LEGAL RESEARCH

Re: M/V Princess of the Stars Tragedy

Submitted by:
1st year, 1i
SY 2008-2009

Aquino, Adrian
Bautista, Rianne May
Gonzales, Jenny
Gonzales, Sahlie
Lansang, Lea Joyce
Ontog, Christopher Martin

Submitted to:
Atty. Sarmiento
Legal Research
26 August 2008

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 TABLE OF CONTENTS

Pertinent Provisions 3
Abridged Case Research
Facts 5
Issues 6
Stand 6
Legal Research
Facts 9
Issue 1 on Seaworthiness 14
Issue 2 on Negligence 18
Issue 3 on BMI Jurisdiction 23
Appendix
A- Revised Guidelines on Movements of Vessels During Heavy Weather 28
B- Public Act No. 521/ Carriage of Goods by Sea Act 36
C- Republic Act 9295 /“Domestic Shipping Development Act of 2004” 47

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 PERTINENT PROVISIONS
from the Civil Code of the Philippines

Article 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the stipulation of
the parties requires another standard of care.

Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.

Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers for passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

Article 1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an
ancillary activity (in local idiom, as “a sideline”). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such services on a an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the “general public,” i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population.
Article 1733 deliberately refrained from making such distinctions.

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Article 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances for each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of
the passengers is further set forth in Articles 1755 and 1756.

Article 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

In all other cases, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence.

Article 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances.

Article 1756. In case of death of or injuries to passengers, common carriers are presumed
to have been at fault or to have or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in Articles 1733 and 1755.

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 ABRIDGED CASE RESEARCH

FACTS:

On June 20, 2008 while the country was under the threat of typhoon Frank, the MV
Princess of the Stars, flagship of the Sulpicio Lines left Manila bound to Cebu City
carrying 864 people. The Board of Maritime Inquiry pointed out that signal no. 1 was at
the time hoisted over Metro Manila, signal no. 2 in Romblon and signal no. 3 in Masbate,
and that the Princess of the Stars, if it would follow its course, would pass near all these
provinces to reach its destination, Cebu. At 6 a.m. the next day, they reportedly received
an advisory that the sea condition shifted from “moderate” to “rough”. Their last
communication with the ship was around 11:30 a.m. of June 21, 2008 when the ferry sent
a distress signal at midday on June 21, 2008 when its engines stalled in rough seas near
Sibuyan Island. San Fernando Mayor Nanette Tansingco confirmed that the ferry had a
hole in the hull, was partially submerged and that several bodies had been found nearby.

It was reported that 4 survivors witnessed "that the captain of the ship ordered the
abandoning of the ship at noon Saturday, but many passengers did not even wear life
vests when the ship capsized." Four survivors told the reporters that "the ship did not
malfunction, but only slowed down its speed as it encountered big waves off the coast of
Romblon."

Dozens of people trooped to the offices of owner Sulpicio Lines in Cebu and Manila
North Harbor. The victims' families accused Sulpicio Lines and the Philippine Coast
Guard of allowing the ship to set sail despite the bad weather. They further blamed
Sulpicio for not personally informing them about the tragedy, the details of the accident,
and the condition of the ship plus its passengers. Sulpicio Lines's counsel stated that "the
ship never received advice from Coast Guard, while Metro Manila was still under public
storm signal No. 1 when the ship left the port."

Days after the incident, there were reports of what happened to the missing crew and
personnel members and updates on the incident of the MV Princess of the Stars. On June
27, it was uncovered that the capsized ferry illegally carried about 10,000 metric tons of
super-toxic pesticide, Endosulfan, in the hold of the ill-fated MV Princess of Stars. The
ship owner of the capsized MV Princess of the Stars said that he would sue the country’s
weather agency for not giving timely information about the typhoon.

On July 7, The Sulpicio Lines Inc. (SLI) asked the Manila RTC to stop the Board of
Marine Inquiry (BMI) from further conducting an inquiry on the tragedy, alleging that the
“current investigation of the tragedy is irregular, illegal, and null and void for want of

5
jurisdiction and authority.” The SLI claimed the Maritime Industry Authority (Marina)
had no authority and jurisdiction under existing laws to investigate the cause of the
accident.

ISSUES:

(1) Is Princess of the Stars seaworthy?

(2) Is Sulpicio Lines civilly liable for negligence?
(3) Does the Board of Marine Inquiry (BMI) have jurisdiction to investigate the
Princess of the Stars tragedy?

STAND:

(1) NO, Princess of the Stars is unseaworthy.

Seaworthiness is the state of being fit and safe for sea voyage. Safeness from common
parlance means being free from danger; and fitness is being able to satisfy certain
conditions and restrictions. In Caltex vs. Sulpicio Lines1, for a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy
condition the vessel involved in its contract of carriage is a clear breach of its duty as
prescribed in Article 1755 of the Civil Code.

