision, subject to the following modifications:
1.1 – Pioneer’s Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as the Yard is hereby
ordered to pay Pioneer P25 Million without legal interest;
2. The Yard is hereby declared as equally
negligent, thus, the total GRANTING of
its Petition (CA-G.R. SP No. 73934)
is now reduced to PARTIALLY GRANTED,
in so far as it is ordered to pay Pioneer P25 Million, without legal
interest, within 15 days from the finality of this Amended Decision; and
3. The rest of the disposition in the original
Decision remains the same.
SO ORDERED.[18]
Hence, these
petitions. Pioneer bases its petition on
the following grounds:
I
THE
COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTS LEADING IT TO MAKE FALSE
LEGAL CONCLUSIONS; NON-FACTS REMAIN TO INVALIDATE THE AMENDED DECISION. THIS ALSO
VIOLATES SECTION 14, ARTICLE VIII OF THE CONSTITUTION.
II
THE
COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THE SUM
OF P50,000,000.00, IN THAT:
A. STARE DECISIS RENDERS
INAPPLICABLE ANY INVOCATION OF LIMITED LIABILITY BY THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE YARD’S LIABILITY FOR
LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARD’S NEGLIGENCE IS LIMITED TO THE
SUM OF P50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN
THAT:
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V
“SUPERFERRY 3”) ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BY FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF THE
REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.
III
THE
COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLY NEGLIGENT,
CONSIDERING THAT:
A. DR. JONIGA, THE VESSEL’S PASSAGE TEAM LEADER, DID NOT
SUPERVISE OR CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT GERMINIANO
ORCULLO THAT SUPERVISED AND CONTROLLED THE REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWS
THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO
SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSE
OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR
CONTRIBUTORY TO THE LOSS.
IV
THE
COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVE TOTAL
LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE FOR THE
VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.
V
THE
COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST.
VI
THE
COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR ARBITRATION
COSTS.[19]
On the other hand, KCSI cites the following grounds for the
allowance of its petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
IT WAS GRIEVOUS ERROR FOR THE
COURT OF APPEALS TO ADOPT, WITHOUT EXPLANATION, THE CIAC’S RULING THAT THE YARD
WAS EQUALLY NEGLIGENT BECAUSE OF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT FOR
THE CUTTING WORK DONE BY ANGELINO SEVILLEJO, AFTER THE COURT OF APPEALS ITSELF
HAD SHOWN THAT RULING TO BE COMPLETELY WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR
THE COURT OF APPEALS TO RULE, WITHOUT EXPLANATION, THAT THE VESSEL WAS A
CONSTRUCTIVE TOTAL LOSS AFTER HAVING ITSELF EXPLAINED WHY THE VESSEL COULD NOT
BE A CONSTRUCTIVE TOTAL LOSS.
3. FAILURE OR REFUSAL TO ADDRESS
KEPPEL’S MOTION FOR
RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS
ERROR FOR THE COURT OF APPEALS TO HAVE EFFECTIVELY DENIED, WITHOUT ADDRESSING
IT AND ALSO WITHOUT EXPLANATION, KEPPEL’S PARTIAL MOTION FOR RECONSIDERATION OF
THE ORIGINAL DECISION WHICH SHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE
RIGHTS OF THE VESSEL OWNER AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY
KEPPEL MAY NOT BE REQUIRED TO REIMBURSE PIONEER’S PAYMENTS TO THE VESSEL OWNER
IN VIEW OF THE CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY
PIONEER ALONE SHOULD BEAR THE COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEAL’S
RULINGS ON ALL OF THE FOREGOING ISSUES WERE CORRECT AND THE YARD MAY PROPERLY
BE HELD EQUALLY LIABLE FOR THE DAMAGE TO THE VESSEL AND REQUIRED TO PAY HALF OF
THE DAMAGES AWARDED (P25 MILLION), THE COURT OF APPEALS STILL ERRED IN
NOT DEDUCTING THE SALVAGE VALUE OF THE VESSEL RECOVERED AND RECEIVED BY THE
INSURER, PIONEER, TO REDUCE ANY LIABILITY ON THE PART OF THE YARD TO P9.874
MILLION.[20]
To our minds, these errors assigned by both Pioneer and
KCSI may be summed up in the following core issues:
A. To whom may negligence over
the fire that broke out on board M/V “Superferry 3” be imputed?
