G.R. No. 196072 - Steamship Mutual Underwriting Association Limited vs. Sulpicio Lines, Inc.

Case Summary (G.R. No. 196072)

Petitions and Relief Sought

G.R. No. 196072: Steamship’s Petition for Review under Rule 45 seeking reversal of the Court of Appeals’ November 26, 2010 decision and related RTC orders that denied referral of the case to arbitration.
G.R. No. 208603: Sulpicio’s Petition for Indirect Contempt against Steamship alleging improper commencement and “conclusion” of London arbitration and seeking: declaration of guilt for indirect contempt, P30,000 fine, and restitution of US$69,570.99 deducted by Steamship.

Procedural History

Sulpicio filed Civil Case No. 07‑577 (RT Court, Makati) on June 28, 2007 for specific performance and damages against Steamship and others.
Steamship moved to dismiss and/or refer the dispute to arbitration under the Club Rules (Rule 47) and the Alternative Dispute Resolution Act (RA 9285). RTC Branch 149 denied the motion (July 11, 2008) citing European Resources; reconsideration denied (Sept 24, 2008).
Court of Appeals dismissed Steamship’s petition for certiorari (Nov 26, 2010); MR denied (Mar 10, 2011). Steamship filed Rule 45 petition to the Supreme Court (Apr 29, 2011).
Sulpicio later filed the indirect contempt petition (received Sep 6, 2013). The Supreme Court consolidated the two cases.

Issues Framed for Resolution

Procedural propriety of Steamship’s Rule 45 petition.
Existence and validity of an arbitration agreement between Steamship and Sulpicio.
Whether the Court of Appeals gravely erred in affirming the RTC’s denial of referral to arbitration under the 2005/2006 Club Rules.
Whether Steamship is guilty of indirect contempt for initiating/prosecuting London arbitration and deducting costs.

Applicable Law and Constitutional Basis

Primary statutory framework and rules cited: Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), RA No. 876 (Old Arbitration Law), Insurance Code (PD 612 and amendments), 2005/2006 Club Rules (Rule 47 arbitration clause, Rule 21 war risks, Rule 32 set‑off), A.M. No. 07‑11‑08‑SC (2009 Special ADR Rules), English Arbitration Act 1996, and applicable international arbitration principles (UNCITRAL/model law references as cited).
Constitutional basis: Decision rendered under the framework of the 1987 Philippine Constitution (decision date post‑1990).

Rule 45 Proper; Verification and Certification Against Forum‑Shopping

The Supreme Court held that the remedy was a Rule 45 petition for review on certiorari from a final CA disposition, even if the assigned error alleged grave abuse of discretion. Rule 45 petitions may raise questions of law and may be used to correct errors of judgment.
Verification and certification against forum‑shopping signed by Steamship’s counsel substantially complied with the Rules. A Power of Attorney attached initially omitted the signatory’s name, but later‑submitted Secretary’s Certificates established corporate authorization for counsel to sign; under the circumstances this cured the defect and constituted substantial compliance.

Nature of the Relationship: P&I Club Membership and Contract Formation

Entry of a ship into a P&I club creates more than a simple insurance contract; it makes the shipowner a member of the mutual association subject to the Club’s Rules. The Certificate of Entry and Acceptance, once issued, perfects the contract and expressly incorporates the Club’s Rules and By(e)‑Laws.
The Certificate’s “Notes” and attached endorsements refer claimants to the Rules for coverage details; the Certificate alone did not contain all terms, and members must refer to the Rulebook to understand full rights and obligations.

Content and Effect of Rule 47 (Dispute Resolution)

Rule 47 requires initial adjudication by the Club’s Directors (on documents and written submissions). Managers may, at their discretion, refer disputes to arbitration without prior Directors’ adjudication. If adjudication is not accepted, disputes are to be referred to a three‑arbitrator tribunal in London, subject to the English Arbitration Act 1996; no member may sue the Club in court on a disputed matter until adjudication/arbitration has been pursued and an Award published. Rule 47 also preserves the Club’s right, at its discretion, to take legal action in any jurisdiction to recover sums it deems due.