On the question of M/V Princess of the Stars being free from danger, we are deemed to
answer in the negative. Due to the typhoon, Princess of the Stars decided to travel with
the apparent existence of danger. On the fitness to travel of Princess of the Stars, we also
answer in the negative. If Princess of the Stars were equipped for the voyage and manned
by COMPETENT people, it would not have ended in another tragic incident. Looking
into the prior sea accidents where Sulpicio Lines “became famous with”, Sulpicio Lines
should have known better. Regardless of Princess of the Stars being the flagship of

1
G. R. No. 131166, September 30, 1999
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Sulpicio Lines for twenty four years, Sulpicio should have known that diligence need be
extraordinary at all times

The burden to prove that there indeed was “extraordinary diligence” now lies with
Sulpicio. Absence of which would be a breach of Article 1734 of the Civil Code. If
Sulpicio fails to disprove its unseaworthiness, then in accordance with Aboitiz vs. New
India Assurance Company2, the shipowner would also be presumed negligent and hence
be held liable.

(2) YES, Sulpicio Lines is civilly liable for negligence.

Negligence is defined as the failure to use “reasonable care”. Negligence is the doing of
something which a reasonably prudent person would not do, or the failure to do
something which a reasonably prudent person would do under like circumstances, or the
departure from what an ordinary reasonable member of the community would do in the
same community. Article 1163 of the Civil Code puts negligence as “every person
obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another
standard of care.” In Article 1170 of the Civil Code, negligence is a 'legal cause' of
damage.

Sulpicio Lines contributed to the damage due to gross negligence. Sulpicio Lines allowed
M/V Princess of the Stars to proceed to its destination notwithstanding the fact that there
was a typhoon brewing in the direction to which the vessel was heading. Sulpicio failed
to exercise the necessary diligence required by law. As clearly stipulated in Article 1733
of the Civil Code, it is not mere diligence which is required. It is “extraordinary
diligence”.

Sulpicio Lines moreover is NOT free from its obligation to compensate the actual and
moral damages brought about by the tragedy. Article 1755 of the Civil Code clearly states
that “common carriers are bound to carry the passengers to safety as far as human care

2
G.R. No. 156978, May 2, 2006

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and foresight can be provided.” Sulpicio is duty bound to first and foremost secure the
safety of their passengers.

(3) YES, BMI has the jurisdiction to investigate the Princess of the Stars tragedy.

Herewith, we concur with the decision of the Manila Regional Trial Court. There is lack
of merit in the claim of Sulpicio Lines that the Maritime Industry Authority (MARINA)
has the sole authority to look into marine accidents.

The statutory construction rule of verba legis need be applied in the two pertinent
documents mentioned in the petition—(1) the Republic Act 9295 otherwise known as the
“Domestic Shipping Development Act of 2004”; and (2) the Memorandum of Agreement
between the Maritime Industry Authority (MARINA) and the Philippine Coast Guard
(PCG). Based from the "plain meaning rule" or verba legis, where the words of a statute
are clear, plain and free from ambiguity, the law must be given its literal meaning and
applied without attempted interpretation.

In the succeeding portions of this research, a copy of the important provisions in the two
pertinent documents is provided. Important citations in Republic Act 9295 include
Section 10 (Repealing Clause), and Section 26 (The Purpose). Important citations in the
Memorandum of Agreement include Chapter 5 (Administrative Proceeding on Marine
Casualties or Incidents), and Chapter 7 (Supervision/Audit).

In the Memorandum of Agreement between the Maritime Industry Authority (MARINA)

and the Philippine Coast Guard (PCG), it is crystal clear that both parties recognize the
jurisdiction of the Board of Marine Inquiry. BMI has the jurisdiction to conduct
administrative hearings to determine the causes of marine casualties or incidents upon
receipt of a marine protest; and to review on appeal the results and findings of the Special
Board of Marine Inquiry.

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 LEGAL RESEARCH

Re: M/V Princess of the Stars

FACTS:

On June 20, 2008 and while the country was under the threat of typhoon Frank, at around
8 p.m., the MV Princess of the Stars, flagship of the Sulpicio Lines fleet, left Pier 12 of
the port of Manila bound to Cebu City carrying 864 people wherein 724 were passengers,
26 sanitary aides and 111 crew members. The Sulpicio Lines, Inc. (SLI) said that the last
bulletin they received before the vessel left port on Friday was at 4:45 p.m. The Board of
Maritime Inquiry pointed out that signal no. 1 was at the time hoisted over Metro Manila,
signal no. 2 in Romblon and signal no. 3 in Masbate. The board said the Princess of the
Stars, if it would follow its course, would pass near all these provinces to reach its
destination, Cebu. However, at 6 a.m. the next day, they reportedly received an advisory
that the sea condition shifted from “moderate” to “rough”. Their last communication with
the ship was around 11:30 a.m. of June 21, 2008 when the ferry sent a distress signal at
midday on June 21, 2008 when its engines stalled in rough seas near Sibuyan Island. The
ship reportedly contacted their port captain in Cebu and said “the ship was listing heavily
on the port side and (they) could hardly maneuver the ship.” A rescue ship reached the
MV Princess of the Stars, more than 24 hours after it lost radio contact, at 12:30
Philippine Standard Time on Saturday. San Fernando Mayor Nanette Tansingco
confirmed that the ferry had a hole in the hull, was partially submerged and that several
bodies had been found nearby.