B. Is subrogation proper? If proper, to what extent can subrogation be made?
C. Should interest be imposed on the award of damages? If so, how much?
D. Who should bear the cost of the arbitration?
To resolve these issues,
it is imperative that we digress from the general rule that in petitions for
review under Rule 45 of the Rules of Court, only questions of law shall be entertained. Considering the disparate findings of fact of
the CIAC and the CA which led them to different conclusions, we are constrained
to revisit the factual circumstances surrounding this controversy.[21]
The Court’s Ruling
A. The issue of
negligence
Undeniably, the immediate cause of the fire was the hot
work done by Angelino Sevillejo (Sevillejo) on the accommodation area of the
vessel, specifically on Deck A. As
established before the CIAC –
The fire broke out shortly after
10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling,[22]
p. 20). Angelino Sevillejo tried to put
out the fire by pouring the contents of a five-liter drinking water container
on it and as he did so, smoke came up from under Deck A. He got another container of water which he
also poured whence the smoke was coming.
In the meantime, other workers in the immediate vicinity tried to fight
the fire by using fire extinguishers and buckets of water. But because the fire was inside the ceiling
void, it was extremely difficult to contain or extinguish; and it spread
rapidly because it was not possible to direct water jets or the fire extinguishers
into the space at the source. Fighting
the fire was extremely difficult because the life jackets and the construction
materials of the Deck B ceiling were combustible and permitted the fire to
spread within the ceiling void. From
there, the fire dropped into the Deck B accommodation areas at various
locations, where there were combustible materials. Respondent points to cans of paint and
thinner, in addition to the plywood partitions and foam mattresses on deck B
(Exh. 1-Mullen,[23]
pp. 7-8, 18; Exh. 2-Mullen, pp. 11-12).[24]
Pioneer contends that KCSI should be held liable because
Sevillejo was its employee who, at the time the fire broke out, was doing his
assigned task, and that KCSI was solely responsible for all the hot works done
on board the vessel. KCSI claims
otherwise, stating that the hot work done was beyond the scope of Sevillejo’s
assigned tasks, the same not having been authorized under the Work Order[25]
dated January 26, 2000 or under the Shiprepair Agreement. KCSI further posits that WG&A was itself
negligent, through its crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for
failing to remove the life jackets from the ceiling void, causing the immediate
spread of the fire to the other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that
WG&A, as owner of M/V “Superferry 3,” entered into a contract for the dry docking
and repair of the vessel under
KCSI’s Standard Conditions of Contract for Shiprepair, and its guidelines and
regulations on safety and security.
Thus, the CA erred when it said that WG&A would renovate and
reconstruct its own vessel merely using the dry docking facilities of KCSI.
Second.
Pursuant to KCSI’s rules and regulations on safety and security, only
employees of KCSI may undertake hot works on the vessel while it was in the
graving dock in
The Yard will restrict all hot works in the
engine room, accommodation cabin, and fuel oil tanks to be carried out only by
shipyard workers x x x.[26]
WG&A recognized and complied with
this restrictive directive such that, during the arrival conference on January
26, 2000, Dr. Joniga, the vessel’s passage team leader in charge of its hotel
department, specifically requested KCSI to finish the hot works started by the
vessel’s contractors on the passenger accommodation decks.[27] This was corroborated by the statements of
the vessel’s hotel manager Marcelo Rabe[28]
and the vessel’s quality control officer Joselito Esteban.[29] KCSI knew of the unfinished hot works in the
passenger accommodation areas. Its safety
supervisor Esteban Cabalhug confirmed that KCSI was aware “that the owners of
this vessel (M/V ‘Superferry 3’) had undertaken their own (hot) works prior to
arrival alongside (sic) on 26th January,” and that no hot work
permits could thereafter be issued to WG&A’s own workers because “this was
not allowed for the Superferry 3.”[30] This shows that Dr. Joniga had authority only
to request the performance of hot works by KCSI’s welders as needed in the
repair of the vessel while on dry dock.
Third.
KCSI welders covered by the Work Order performed hot works on various areas
of the M/V “Superferry 3,” aside from its promenade deck. This was a recognition of Dr. Joniga’s
authority to request the conduct of hot works even on the passenger
accommodation decks, subject to the provision of the January 26, 2000 Work
Order that KCSI would supply welders for the promenade deck of the ship.
At the CIAC proceedings, it was
adequately shown that between February 4 and 6, 2000, the welders of KCSI: (a)
did the welding works on the ceiling hangers in the lobby of Deck A; (b) did the
welding and cutting works on the deck beam to access aircon ducts; and (c) did
the cutting and welding works on the protection bars at the tourist dining
salon of Deck B,[31] at a
rate of P150.00/welder/hour.[32] In fact, Orcullo, Project Superintendent of
KCSI, admitted that “as early as February 3, 2000 (five days before the fire) [the
Yard] had acknowledged Dr. Joniga’s authority to order such works or additional
jobs.”[33]
It is evident, therefore, that although
the January 26, 2000 Work Order was a special order for the supply of KCSI
welders to the promenade deck, it was not restricted to the promenade deck
only. The Work Order was only a special
arrangement between KCSI and WG&A that meant additional cost to the latter.