Incorporation by Reference and Formal Requirements for Arbitration Agreements

The Court applied precedent (e.g., BF Corporation) establishing that an arbitration clause contained in a document incorporated by reference into a main, signed agreement is binding even if the separate document is not separately signed. A contract may be embodied in multiple writings; a reference in a signed instrument to another document containing an arbitration clause effectively incorporates that clause.
UNCITRAL/model law principles and statutory law permit an arbitration agreement to be “in writing” by incorporation or by correspondence/other records.

Evidence of Notice, Knowledge, and Estoppel

The Court found that the record contained a preponderance of evidence that Sulpicio received copies of the Club Rulebook (annually via brokers), frequently invoked its provisions in correspondence, and was repeatedly reminded about applicable Rules (including arbitration). Affidavits and documentary exhibits from Steamship’s underwriting head and from the local brokers supported these findings.
Sulpicio’s prior letters that invoked specific Rules and its long membership (nearly 20 years) led to estoppel from denying knowledge of the Rulebook and its arbitration clause.

Effect of RA 9285 and Multiple‑Party Cases; Abrogation of European Resources

RA 9285 §25 provides that when an action involves multiple parties and one or more are bound by an arbitration agreement, the court shall refer to arbitration those parties who are bound, while the civil action may continue as to those who are not bound. The 2009 Special ADR Rules (Rule 4.7) reiterate that the court shall not decline partial referral for reasons such as multiplicity of suits, imprudence, or the presence of nonbound parties.
The Supreme Court held that the European Resources line of authority (which had allowed courts broad discretion not to refer) is effectively abrogated to the extent inconsistent with RA 9285 and the Special ADR Rules. The trial court exceeded its authority by denying referral on the ground that arbitration would “not be the most prudent action.”

Relief on Arbitration Issue; RTC Exceeded Jurisdiction

The Supreme Court found grave abuse of discretion in the RTC’s denial to refer and the CA’s affirmance. Under RA 9285 §24 the court must refer a dispute to arbitration unless the arbitration agreement is null, inoperative, or incapable of performance. By denying referral based on prudence alone, the RTC exceeded its authority.
The Court set aside the RTC (Branch 149) Order dated July 11, 2008 and the Court of Appeals Decision dated November 26, 2010, and referred the dispute between Sulpicio and Steamship to arbitration in London in accordance with Rule 47 of the 2005/2006 Club Rules.

Indirect Contempt Petition: Facts and Ruling

Sulpicio alleged Steamship improperly instituted and concluded London arbitration during pendency of the Philippine proceedings, proclaimed itself victor and charged Sulpicio with arbitration costs, and unilaterally deducted US$69,570.99 from a separate refund (Unabia case).
Steamship showed it commenced arbitration in London on July 31, 2007, and obtained an Anti‑Suit Injunction (English Commercial Court, April 4, 2008) enjoining Sulpicio from pursuing the Philippine suit. Steamship asserted it served notices and that Sulpicio refused to participate and evaded service. Steamship applied set‑off rights under Club rules (citing Rule 32 or the relevant 1998 Rule) to deduct costs awarded by the English court from amounts payable to Sulpicio.
The Supreme Court held that Steamship’s conduc

Case Syllabus (G.R. No. 196072)