Due to these instances, a rescue ship arrived at the scene of the disaster 24 hours later,
when radio contact was lost with MV Princes of the Stars. Captain Florencio Marimon,
the captain of the ill-fated MV Princess of the Stars that capsized in Romblon waters, was
the most senior and most experienced captain in Sulpicio Lines Inc, was among the
hundreds of passengers and crewmembers still unaccounted for in the tragedy.

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Xinhua News Agency reported that 4 survivors witnessed "that the captain of the ship
ordered the abandoning of the ship at noon Saturday, but many passengers did not even
wear life vests when the ship capsized." Four survivors told GMA News that "the ship did
not malfunction, but only slowed down its speed as it encountered big waves off the coast
of Romblon." One saw many people jump, but "the waves were so big and the rains so
strong that few of them could have possibly survived; the crew were so busy saving
themselves that they did not care to help the passengers to wear safety vests, and that
some of the passengers passed out while children and the elderly failed to wear life vests
because they could no longer move when the ship was turning upside down."

Dozens of people trooped to the offices of owner Sulpicio Lines in Cebu and Manila
North Harbor. The victims' families accused Sulpicio Lines and the Philippine Coast
Guard of allowing the ship to set sail despite the bad weather. They further blamed
Sulpicio for not personally informing them about the tragedy, the details of the accident,
and the condition of the ship plus its passengers. Sulpicio Lines's counsel stated that "the
ship never received advice from Coast Guard, while Metro Manila was still under public
storm signal No. 1 when the ship left the port."

In the rescue operation more than one hundred divers from US Navy, Philippine Coast
Guard (PCG), and Philippine Navy (PN) were dispatched. The Maritime Industry
Authority (Marina) suspended all sea travel operations of the Sulpicio. The Board of
Marine Inquiry (BMI), on the other hand, has started its investigation.

Several days after the incident, there were reports of what happened to the missing crew
and personnel members and updates on the incident of the MV Princess of the Stars.

Update: June 27

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 • Muro-ami divers of Philippines using improvised air compressors were trying to
enter the capsized ferry to loot, despite the presence of rescue vessels around.
• It was uncovered that the capsized ferry illegally carried about 10,000 metric tons
of super-toxic pesticide, Endosulfan, in the hold of the ill-fated MV Princess of
Stars.

Update: June 28

• Due to the existence of toxic Endosulfan in the capsized ferry, the rescue divers
needed to be medically examined.
• The ship owner of the capsized MV Princess of the Stars said that he would sue
the country’s weather agency for not giving timely information about the typhoon.

Update: July 01

• Maritime Industry Authority (MARINA) of Philippines discovered seven other

traveler vessels of Sulpicio Lines Inc. to be faulty -- Sulpicio Lines Inc. denied the
allegations.

Update: July 02

• Accordingly, refloating the ferry would rapidly increase the time for the recovery
of the dead bodies but it would be hazardous and costly.

Update: July 05

• The Philippine Coast Guard (PCG) issued a directive that all types of sea vessels
would not anymore be permitted to sail during a storm signal 1 or higher.
• Sulpicio Lines, Inc. denied allegations that M/V Princess of the Stars’ captain
Florencio Marimon was in hiding.

Update: July 07

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 • The Sulpicio Lines Inc. (SLI) asked the Manila RTC to stop the Board of Marine
Inquiry (BMI) from further conducting an inquiry on the tragedy. Sulpicio Lines
claimed that the Maritime Industry Authority (Marina) had no authority and
jurisdiction under existing laws to investigate the cause of the accident.

Update: July 09

• Sulpicio Lines Inc. Was granted 90 days to complete the retrieval of bodies from
the capsized ship, as well as the bunker fuel in the ship and the Endosulfan
shipment.

Update: July 10

• A joint European Union-United Nations expert team was deployed to the

Philippines to assess the situation.
• A number of seamen who survived the MV Princess of the Stars tragedy were
scheduled to appear on July 11 before the Board of Marine Inquiry (BMI).
• BMI was ordered to submit report on July 16.

Update: July 14

• The ship owner Sulpicio Lines Inc identified Titan Salvage to remove the toxic
pesticides from the capsized ferry.
• Nevertheless, the Sulpicio ship owner gave no decision to float the vessel. DOTC
gave Sulpicio Lines until 12:01 on July 15 to name the salvage company.

Update: July 17

• Sulpicio Lines Inc., laid off 136 regular officers and crew members from their
eight other passenger vessels on July 16.
• Board of Marine Inquiry (BMI) was set to conduct hearing in Cebu on July 18
and 19.
• Body count of the disaster amplified to 259.

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Update: July 18

• Paul Glerum, a Dutch salvage master with more than 30 years’ salvage
experience, would be in charge for refloating M/V Princess of the Stars.