Fourth.
At the time of the fire, Sevillejo was an employee of KCSI and was
subject to the latter’s direct control and supervision.
Indeed, KCSI was the employer of
Sevillejo—paying his salaries; retaining the power and the right to discharge
or substitute him with another welder; providing him and the other welders with
its equipment; giving him and the other welders marching orders to work on the
vessel; and monitoring and keeping track of his and the other welders’
activities on board, in view of the delicate nature of their work.[34] Thus, as such employee, aware of KCSI’s
Safety Regulations on Vessels Afloat/Dry, which specifically provides that
“(n)o hotwork (welding/cutting works) shall be done on board [the] vessel
without [a] Safety Permit from KCSI Safety Section,”[35]
it was incumbent upon Sevillejo to obtain the required hot work safety permit
before starting the work he did, including that done on Deck A where the fire
started.
Fifth.
There was a lapse in KCSI’s supervision of Sevillejo’s work at the time
the fire broke out.
It
was established that no hot works could be hidden from or remain undetected by KCSI
because the welding cables and the gas hoses emanating from the dock would give
the hot works away. Moreover, KCSI had
roving fire watchmen and safety assistants who were moving around the vessel.[36] This was confirmed by Restituto Rebaca
(Rebaca), KCSI’s Safety Supervisor, who actually spotted Sevillejo on Deck A,
two hours before the fire, doing his cutting work without a hot work permit, a
fire watchman, or a fire extinguisher.
KCSI contends that it did its duty when it prohibited Sevillejo from
continuing the hot work. However, it is
noteworthy that, after purportedly scolding Sevillejo for working without a
permit and telling him to stop until the permit was acquired and the other
safety measures were observed, Rebaca left without pulling Sevillejo out of the
work area or making sure that the latter did as he was told. Unfortunately for KCSI, Sevillejo reluctantly
proceeded with his cutting of the bulkhead door at Deck A after Rebaca left,
even disregarding the 4-inch marking set, thus cutting the door level with the
deck, until the fire broke out.
This
conclusion on the failure of supervision by KCSI was absolutely supported by
Dr. Eric Mullen of the Dr. J.H. Burgoyne & Partners (International) Ltd.,
Singapore, KCSI’s own fire expert, who observed that—
4.3. The foregoing would be compounded by
Angelino Sevillejo being an electric arc welder, not a cutter. The dangers of ignition occurring as a result
of the two processes are similar in that both electric arc welding and hot
cutting produce heat at the work area and sparks and incendive material that
can travel some distance from the work area.
Hence, the safety precautions that are expected to be applied by the
supervisor are the same for both types of work.
However, the quantity and incendivity of the spray from the hot cutting
are much greater than those of sparks from electric arc welding, and it may well be that Angelino Sevillejo
would not have a full appreciation of the dangers involved. This made it all the more important that the
supervisor, who should have had such an appreciation, ensured that the
appropriate safety precautions were carried out.[37]
In
this light, therefore, Sevillejo, being one of the specially trained welders
specifically authorized by KCSI to do the hot works on M/V “Superferry 3” to
the exclusion of other workers, failed to comply with the strict safety
standards of KCSI, not only because he worked without the required permit, fire
watch, fire buckets, and extinguishers, but also because he failed to undertake
other precautionary measures for preventing the fire. For instance, he could have, at the very
least, ensured that whatever combustible material may have been in the vicinity
would be protected from the sparks caused by the welding torch. He could have easily removed the life jackets
from the ceiling void, as well as the foam mattresses, and covered any holes
where the sparks may enter.
Conjunctively, since Rebaca was already
aware of the hazard, he should have taken all possible precautionary measures,
including those above mentioned, before allowing Sevillejo to continue with his
hot work on Deck A. In addition to
scolding Sevillejo, Rebaca merely checked that no fire had started yet. Nothing more.
Also, inasmuch as KCSI had the power to substitute Sevillejo with
another electric arc welder, Rebaca should have replaced him.
There is negligence when
an act is done without exercising the competence that a reasonable person in
the position of the actor would recognize as necessary to prevent an
unreasonable risk of harm to another. Those
who undertake any work calling for special skills are required to exercise
reasonable care in what they do.[38]
Verily, there is an obligation all
persons have – to take due care which, under ordinary circumstances of the
case, a reasonable and prudent man would take.
