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KEPPEL CEBU SHIPYARD v. PIONEER INSURANCE

FACTS:

Keppel Cebu Shipyard, Inc. (KCSI) entered into a Shiprepair Agreement with WG&A Jebsens Shipmanagement, Inc. (WG&A) for the renovation and reconstruction of M/V Superferry 3. The vessel caught fire during repair and was declared a total constructive loss by WG&A. Pioneer Insurance and Surety Corporation (Pioneer) paid the insurance claim and tried to collect the amount from KCSI, but was unsuccessful. Pioneer sought arbitration and the Construction Industry Arbitration Commission (CIAC) found both WG&A and KCSI equally guilty of negligence. CIAC ordered KCSI to pay Pioneer P25,000,000.00 with interest. Both parties appealed to the Court of Appeals (CA), which affirmed the CIAC's decision. Both parties appealed to the Supreme Court, and the Third Division of the Court found KCSI solely liable for the loss of Superferry 3.

In its Decision, the Court declared that a clause in the Shiprepair Agreement limiting KCSI's liability to P50,000,000.00 was invalid. KCSI argued that the salvage recovery value of the vessel should be deducted from the amount it was liable to Pioneer. The Court partially granted the petitions, ordering KCSI to pay Pioneer P360,000,000.00 less the salvage value recovered by Pioneer, with interest. KCSI's motions for reconsideration were denied by the Special Third Division and the Second Division of the Court. The decision became final and executory. However, KCSI later sought the re-opening of the proceedings and referred the case to the Court En Banc, which accepted the cases. Pioneer sought reconsideration but was denied. The Court faced procedural and substantive issues, including the violation of the doctrine of immutability of judgment.

The Court En Banc acknowledged the doctrine of finality of judgment but recognized exceptions to the rule in order to serve substantial justice. The Court En Banc stated that it has the power to suspend rules of procedure and exempt a case from their operation when justice requires it. It emphasized that when the Court En Banc entertains a case, it does not imply incapability of fair justice by the Division of origin. It simply means that the nature of the case calls for the attention and consideration of the whole Court.

On the procedural issue, the Court ruled that the reviewing court can determine the merits of the petition based solely on the pleadings, submissions, and certified attachments of the parties. The purpose is to prevent undue delay. In this case, the Third Division considered the attachments and pleadings sufficient for ruling on the merits. The Court found no fault in this procedure, as the elevation of case records to the Court was discretionary and the attachments and pleadings were satisfactory for case determination.

ISSUES:

  1. Whether the Third Division of the Court erred in ruling on the merits of the case based solely on the attachments to the petition and the pleadings filed.

  2. Whether there was a disparity in the findings of fact of the Construction Industry Arbitration Commission (CIAC) and the Court of Appeals (CA) regarding the issue of negligence.

  3. Whether WG&A and KCSI were negligent in the loss of Superferry 3.

  4. Whether both WG&A and KCSI should equally shoulder the burden for their negligence.

  5. Whether Clause 20 of the Shiprepair Agreement, which limits KCSI's liability to P50,000,000, is valid.

  6. Whether the Shiprepair Agreement is a contract of adhesion.

  7. Whether Clause 20 of the Shiprepair Agreement is just and equitable under the circumstances.

  8. Whether Pioneer Insurance and Surety Corporation, as subrogee of WG&A, can only claim a maximum amount of P50,000,000.00 from Keppel Cebu Shipyard, Inc.

  9. Whether Keppel Cebu Shipyard, Inc. is liable to pay interest on the amount awarded.

RULING:

  1. The Third Division of the Court did not err in ruling on the merits of the case based on the attachments to the petition and the pleadings filed. The reviewing court can determine the merits of the petition solely on the basis of the pleadings, submissions, and certified attachments by the parties. The attachments and pleadings filed were deemed sufficient, and there was no fault in the procedure undertaken by the members of the Division. The elevation of the case records to the Court is discretionary, and in this case, the records are already before the Court.