Update: August 01

• More families of the victims filed civil suits against Sulpicio Lines, Inc.
• The report of the joint United Nations/European Union expert team deployed on
July 10 to assess the situation of the ‘Princess of the Stars’ ferry which said to
contain highly toxic chemicals, was presented.

Update: August 06

• According to the investigations, Capt. Florencio Marimon Jr. of the capsized ferry
erred when he decided to push through with the voyage in the face of a 150 kph
wind force.

Additional information:

The ship owner, Sulpicio Lines, Inc. has been a leading sea transport provider for over
twenty years all over the Philippine islands with a fleet of 16 passenger cargo vessels, 16
cargo and container vessels, 3 tugboats and 5 barges with a total tonnage of over 127,100.

Other facts about the case:

• 24 year old, 23,824-tonne ferry MV Princess of the Stars had a total passenger
capacity of 1,992 personnel.
• To further facilitate the investigations, the station commander of the Philippine
Coast Guard in Manila was relieved of his duties.
• The ship owner claimed that the ferry sailed out with coast guards approval
whereas coast guard said that it was the ship owners’ responsibility to decide
whether or not to sail the ship in inclement weather.

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 • Philippine Coast Guard is not having an operational Global Maritime Distress and
Safety System (GMDSS).
• Ships of Sulpicio Lines Inc has long been popular with its track record of sea
accidents.
• Board of Marine Inquiry (BMI) is tasked with the investigations about the
Princess of the Stars accident.

ISSUE 1:

Is the Princess of the Stars

seaworthy?

NO.

Seaworthiness is the state of being fit and safe for sea voyage. Safeness from common
parlance means being free from danger; and fitness is being able to satisfy certain
conditions and restrictions. Seaworthiness is the primary duty of each carrier as reflected
in Article 1755 of the Civil Code stipulating that “common carriers, from the nature of
their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances for each case”.

On the question of M/V Princess of the Stars being free from danger, we are deemed to
answer in the negative. Danger can arise in a myriad of reasons. There is danger that can
arise from the passengers per se, i. e. terroristic attacks, thefts; or by internal dangers like
fire or conflagration and external dangers caused by unfortunate natural conditions, i. e.
tsunamis and typhoons. The latter being a pertinent subject of the case at hand, we
however are not confined within the ill fate that natural disturbances bring. With the

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technology the human race is equipped with, people are able to predict, and people are
able to evade—in the stricter sense, prevent the disasters brought about by natural
disturbances. In the case at hand, the external danger of typhoon is a given for any vessel
that decides to travel in such conditions.

M/V Princess of the Stars decided to travel with the apparent existence of danger.

Danger is never eliminated in the normal course of human life, but the question of
efficient prevention of danger is the question thereby put into primary test.

Guidelines in observance of seaworthiness have been constructed in and out of the

country. An example of which is the Revise Guidelines on Movements of Vessels During
Heavy Weather3. The latter expressly states that “safety of life at sea should take
precedence at all times, and operator/ master of the vessel should study carefully the
typhoon movement to ensure that the vessel will not be within the area directly affected
by typhoon signals 1, 2, 3 and 4 within the danger sector until they reach their
destination.” More so, Section 3 of Public Act No. 521 or the Carriage of Goods by Sea
Act4 , (1) the carrier shall be bound before and at the beginning of the voyage to exercise
due diligence to (a) make the ship seaworthy; (b) properly man, equip, and supply the
ship, among others.

In Caltex vs. Sulpicio Lines5, for a vessel to be seaworthy, it must most importantly, be
adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. In the case at bar, investigations showed that Capt. Florencio Marimon
Jr. of the capsized ferry erred when he decided to push through with the voyage in the
face of a 150 kph wind force. A number of survivors also testified that “the crew were so
busy saving themselves that they did not care to help the passengers to even wear safety
vests.” Maritime Industry Authority (MARINA) of Philippines, on the other hand,
discovered seven other travel vessels of Sulpicio Lines Inc. to be faulty.

3
Copy of Revised Guidelines on Movements of Vessels during Heavy Weather in Appendix A.
4
Copy of Public Act No. 521 provided in Appendix B.
5
G. R. No. 131166, September 30, 1999

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If Princess of the Stars were equipped for the voyage and manned by COMPETENT
people, it would not have ended in another tragic incident. Looking into the sea accidents
where Sulpicio Lines became famous with, Sulpicio Lines should have known better.
Sulpicio should have known that competency should never be compensated in any way.

Sulpicio Lines is engaged in “public service” and is thereby bound by the corollary
concept of seaworthiness, which is the implied warranty of seaworthiness of the common
carrier. Passengers and shippers of goods are not expected to inquire into the licenses of
the common carrier, check its observance with maritime laws, or determine the
competency of the crew prior to boarding. The vessel or the common carrier is expected
to comply with the requirements set forth by law. The public grants the common carrier
with trust and the public is accorded by the common carrier with assurance. Henceforth is
the implied warranty of seaworthiness6.