The omission of that care constitutes negligence. Generally, the degree of care required is
graduated according to the danger a person or property may be subjected to, arising
from the activity that the actor pursues or the instrumentality that he
uses. The greater the danger, the
greater the degree of care required. Extraordinary
risk demands extraordinary care. Similarly,
the more imminent the danger, the higher degree of care warranted.[39] In this aspect,
KCSI failed to exercise the necessary
degree of caution and foresight called for by the circumstances.
We cannot subscribe to
KCSI’s position that WG&A, through Dr. Joniga, was negligent.
On the one hand, as
discussed above, Dr. Joniga had authority to request the performance of hot
works in the other areas of the vessel.
These hot works were deemed included in the January 26, 2000 Work Order
and the Shiprepair Agreement. In the
exercise of this authority, Dr. Joniga asked Sevillejo to do the cutting of the
bulkhead door near the staircase of Deck A.
KCSI was aware of what Sevillejo was doing, but failed to supervise him
with the degree of care warranted by the attendant circumstances.
Neither can Dr. Joniga be
faulted for not removing the life jackets from the ceiling void for two reasons
– (1) the life jackets were not even contributory to the occurrence of the
fire; and (2) it was not incumbent upon him to remove the same. It was shown during the hearings before the
CIAC that the removal of the life jackets would not have made much of a
difference. The fire would still have
occurred due to the presence of other combustible materials in the area. This was the uniform conclusion of both
WG&A’s[40]
and KCSI’s[41]
fire experts. It was also proven during
the CIAC proceedings that KCSI did not see the life jackets as being in the way
of the hot works, thus, making their removal from storage unnecessary.[42]
These circumstances, taken collectively,
yield the inevitable conclusion that Sevillejo was negligent in the performance
of his assigned task. His negligence was
the proximate cause of the fire on board M/V “Superferry 3.” As he was then definitely engaged in the
performance of his assigned tasks as an employee of KCSI, his negligence gave
rise to the vicarious liability of his employer[43]
under Article 2180 of the Civil Code, which provides—
Art.
2180. The obligation imposed by article
2176 is demandable not only for one’s own act or omission, but also for those
of persons for whom one is responsible.
x
x x x
Employers
shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
x
x x x
The
responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a
family to prevent damage.
KCSI failed to prove that it
exercised the necessary diligence incumbent upon it to rebut the legal
presumption of its negligence in supervising Sevillejo.[44] Consequently, it is responsible for the
damages caused by the negligent act of its employee, and its liability is
primary and solidary. All that is needed
is proof that the employee has, by his negligence, caused damage to another in
order to make the employer responsible for the tortuous act of the former.[45] From the foregoing disquisition, there is ample
proof of the employee’s negligence.
B. The right of subrogation
Pioneer
asseverates that there existed a total constructive loss so that it had to pay
WG&A the full amount of the insurance coverage and, by operation of law, it
was entitled to be subrogated to the rights of WG&A to claim the amount of
the loss. It further argues that the limitation
of liability clause found in the Shiprepair Agreement is null and void for
being iniquitous and against public policy.
KCSI
counters that a total constructive loss was not adequately proven by Pioneer,
and that there is no proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability
clause up to P50,000,000.00, because WG&A acceded to the provision
when it executed the Shiprepair Agreement.
KCSI also claims that the salvage value of the vessel should be deducted
from whatever amount it will be made to pay to Pioneer.
We
find in favor of Pioneer, subject to the claim of KCSI as to the salvage value
of M/V “Superferry 3.”
In
marine insurance, a constructive total loss occurs under any of the conditions
set forth in Section 139 of the Insurance Code, which provides—
Sec.
139. A person insured by a contract of
marine insurance may abandon the thing insured, or any particular portion
hereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril insured
against:
(a) If more than three-fourths thereof in
value is actually lost, or would have to be expended to recover it from the
peril;
(b) If it is injured to such an extent as to
reduce its value more than three-fourths; x x x.
It
appears, however, that in the execution of the insurance policies over M/V
“Superferry 3,” WG&A and Pioneer incorporated by reference the American
Institute Hull Clauses 2/6/77, the Total Loss Provision of which reads—
Total Loss
In
ascertaining whether the Vessel is a constructive Total Loss the Agreed Value
shall be taken as the repaired value and nothing in respect of the damaged or
break-up value of the Vessel or wreck shall be taken into account.