Facts of the Case

Steamship Mutual Underwriting Association (Bermuda) Limited (hereafter "Steamship") is a Bermuda-based Protection and Indemnity Club, managed outside London, England, insuring members (shipowners) against third‑party risks including passenger injury/death, cargo loss/damage, and collision liabilities.
Sulpicio Lines, Inc. ("Sulpicio") entered its inter‑island vessels, including M/V Princess of the World, for Protection & Indemnity coverage with Steamship through local brokers/agents Pioneer Insurance and Sureboard‑Eastern.
Steamship issued a Certificate of Entry and Acceptance for the vessel covering the period from noon 20 February 2005 to noon 20 February 2006, which expressly stated the entry was "in accordance with the Act, By(e)-Laws and the Rules from time to time in force" and contained a note that "THE RULES ARE PRINTED ANNUALLY IN BOOK FORM, INCORPORATING ALL PREVIOUS ALTERATIONS AND A COPY IS SENT TO EACH MEMBER."
On 7 July 2005, M/V Princess of the World suffered a fire while underway, resulting in total loss of cargo; the Department of Interior and Local Government found the fire to be "accidental."
Sulpicio claimed indemnity from Steamship under the Protection & Indemnity policy. Steamship denied cover and rescinded coverage for Sulpicio’s other vessels alleging gross negligence by Sulpicio in safety, seaworthiness, and crew training.
Sulpicio filed suit in the Regional Trial Court (RTC), Makati (Civil Case No. 07‑577), against Steamship, a Steamship director (Gary Rynsard), and local agents Pioneer Insurance and Seaboard‑Eastern for specific performance and damages; the complaint was amended twice.
Steamship filed a Motion to Dismiss and/or to Refer Case to Arbitration invoking Rule 47 of its 2005/2006 Club Rules and Republic Act No. 9285 (ADR Law); other defendants filed separate motions to dismiss.
RTC Branch 149 denied Steamship’s motions on 11 July 2008 (and denied reconsideration on 24 September 2008), reasoning that arbitration did not appear the most prudent action given other defendants had filed answers; Steamship elevated the orders to the Court of Appeals via Rule 65, which dismissed the petition on 26 November 2010, finding no grave abuse and no convincing evidence of a valid arbitration agreement; Steamship sought review before the Supreme Court (G.R. No. 196072).
Separately, Sulpicio filed a Petition for Indirect Contempt (G.R. No. 208603) against Steamship alleging, inter alia, that Steamship (without Sulpicio’s knowledge/consent and while this litigation was pending): (a) initiated and concluded a London arbitration and proclaimed victory; (b) claimed arbitration costs from Sulpicio; and (c) unilaterally deducted US$69,570.99 from a separate refund in the Verna Unabia case as Sulpicio’s share in arbitration costs; Sulpicio sought contempt sanctions, a fine, and restitution plus interest.

Certificate of Entry, Club Rules and Rule 47 (substance and operative clauses)

The Certificate of Entry and Acceptance issued to Sulpicio: (a) evidences entry of specified ships in "Class 1 PROTECTION AND INDEMNITY"; (b) expressly states coverage "in accordance with the Act, By(e)-Laws and the Rules from time to time in force"; and (c) includes a note that the Rules are printed annually in book form and "A COPY IS SENT TO EACH MEMBER."
The Certificate attached War Risk Extension and Bio‑Chem clauses which expressly refer to Rule 21 of the 2005/2006 Club Rules (war risk provisions).
The 2005/2006 Club Rules (Class 1) include:
- Rule 3 (Scope of Cover): sets out that terms of entry are contained in the Rules and any Certificate of Entry and that risks insured are set out in Rule 25, always subject to conditions/exclusions elsewhere in the Rules.
- Rule 6 and Rule 8 (Entry and Membership): any owner entering a ship becomes a Member and is bound by the Act, By(e)-Laws and Rules; contracts of insurance are deemed to incorporate all provisions of these Rules unless expressly otherwise agreed in writing with the Managers.
- Rule 25 (enumerates risks, liabilities, costs and expenses covered).
- Rules 18–24, 26, 28, 30–31, 35–36, 40–42 (cover exclusions, surveys, claims handling, cessation, deduction/set‑off, assignment/subrogation).
- Rule 45 (Amendments to Rules): Rules may be altered by Ordinary Resolution at Members' meetings and sanctioned by Directors.
- Rule 47 (Dispute Resolution): provides first instance adjudication by Directors (on documents and written submissions), managers' right to refer to arbitration without prior adjudication, and, if not accepted or if managers so decide, submission to arbitration by three arbitrators in London under English Arbitration Act 1996; member cannot maintain legal proceedings against the Club on a dispute unless it has been submitted to the Directors and arbitrated (and Award published), subject to specified time limits; Rules and contracts are governed by English law; Rule 47 preserves the Club's right to take legal action in any jurisdiction in its absolute discretion (e.g., recovering sums, obtaining security, enforcing liens).