In the case at hand, the fitness for sea voyage of M/V Princess of the Stars is a question
of utmost importance. The vessel had been sailing in the vastness of Philippine waters for
twenty four years, long before the demise of the other Sulpicio vessels. By its age of
voyage, we could likewise say that Princess of the Stars proved to be a survivor,
remained unwrecked, unwracked, and undefeated by the countless super typhoons that
entered the Philippines. But like everything else, Princess of the Stars came of age, lost
its might and glow, resisted the forces of nature—forces that in the end triumphed. The
Princess died, faced an ill-fated death, and left the people anguished and grieving.

Certainly, we can contend that a number of factors changed in the course of events. It
cannot not only be the age, because even if people age, the field of medicine strives to
provide for its sustenance.

Independent of the imminent danger posited by typhoon Frank, investigations reveal

evidences pointing to the liability of Sulpicio Lines Inc. (SLI) through negligence. Most
of the evidences come from the last communication with the ship. It was reported that the
Princess of the Stars was “listing heavily on the port side and that it could hardly be
maneuvered”. The vessel was carrying 15 vehicles and 66 containers of truck parts and
6
Ibid.

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other heavy materials which were not properly secured. The vehicles were not lashed
properly, prompting the 23,000-ton ship to tilt to one side at the height of the typhoon’s
wrath. Furthermore, some of the water seals were damaged by an onboard fire that hit the
Princess of the Stars in 1997.

Hence, Sulpicio Lines Inc. (SLI) certainly committed the same navigation errors it
committed in the previous Sulpicio tragedies—M/V Doña Paz (1987, 4341 casualties),
M/V Doña Marilyn (1988, 300 casualties), M/V Princess of the Orient (1998, 150
casualties), M/V Princess of the World (2005, 0 casualty). Sulpicio is again liable.

The Supreme Court in Aboitiz vs. New India Assurance Company7 contends that from the
nature of common carrier business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence xxx according to all the circumstances of each
case. In the event of loss, destruction or deterioration xxx, common carriers are
responsible, unless they can prove that the loss, destruction or deterioration was brought
about by the causes specified in Article 1734 of the Civil Code. In all other cases,
common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence. Moreover, where the vessel is
found unseaworthy, the ship owner is also presumed to be negligent since it is tasked with
the maintenance of its vessel. Though this duty can be delegated, still, the ship owner
must exercise close supervision over its men.”

Anent the conditions and restrictions that determine the fitness of a vessel, a number of
people certainly mismanaged, miscalculated, and failed to abide by the laws of sea travel.
It would not have turned out a tragedy had the officials been not negligent, lenient, and
sloppy.

In Article 1755 of the Civil Code, there is a need to re-emphasize “extraordinary

diligence” and “according to all the circumstances for each case”. A mediocre and
slacking performance of one’s duty should never be the case. Properties are not the only
ones at stake, we deal with lives—we lose lives. Battling a typhoon in the middle of the
sea is a game when luck is not accompanied with utmost diligence, we could lose
7
G.R. No. 156978, May 2, 2006.

17
everything in a glance. It is the same as saying that every day is a battle for survival,
failure to protect oneself or procure the basic needs of survival means death. Today might
be the day of our ill-fated death, or it could be tomorrow, it could be any day. It is
nonetheless not a question of when ever; we are faced with the question of who ever—
whoever is willing to die unprepared. Unless you do, then there is now one willing soul.
Congratulations, my friend!

Unlike honor, lives lost could never be taken back. Henceforth, each circumstance in
every case needs to be dealt with wholistically. The absence of one circumstance could
bring all else into extinction.

Absence both fitness and safety for sea voyage, M/V Princess of the Stars is therefore
NOT seaworthy. Through failure to observe the warranty of seaworthiness, M/V Princess
of the Stars grossly violated Article 1755 of the Civil Code.

ISSUE 2:

Is Sulpicio Lines civilly liable for

negligence?

YES.

Negligence is defined as the failure to use “reasonable care”. Reasonable care is the
doing of something which a reasonably prudent person would not do, or the failure to do
something which a reasonably prudent person would do under like circumstances. It is a
departure from what an ordinary reasonable member of the community would do in the

18
same community. The exercise of “reasonable care” is described under Article 1163 of
the Civil Code, wherein it states that every person obliged to give something is also
obliged to take care of it with the proper diligence of a good father of a family, unless the
law or the stipulation of the parties requires another standard of care.

Under Article 1170, negligence is a 'legal cause' of damage if it directly and in natural
and continuous sequence produces or contributes substantially to producing such damage,
so it can reasonably be said that if not for the negligence, the loss, injury or damage
would not have occurred. Negligence may be a legal cause of damage even though it
operates in combination with the act of another, a natural cause, or some other cause if
the other cause occurs at the same time as the negligence and if the negligence
contributes substantially to producing such damage.

Negligence is the conduct which naturally or reasonably creates undue risk or harm to
others. It may be the failure to observe that degree of care, precaution, and vigilance,
which the circumstances justly demand; or the omission to do something which ordinarily
regulate the conduct of human affairs8.