There
shall be no recovery for a constructive Total Loss hereunder unless the expense
of recovering and repairing the Vessel would exceed the Agreed Value in
policies on
In the course of the arbitration
proceedings, Pioneer adduced in evidence the estimates made by three (3)
disinterested and qualified shipyards for the cost of the repair of the vessel,
specifically: (a) P296,256,717.00, based on the Philippine currency
equivalent of the quotation dated April 17, 2000 turned in by Tsuneishi Heavy
Industries (Cebu) Inc.; (b) P309,780,384.15, based on the Philippine
currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd., P301,839,974.00, based on the Philippine currency equivalent of
the quotation of Singapore Technologies Marine Ltd. All the estimates showed that the repair
expense would exceed P270,000,000.00, the amount equivalent to ľ of the
vessel’s insured value of P360,000,000.00. Thus, WG&A opted to abandon M/V
“Superferry 3” and claimed from Pioneer the full amount of the policies. Pioneer paid WG&A’s claim, and now demands
from KCSI the full amount of P360,000,000.00, by virtue of subrogation.
KCSI denies the liability because,
aside from its claim that it cannot be held culpable for negligence resulting
in the destructive fire, there was no constructive total loss, as the amount of
damage was only US$3,800,000.00 or P170,611,260.00, the amount of repair
expense quoted by Simpson, Spence & Young.
In the face of this apparent
conflict, we hold that Section 139 of the Insurance Code should govern, because
(1) Philippine law is deemed incorporated in every locally executed contract;
and (2) the marine insurance policies in question expressly provided the
following:
IMPORTANT
This
insurance is subject to English jurisdiction, except in the event that loss or
losses are payable in the Philippines, in which case if the said laws and
customs of England shall be in conflict with the laws of the Republic of the
Philippines, then the laws of the Republic of the Philippines shall govern.
(Underscoring supplied.)
The
CA held that Section 139 of the Insurance Code is merely permissive on account
of the word “may” in the provision. This
is incorrect. Properly considered, the
word “may” in the provision is intended to grant the insured (WG&A) the
option or discretion to choose the abandonment of the thing insured (M/V
“Superferry 3”), or any particular portion thereof separately valued by the
policy, or otherwise separately insured, and recover for a total loss when the
cause of the loss is a peril insured against.
This option or discretion is expressed as a right in Section 131 of the
same Code, to wit:
Sec.
131. A constructive total loss is one
which gives to a person insured a right to abandon under Section one hundred
thirty-nine.
It
cannot be denied that M/V “Superferry 3” suffered widespread damage from the
fire that occurred on February 8, 2000, a covered peril under the marine
insurance policies obtained by WG&A from Pioneer. The estimates given by the three
disinterested and qualified shipyards show that the damage to the ship would
exceed P270,000,000.00, or ľ of the total value of the policies – P360,000,000.00. These estimates constituted credible and
acceptable proof of the extent of the damage sustained by the vessel. It is significant that these estimates were
confirmed by the Adjustment Report dated June 5, 2000 submitted by Richards
Hogg Lindley (Phils.), Inc., the average adjuster that Pioneer had enlisted to
verify and confirm the extent of the damage.
The Adjustment Report verified and confirmed that the damage to the vessel
amounted to a constructive total loss and that the claim for P360,000,000.00
under the policies was compensable.[46] It is also noteworthy that KCSI did not
cross-examine Henson Lim, Director of Richards Hogg, whose affidavit-direct
testimony submitted to the CIAC confirmed that the vessel was a constructive
total loss.
Considering
the extent of the damage, WG&A opted to abandon the ship and claimed the
value of its policies. Pioneer, finding
the claim compensable, paid the claim, with WG&A issuing a Loss and
Subrogation Receipt evidencing receipt of the payment of the insurance proceeds
from Pioneer. On this note, we find as
unacceptable the claim of KCSI that there was no ample proof of payment simply
because the person who signed the Receipt appeared to be an employee of Aboitiz
Shipping Corporation.[47] The Loss and Subrogation Receipt issued by
WG&A to Pioneer is the best evidence of payment of the insurance proceeds
to the former, and no controverting evidence was presented by KCSI to rebut the
presumed authority of the signatory to receive such payment.
On
the matter of subrogation, Article 2207 of the Civil Code provides—
Art. 2207. If the plaintiff’s property has been insured
and he has received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract.
If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.
Subrogation is the
substitution of one person by another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an
insurer has paid a loss under an insurance policy is entitled to all the rights
and remedies belonging to the insured against a third party with respect to any
loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the creditor could employ
to enforce payment.[48]
We have held that payment
by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose
negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract. It accrues
simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in
equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the ultimate
payment of a debt by one who, in justice, equity, and good conscience, ought to
pay.[49]
We cannot accept KCSI’s insistence
on upholding the validity Clause 20, which provides that the limit of its
liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI
stands as a co-assured in the insurance policies, as found in the Shiprepair
Agreement.