  2. There was no disparity in the findings of fact of the CIAC and the CA regarding the issue of negligence. Both tribunals found that both parties were equally negligent in causing the fire, and there was no variance in the conclusions arrived at by the tribunals. The immediate cause of the fire was the ignition of flammable lifejackets caused by sparks or hot molten slags from welding works being done at the upper deck. Both KCSI and WG&A were responsible for causing the fire.

  3. Both WG&A and KCSI were found to be negligent in the loss of Superferry 3. WG&A was negligent for using the welders outside the agreed area, causing the sparks and hot molten slags to reach the combustible lifejackets. KCSI was negligent for failing to secure a hot work permit, which would have allowed for inspections and safety measures.

  4. Since both parties were found to be equally negligent, it was ruled that both WG&A and KCSI should equally shoulder the burden for their negligence.

  5. Clause 20 of the Shiprepair Agreement, which limits KCSI's liability to P50,000,000, is valid. While contracts of adhesion may be struck down as void and unenforceable for being subversive of public policy, this can only be done when the weaker party is imposed upon in dealing with the dominant bargaining party and is deprived of the opportunity to bargain on equal footing. In this case, WG&A had previously entered into ship repair agreements with KCSI on multiple occasions, incorporating the same standard conditions, without any protest. Therefore, the limitation of liability in Clause 20 is enforceable.

  6. The Shiprepair Agreement is not a contract of adhesion. While more scrutiny is required in determining the validity of clauses arising from contracts of adhesion, contracts of adhesion are not invalid per se. In this case, WG&A had the opportunity to transact with other ship repairers that did not include the provision limiting liability if they did not want to be bound by such a clause. Furthermore, WG&A's actions before, during, and after the signing of the agreement showed that they had accepted and bound themselves to the terms of the contract.

  7. The Court finds Clause 20 of the Shiprepair Agreement just and equitable under the circumstances and should be sustained as having the force of law between the parties to be complied with in good faith.

  8. Pioneer Insurance and Surety Corporation, as subrogee of WG&A, can only claim a maximum amount of P50,000,000.00 from Keppel Cebu Shipyard, Inc. because of the limited liability clause in the Shiprepair Agreement.

  9. Keppel Cebu Shipyard, Inc. is liable to pay interest at the rate of 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.

PRINCIPLES:

  • The reviewing court can determine the merits of a petition based on the pleadings, submissions, and certified attachments by the parties.

  • Disparity in findings of fact of lower tribunals may warrant the reviewing court to revisit the factual circumstances surrounding the case.

  • Negligence can be attributed to multiple parties based on their respective roles and responsibilities in causing a particular incident.

  • Findings of fact of administrative agencies and quasi-judicial bodies, affirmed by the Court of Appeals, are generally accorded respect and finality, unless there is absolutely no evidence to support them or the evidence is clearly insubstantial.

  • Questions of law may only be put into issue in petitions for review on certiorari.

  • Negligence is determined based on the degree of causation, and if parties are found to be mutually at fault, the burden is shared equally.

  • Liability may be limited under a contract clause, but this is subject to the interpretation of the court.

  • Parties to a contract may establish stipulations, clauses, terms, or conditions as they deem convenient, provided they are not contrary to law, morals, good customs, and public policy.

  • Contracts of adhesion are not invalid per se and are binding unless the weaker party is imposed upon and deprived of the opportunity to bargain on equal footing.

  • A provision limiting liability in a contract of adhesion may be struck down if it is unconscionable and contrary to principles of equity and fair play, taking into account the circumstances and the effect thereof.

  • Limited liability clauses in contracts can be valid if considered just and equitable under the circumstances.

  • The insurer can be subrogated only to the rights as the insured may have against the wrongdoer.

  • Interest can be awarded on the amount awarded to a party from the date of filing until full satisfaction of the award.