In the case at hand, it is clear that the incident was brought about by negligence and not
by an act of God.

An “Act of God” is defined as a manifestation especially of a violent or destructive

natural force or an extraordinary and unexpected natural event, such as a lightning strike,
hurricane, tornado or earthquake, which is beyond human power to cause, prevent, or
control. An act of God may be a defense against liability for injuries or damages. Under
the law of contracts (Article 1174 of the Civil Code, Public Act 521, Section 4 paragraph
2a), an act of God often serves as a valid excuse if one of the parties to the contract is
unable to fulfill his or her duties.

Based on the facts gathered, Sulpicio Lines failed to exercise the necessary diligence
required by the law. Sulpicio Lines, as a common carrier, is mandated under Article 1733
8
Southeastern College vs. CA, Caltex vs. Sulpicio Lines, G. R. No. 131166, September 30, 1999.

19
of the Civil Code, to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances
for each case.

In the case at bar, Sulpicio Lines allowed M/V Princess of the Stars to proceed to its
destination notwithstanding the fact that there was a typhoon brewing in the direction to
which the vessel was heading.

During the investigations conducted by the Board of Maritime Inquiry (BMI) it was said
that the decision to proceed or not with the voyage was the sole prerogative of the ship’s
captain and that the latter has the overriding authority. It should be noted that the captain
of the ship should only act as the agent of Sulpicio Lines. An agent, as defined under
Article 1868 of the Civil Code, is a person who binds himself, by contract, to render
some service or to do something in representation or on behalf of another, with the
consent and authority of the latter. In relation to this, Article 1899 of the Civil Code,
states that “if a duly authorized agent acted in accordance with the orders of the principal,
the latter could not set up the ignorance of the agent as to circumstances whereof he
himself was, or ought to have been, aware.” Sulpicio Lines even defended the decision of
the said captain to sail despite stormy weather saying that the ship was the biggest in the
country and could steam full ahead at an average speed of 20 knots. It further asserted
that the ship, if needed, could seek shelter in various areas along its pre-plotted route to
Cebu. Based on the foregoing, as the principal, Sulpicio Lines had the discretion to
decide whether or not to allow the said voyage. Sulpicio Lines had the responsibility to
its passengers to exercise extraordinary diligence in making such decisions where the
risks involved would be greater than that which the company would normally incur in
ordinary circumstances. Sulpicio Lines assumed greater risk of injury towards its
passengers when it decided to continue its voyage. The decision of Sulpicio Lines to sail
was a clear violation and a complete disregard of their duty to exercise extraordinary
diligence in carrying of passengers to their destination.

As such, Sulpicio Lines can be held civilly liable by reason of public policy and because
of the nature of their industry where risk is already a common factor. Common carriers

20
are expected to observe extraordinary diligence and care over the safety of its goods
and passengers pursuant to Article 1755 of the Civil Code. Article 1755 states that a
common carrier is bound to carry the passengers to safety as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances. Herewith, Sulpicio Lines is bound to transport its
passengers as safely as human care and foresight can provide. Sulpicio Lines has clearly
failed on this.

On the other hand, Sulpicio puts the blame on the government. Sulpicio Lines contends
that they relied upon the weather forecasts of the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAG-ASA). Accordingly, PAG-ASA failed to
give timely reports or information as to the direction of the typhoon.

Such contention is very weak and cannot be given much weight. The company was
already forewarned that the typhoon was in the vicinity of the Philippine territory. It is
more so a common knowledge to take extra measures in heavy weather conditions
because direction or path of a typhoon is an uncertain unpredictable event. With that
information, SLI could have taken the necessary precautionary measure in exercising the
extraordinary diligence required of them by law—regardless of whether or not there was
negligence on the part of the officers of the PAG-ASA or a delay in dissemination of
weather forecasts. It was also said by the BMI Panel Chief (Rear Admiral Ramon Liwag)
that although it would always be difficult to predict the direction of the typhoon, they
could track its course and that on his own, the captain could predict the direction of the
ship. In relation to this, the ship captain, as well as SLI, should have been conscious not
only about the weather in their ports of origin but also in their ports of destination. Thus,
SLI and/or the captain of the ship must have at least sensed where, more or less, the
typhoon was directing.

Although typhoon is an "act of God" there is a contributory negligence on the part of the
operator of the ship; hence it is not free from its obligation to compensate the actual and
moral damages that resulted there from. The presence of negligence denies the claim for
an “act of God”. As provided in the Article 1755 of the Civil Code, “common carriers are

21
bound to carry the passengers to safety as far as human care and foresight can be
provide”.

Another point of argument is based on the last communication with the ship. It was
reported that the ship was “listing heavily on the port side and that it could hardly be
maneuvered”. At that time, the vessel was carrying 15 vehicles and 66 containers of truck
parts and other heavy materials which might not have been properly secured. It could be
surmised that the vehicles were not properly lashed, prompting the 23,000-ton ship to tilt
to one side at the height of the typhoon’s wrath. If proven, this would be tantamount to
the negligence of SLI because of their failure to ascertain that their cargos were properly
secured. Noted herewith, some of the ship’s water seals might also be damaged by an
onboard fire that hit the ship in 1997.