Clauses 20 and 22(a) of
the Shiprepair Agreement are without factual and legal foundation. They are unfair and inequitable under the
premises. It was established during
arbitration that WG&A did not voluntarily and expressly agree to these
provisions. Engr. Elvin F. Bello,
WG&A’s fleet manager, testified that he did not sign the fine-print portion
of the Shiprepair Agreement where Clauses 20 and 22(a) were found, because he
did not want WG&A to be bound by them.
However, considering that it was only KCSI that had shipyard facilities
large enough to accommodate the dry docking and repair of big vessels owned by
WG&A, such as M/V “Superferry 3,” in
Indeed, the assailed
clauses amount to a contract of adhesion imposed on WG&A on a
“take-it-or-leave-it” basis. A contract
of adhesion is so-called because its terms are prepared by only one party,
while the other party merely affixes his signature signifying his adhesion
thereto. Although not invalid, per se, a contract of adhesion is void
when the weaker party is imposed upon in dealing with the dominant bargaining
party, and its option is reduced to the alternative of “taking it or leaving
it,” completely depriving such party of the opportunity to bargain on equal
footing.[51]
Clause 20 is also a void
and ineffectual waiver of the right of WG&A to be compensated for the full
insured value of the vessel or, at the very least, for its actual market value. There was clearly no intention on the part of
WG&A to relinquish such right. It is an elementary rule that a waiver must be positively proved, since a waiver
by implication is not normally countenanced.
The norm is that a waiver must not only be voluntary,
but must have been made knowingly, intelligently, and with sufficient awareness
of the relevant circumstances and likely consequences. There must be persuasive evidence to show an
actual intention to relinquish the right.[52] This has not been demonstrated in this case.
Likewise, Clause 20 is a stipulation that
may be considered contrary to public policy.
To allow KCSI to limit its liability to only P50,000,000.00,
notwithstanding the fact that there was a constructive total loss in the amount
of P360,000,000.00, would sanction the exercise of a degree of diligence
short of what is ordinarily required. It
would not be difficult for a negligent party to escape liability by the simple
expedient of paying an amount very much lower than the actual damage or loss
sustained by the other.[53]
Along the same vein, Clause 22(a)
cannot be upheld. The intention of the
parties to make each other a co-assured under an insurance policy is to be
gleaned principally from the insurance contract or policy itself and not from
any other contract or agreement, because the insurance policy denominates the
assured and the beneficiaries of the insurance contract. Undeniably, the hull and machinery insurance
procured by WG&A from Pioneer named only the former as the assured. There was no manifest intention on the part of
WG&A to constitute KCSI as a co-assured under the policies. To have deemed KCSI as a co-assured under the
policies would have had the effect of nullifying any claim of WG&A from
Pioneer for any loss or damage caused by the negligence of KCSI. No ship owner would agree to make a ship repairer
a co-assured under such insurance policy.
Otherwise, any claim for loss or damage under the policy would be
rendered nugatory. WG&A could not
have intended such a result.[54]
Nevertheless, we concur with the
position of KCSI that the salvage value of the damaged M/V “Superferry 3”
should be taken into account in the grant of any award. It was proven before the CIAC that the
machinery and the hull of the vessel were separately sold for P25,290,000.00
(or US$468,333.33) and US$363,289.50, respectively. WG&A’s claim for the upkeep of the wreck
until the same were sold amounts to P8,521,737.75 (or US$157,809.96), to
be deducted from the proceeds of the sale of the machinery and the hull, for a
net recovery of US$673,812.87, or equivalent to P30,252,648.09, at P44.8977/$1,
the prevailing exchange rate when the Request for Arbitration was filed. Not considering
this salvage value in the award would amount to unjust enrichment on the part
of Pioneer.
C. On the imposition of interest
Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[55]
the award in favor of Pioneer in the amount of P350,146,786.89 should
earn interest at 6% per annum from
the filing of the case until the award becomes final and executory. Thereafter, the rate of interest shall be 12%
per annum from the date the award
becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration
It is only fitting that both parties should share in the
burden of the cost of arbitration, on a pro
rata basis. We find that Pioneer had
a valid reason to institute a suit against KCSI, as it believed that it was entitled
to claim reimbursement of the amount it paid to WG&A. However, we disagree with Pioneer that only
KCSI should shoulder the arbitration costs.
KCSI cannot be faulted for defending itself for perceived wrongful acts
and conditions. Otherwise, we would be
putting a price on the right to litigate on the part of Pioneer.