Procedural History — RTC, Court of Appeals, Supreme Court consolidation

RTC Branch 149 denied Steamship’s Motion to Dismiss and/or to Refer Case to Arbitration on 11 July 2008, citing European Resources and related considerations that arbitration might not be prudent because other defendants had answered; the denial was reiterated on 24 September 2008 following denial of reconsideration.
Steamship sought relief from the Court of Appeals by petition (CA‑G.R. SP No. 106103); the Court of Appeals dismissed Steamship’s petition on 26 November 2010, finding no grave abuse of discretion and insufficient proof of a valid arbitration agreement; Steamship’s motion for reconsideration before the Court of Appeals was denied on 10 March 2011.
Steamship filed a petition for review on certiorari before the Supreme Court under Rule 45 (G.R. No. 196072); Sulpicio separately filed a Petition for Indirect Contempt (G.R. No. 208603); the Supreme Court consolidated the two dockets for resolution (Resolution dated 15 January 2014).

Issues Presented to the Supreme Court

Procedural: whether Steamship’s Petition for Review under Rule 45 was the proper remedy and whether its Verification and Certification Against Forum Shopping were defective.
Substantive: whether there exists a valid and binding arbitration agreement between Steamship and Sulpicio, specifically whether the arbitration clause in the 2005/2006 Club Rules was effectively incorporated into the insurance contract and binding on Sulpicio.
Whether the Court of Appeals gravely erred in affirming the RTC order denying referral to arbitration pursuant to Rule 47 of the Club Rules.
Whether Steamship is guilty of indirect contempt for allegedly initiating and concluding a London arbitration and deducting arbitration/anti‑suit injunction costs from sums otherwise payable to Sulpicio.

Parties’ Principal Contentions (as presented in records)

Steamship:
- The petition for review is proper under Rule 45 and raises questions of law (including alleged grave abuse of discretion by Court of Appeals).
- Rule 47 of the Club Rules is incorporated by reference in the Certificate of Entry and Acceptance; membership and issuance of the Certificate binds Sulpicio to the Rules including the arbitration clause.
- Sulpicio was furnished with the Club Rulebook annually through brokers Pioneer Insurance and Seaboard‑Eastern and had long been aware of and relied upon Club Rules in past dealings, correspondence and claims — therefore estopped from denying knowledge.
- Under RA 9285 (Section 25), where multiple parties are impleaded and only some are bound to arbitration, the court must refer those bound to arbitration and proceed against those not bound; European Resources (decided under Old Arbitration Law RA 876) is misplaced as RA 9285 changed the law.
- Forum non conveniens/failure of Philippine courts to efficiently enforce against a foreign insurer, and the Rules designate English law and London arbitration, further support referral to arbitration.
- Steamship asserts it commenced arbitration in London (letter dated 31 July 2007) and later obtained an Anti‑Suit Injunction from the English Commercial Court (Order of 4 April 2008).
Sulpicio:
- Denies being bound by arbitration clause; the Certificate of Entry did not itself contain an arbitration stipulation and Sulpicio claims it never received a copy of the Club Rules.
- Asserts the arbitration clause is not valid under Section 4 of the Arbitration Law requiring arbitration agreements to be in writing and subscribed by the party or lawful agent.
- Relies on European Resources as authority to deny that referral to arbitration is prudent where some defendants are not bound and might suffer split jurisdiction; White Gold Marine shows Steamship previously litigated in Philippine courts and therefore arbitration is not mandatory.
- Challenges procedural defects in Steamship’s Rule 45 petition (verification and certification signed by counsel and Power of Attorney alleged to be unsigned/defective).

Procedural Rulings and Standards Applied by the Supreme Court

Remedy proper: The Supreme Court held that a petition for review from the Court of Appeals is a Rule 45 petition even when it challenges alleged grave abuse of discretion; allegations of grave abuse do not ipso facto convert the remedy into certiorari under Rule 65. (Cites Rule 45 §1 and analogous jurisprudence distingu