Furthermore, Article 1756 of the Civil Code provides that in the case of death of or
injuries to passengers, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in articles 1733 and 1755. In the case at bar, when the passengers boarded the
ship of Sulpicio Lines, the latter assumed the express obligation to transport its passenger
to their destination safely and any injury that might be suffered by them is right away
attributable to the fault or negligence of the carrier.

In the case of Sulpicio Lines vs. Court of Appeals9, the Supreme Court ruled that M/V
Dona Marilyn was civilly liable for the sinking of its ship due to gross negligence. In that
case, M/V Dona Marilyn continued its voyage although Storm Signal 2 had been raised
by PAG-ASA authorities over Leyte as early as 5:30 P.M of October 23, 1998 and which
signal was raised to Signal No. 3 by 10 P.M. of the same day. The ship captain ordered
the vessel to proceed to Tacloban when prudence dictated that he should have taken it to
the nearest port for shelter thus. Sulpicio Lines failed to exercise extraordinary diligence
in carrying its passengers to their destination.

In the same manner, referring to the negligence of the crew as in the case Vasquez vs.
Court of Appeals, 138 SCRA 553, promulgated in 1985, the Supreme Court found the
9
G.R. No. 113578, July 14, 1995.

22
shipping line liable. Accordingly, the crew of the vessel M/V Dona Marilyn did not take a
calculated risk when it proceeded to sail to its destination despite the typhoon. It was said
that instead of dropping anchor in or at the periphery of the Port of Calapan, or returning
to the nearer port of Manila, the crew assumed greater risk when it decided to continue its
voyage.

As mentioned in Laguna Tayabas Bus Co. vs. Tiongson, 16 SCRA 940 (1966), a common
carrier is obliged to transport its passengers to their destinations with the utmost diligence
of a very cautious person. The Supreme Court found that petitioner failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the sinking of the
M/V Dona Marilyn.

ISSUE 3:

Does the BMI have jurisdiction to

investigate on the tragedy?

YES.

We concur with the decision of the Manila Regional Trial Court that there is lack of merit
in the claim of Sulpicio Lines that the Maritime Industry Authority (MARINA) has the
sole authority to look into marine accidents.

Jurisdiction is defined as the limits or territory within which authority may be exercised.
As to law, jurisdiction is synonymous with the word “power.” Any court possesses
jurisdiction over matters only to the extent granted to it by the Constitution, or legislation
of the sovereignty on behalf of which it functions. A jurisdictional question may be
broken down into three components:

23
 1. Whether there is jurisdiction over the person (in personam),
2. Whether there is jurisdiction over the subject matter, or res (in rem)
3. Whether there is jurisdiction to render the particular judgment sought

In the case being conferred, it is more of a question of whether there is jurisdiction over
the subject matter –whether or not the Board of Marine Inquiry (BMI) has the jurisdiction
or authority to investigate marine casualties and incidents.

Herewith, we cite the pertinent portions of Republic Act 9295 also known as the
“Domestic Shipping Development Act of 2004.”

SEC. 10. Jurisdiction; Powers; and Duties of MARINA. – The MARINA shall have the
power and authority to:

1. Register vessels;
2. Issue certificates of public convenience, or any extensions or amendments
thereto, authorizing the operation of all kinds, classes and types of vessels in
domestic shipping: Provided, That no such certificate shall be valid for a period
of more than twenty-five (25) years;
3. Modify, suspend or revoke at any time, upon notice and hearing, any certificate,
license or accreditation it may have issued to any domestic ship operator;
4. Establish and prescribe routes, zones of areas of operations of domestic ship
operators;
5. Require any domestic ship operator to provide shipping services to any coastal
area, island or region in the country where such services are necessary for the
development of the area, to meet emergency sealift requirements, or when public
interest so requires;
6. Set safety standards for vessels in accordance with applicable conventions and
regulations;
7. Require all domestic ship operators to comply with operational and safety
standards for vessels set by applicable conventions and regulations, maintain its
vessels in safe and serviceable condition, meet the standards of safety of life at
sea and safe manning requirements, and furnish safe, adequate, efficient, reliable
and proper service at all times;
8. Inspect all vessels to ensure and enforce compliance with safety standards and
other regulations;

24
 9. Ensure that all domestic ship operators shall have the financial capacity to
provide and sustain safe, reliable, efficient and economic passenger or cargo
service, or both;
10. Determine the impact which any new service shall have to the locality it will
serve;
11. Adopt and enforce such rules and regulations which will ensure compliance by
every domestic ship operator with required safety standards and other rules and
regulations on vessels safety;
12. Adopt such rules and regulations which ensure the reasonable stability of
passengers and freight rates and, if necessary, to intervene in order to protect
public interest;
13. Hear and adjudicate any compliant made in writing involving any violation of
this law or the rules and regulations of the Authority;
14. Impose such fines and penalties on, including the revocation of licenses of, any
domestic ship operator who shall fail to maintain its vessels in safe and
serviceable condition, or who shall violate or fail to comply with safety
regulations;
15. Investigate any complaint made in writing against any domestic ship operator, or
any shipper, or any group of shippers regarding any matters involving violations
of the provisions of this Act;
16. Upon notice and hearing, impose such fines, suspend or revoke certificates of
public convenience or other license issued, or otherwise penalize any ship
operator, shipper or group of shippers found violating the provisions of this Act;
an
17. Issue such rules and regulations necessary to implement the provisions of this
Act: Provided, That such rules and regulations cannot change or in any way
amend or be contrary to the intent and purposes of this Act.