WHEREFORE, the Petition of Pioneer Insurance and Surety
Corporation in G.R. No. 180896-97 and the Petition of Keppel Cebu Shipyard,
Inc. in G.R. No. 180880-81 are PARTIALLY
GRANTED and the Amended Decision dated December 20, 2007 of the Court of
Appeals is MODIFIED. Accordingly, KCSI is ordered to pay Pioneer
the amount of P360,000,000.00 less P30,252,648.09, equivalent to
the salvage value recovered by Pioneer from M/V “Superferry 3,” or the net
total amount of P329,747,351.91, with six percent (6%) interest per
annum reckoned from the time the Request for Arbitration was filed until this
Decision becomes final and executory, plus twelve percent (12%) interest per
annum on the said amount or any balance thereof from the finality of the
Decision until the same will have been fully paid. The arbitration costs shall be borne by both
parties on a pro rata basis. Costs against KCSI.
SO ORDERED.
ANTONIO
EDUARDO B. NACHURA
Associate
Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Acting Chief
Justice
Chairperson
|
MINITA V. CHICO-NAZARIO Associate
Justice |
PRESBITERO J. VELASCO, JR. Associate
Justice |
DIOSDADO M. PERALTA
Associate
Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, I
certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
CONSUELO
YNARES-SANTIAGO
Acting Chief
Justice
* Acting Chief Justice.
[1] Rollo (G.R. Nos. 180896-97), pp. 33-109.
[2] Rollo (G.R. Nos. 180880-81), pp. 338-378.
[3] Rollo (G.R. Nos. 180896-97), pp. 116-144.
[4]
[5]
[6] The Shiprepair Agreement was duly acknowledged by the parties before a notary public.
[7] 20. The Contractor shall not be under any liability to the Customer either in contract or otherwise except for negligence and such liability shall itself be subject to the following overriding limitations and exceptions, namely
(a) The total liability of the Contractor to the Customer (including the liability to replace under Clause 17) or of any Sub-contractor shall be limited in respect of any and/or defect(s) or event(s) to the sum of Pesos Philippine Currency Fifty Million only x x x.
[8] 22(a) The Customer shall keep the vessel adequately insured for the vessel’s hull and machinery, her crew and the equipment on board and on other goods owned or held by the Customer against any and all risks and liabilities and ensure that such insurance policies shall include the Contractor as a co-assured.
[9] Rollo (G.R. Nos. 180896-97), p. 526.
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17] Now a member of this Court.
[18]
[19] Rollo (G.R. No. 180896-97), pp. 46-48.
[20] Rollo (G.R. Nos. 180880-81), pp. 356-357.
[21] Prudential Shipping and Management Corporation v. Sta. Rita, G.R. No. 166580, February 8, 2007, 515 SCRA 157.
[22] The fire expert presented by Pioneer.
[23] Dr. Eric Mullen, the fire expert presented by KCSI.
[24] Rollo (G.R. Nos. 180896-97), p. 262.
[25] The Work Order dated January 26, 2000 provided to –
1. Supply of 5 welders & equipment as per Owner’s instructions to promenade deck.
2. JO# 89/99 – Pull-out & clean w/ chemical of Aux. engine blower & change both ball bearing 15 kw, 27 amp, 440 Wtts as required.
3. Renew sleeve on endcover of motor as required.
4. Renew deteriorated side frames & fwd pls as required.
5. Renew deteriorated air vent and sides pls as required.
[26] CIAC Decision, p. 28.
[27] Dr. Joniga gave this narration under oath:
5. That at the arrival conference on January 26, 2000, x x x we discussed the projected dry docking works and the shipyard safety regulations particularly the restriction that only shipyard workers and welders can perform hot works on board the vessel.
During the said conference, I brought up the need of the hotel department specifically for the yard to provide welders to the passenger accommodations on Deck A, Deck B and Deck C, according to owner’s instructions, meaning, the ship owner through me as the one in charge of the hotel department could request maintenance works in the passenger decks which may be determined and the need for which may arise only in the course of the dry docking and which will require hot works by the yard’s welders subject to shipyard safety and billing regulations.
My aforementioned input was duly taken note of, and on that same date, a Work Order dated January 26, 2000 signed by the Ship Superintendent Manuel Amagsila and KCSI Project Superintendent Gerry Orcullo x x x. (Exhibit “C-Joniga,” p. 2)
[28] 4. That upon request of Dr. Joniga during said arrival conference, a Work Order dated January 26, 2000 was signed whereby the ship owner could request for some hot work in the passenger decks “as per Owner’s instructions” with the ship’s hotel department indicating certain maintenance or renovation in the course of the dry docking but it will be the yard which will execute the hot works needed. (Exhibit “C-Rabe,” p. 2.)
[29] 4. x x x I confirm that said Work Order [of 26 January 2000] required the Yard, and the Yard agreed, to supply “5 welders and equipment as per owner’s instructions to promenade deck,” because Dr. Joniga wanted that the unfinished hot works in the promenade deck and passenger areas that were started in Manila should be finished, otherwise the dry docking would be useless.
The place mentioned was “to promenade deck” because the bulk of the work was in the promenade deck, but included the unfinished hot works in the tourist and other passenger areas, which the Yard knew because they inspected and went around the vessel when we arrived on January 26, 2000.
The unfinished hot works in the passenger areas were also known to shipyard project superintendent Gerry Orcullo. Without the Yard’s express knowledge or permission, no yard welder will just go to some part of the vessel and do some kind of hot work. As I said only Yard workers performed hot works on board the vessel. (Exhibit “A-Esteban,” p. 2.)
[30] Cabalhug’s affidavit-direct testimony dated May 24, 2001.
[31] Exhibit “C-Joniga,” par. 6; Exhibit “C-Rabe,” par. 4; Exhibit “A-Esteban,” par. 7.
[32] Per the affidavit of The Yard’s Commercial Manager Khew Kah Khin who said, “Later I saw a copy of the work order for the supply of welders to the owners to carry out the same work and was asked for a quotation for this. I quoted verbally PhP150 per man per hour. This was an unusual arrangement and I cannot recall any other occasion on which the Yard welders were supplied in similar circumstances.”
[33] TSN, Gerry Orcullo, May 22, 2002, pp. 167-170.
[34] CIAC Decision, p. 58.
[35]
[36] TSN, Avelino Aves (on cross-examination).
[37] Exhibit 2-Mullen (Supplementary Report on the fire on board Superferry 3).
[38] Far Eastern Shipping Company v. CA, 357 Phil. 703 (1998).
[40] Ms. Aini Ling, WG&A’s fire expert, specifically testified:
“Sir, if there is no life jacket, of course, there is no ignition of life jackets. x x x
That doesn’t mean that they (sic) might not be a fire, your Honor, because there are other combustible materials in the ceiling void.” (TSN, May 21, 2002, pp. 319-320, as quoted in the CIAC Decision, p. 38).
[41] The pertinent testimony of Dr. Eric Mullen, The Yard’s fire expert, is as follows:
ATTY. LOMBOS:
Now, you also heard Ms. Ling say that even if she concedes that the removal of the life jackets from under the ceiling void would have made the most likely source of the fire, ah, would have eliminated the most likely source of the fire, her opinion was still that there was a possibility of fire from say, wires or the ceiling material which was plywood she says on top of the Formica. Do you have any views regarding that?
DR. MULLEN:
In so far as my mechanism, which I firmly believe to be the case that the material fell through the holes, it would have made that much difference. Because you have the life jackets would ignite easily, the ceiling itself would ignite easily because the material that is falling down is very incendive (sic) and in some cases has flames on them. So, it wouldn’t have made that much difference had the life jackets been removed, there was still possibility for fire. (TSN, May 23, 2002, pp. 132-133, as quoted in the CIAC Decision, p. 38-39).
[42] This fact was admitted during cross-examination by Geoff Phoon, The Yard’s president, who testified in this wise:
ATTY. LIM:
Q Did you require the vessel to take out the life jackets and put them somewhere else or some place else on board or on shore?
MR. PHOON:
A We don’t touch the ship property.
Q You, in fact, did not require that?
A It belongs to the ship, You asked me do I require, I said it belongs to the ship.
Q Up to now you do not require despite –
A We don’t touch any item unless it is in the way of the work. (TSN, May 22, 2002, pp. 54-55).
[43] Garcia,
Jr. v.
[44] Lapanday Agricultural and Development Corporation (LADECO) v. Angala, G.R. No. 153076, June 21, 2007, 525 SCRA 229.
[45] Mercury Drug Corporation v. Huang, G.R. No. 172122, June 22, 2007, 525 SCRA 427.
[46] CIAC Decision, p. 80.
[47] KCSI’s Petition, pp. 31-32, Rollo (G.R. Nos. 180880-81), pp. 368-369.
[48] Lorenzo Shipping Corp. v. Chubb and Sons, Inc., G.R. No. 147724, June 8, 2004, 431 SCRA 266.
[49] PHILAMGEN v. Court of Appeals, 339 Phil. 455 (1997).
[50] Exhibit “E-Bello,” pp. 3-4.
[51] ACI
Philippines, Inc. v. Coquia, G.R. No. 174466, July 14, 2008, 558 SCRA 300; Development Bank of the
[52] Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No. 176246, February 13, 2009.
[53] Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc., G.R. No. 132607, May 5, 1999, 306 SCRA 762, 781.
[54]
[55] G.R. No. 97412, July 12, 1994, 234 SCRA 78.