Sec. 26. Repealing Clause. – The provisions of Commonwealth Act No. 146, insofar as
the same applies to the operation, management, control and regulation of vessels,
steamboats, steamship lines, ferries, water craft and the like, as well as the provisions of
Presidential Decree No. 474, Executive Order Nos. 125 and 125-A, and such other laws,
presidential decrees, executive orders, issuances, rules and regulations or parts thereof,
which are inconsistent with the provisions of this Act are hereby repealed, amended or
modified accordingly.

25
Cited also in the petition is the Memorandum of Agreement between the Maritime
Industry Authority (MARINA) and the Philippine Coast Guard (PCG). Herewith are the
pertinent provisions:

PURPOSE

The purpose of this Agreement is: a.) to authorize the Second Party to perform ship safety
inspection services in behalf of the First Party; b.) for both parties to define the coverage,
terms, conditions and requirements of such authorization; c.) to authorize the Second
Party to issue Special Permit to carry of dangerous cargoes/goods; d.) to assist the First
Party to perform enforcement activities; and e.) to provide administrative proceeding for
marine casualty or incident

Chapter 5
ADMINISTRATIVE PROCEEDING ON MARINE CASUALTIES OR
INCIDENTS

5.1 For purposes of this Chapter, the following terms are defined as: 5.1.1 Marine
Casualty means an event involving any ship which occurs within the navigable waters of
the Republic of the Philippines, or an event involving any Philippine vessel, which occurs
outside Philippine territorial waters, that has resulted in any of the following: a. The death
of, or serious injury to, a person that is caused by, or in connection with, the operations of
a ship; or b. The loss of a person from a ship that is caused by, or in connection with, the
operations of a ship; or c. The loss, presumed loss or abandonment of a ship; or d.
Material damage to a ship; or e. The stranding or disabling of a ship, or the involvement
of a ship in a collision; or f. Material damage being caused by, or in connection with, the
operation of a ship.

This provision, however, does not apply when the incident/accident involves only naval
ships or ships of war. 5.1.2 Marine Protest – It is a declaration on oath, by the Master, of
the circumstances attending the damage or loss of his vessel, intended to show that the
loss occurred by the perils of the sea, and concluding with a protestation against any
liability of the owner to the freighters. The Marine Protest shall be filed by the Master
within twenty four (24) hours following his arrival at the nearest Station or District of the
Second Party, copy furnished the nearest Maritime Regional Office of the First Party

26
 whenever the casualty results in any of the following: a. Actual physical damage to
property exceeding one thousand pesos; b. Material damage affecting the seaworthiness
or efficiency of a vessel; c. Stranding, grounding or sinking; d. Loss of life; e. Injury
causing any person to remain incapacitated for a period in excess of 72 hours, except
injury to harbor workers not resulting in death and not resulting from the vessel’s casualty
or vessel equipment casualty. 5.2 Both Parties recognize that the First Party has the power
and authority to hear and adjudicate any complaint made in writing involving any
violation of RA 9295. 5.3 Both Parties recognize that under Republic Act No. 5173, P.D.
No. 601 and the 1976 Philippine Merchant Marine Rules and Regulations, the Second
Party has the power and authority to convene the Board of Marine Inquiry and Special
Boards of Marine Inquiry. 5.4 Both Parties recognize that the jurisdiction of the Board of
Marine Inquiry is to conduct administrative hearings to determine the causes of marine
casualties or incidents upon receipt of a marine protest and to review on appeal the results
and findings of Special Boards of Marine Inquiry. Both Parties also recognize that the
jurisdiction of the Special Boards of Marine Inquiry is to conduct administrative hearings
to determine the causes of marine casualties in their geographical areas of jurisdiction.

Chapter 7 SUPERVISION/AUDIT

Both parties will jointly undertake check and balance measures and systems, including
joint inspections, mutual feedback system, and regular assessment conferences to ensure
the effective compliance with this Agreement.

Based on the afore-quoted portions of the Republic Act 9295 and The Memorandum of
Agreement between the MARINA, the Manila Regional Trial Court junked for lack of
merit the petition of Sulpicio Lines Inc. for a temporary restraining order stopping the
investigation of the Board of Marine Inquiry on the capsizing of the M/V Princess of the
Stars. Presiding Judge Antonio Eugenio Jr. also said that, “a perusal of Section 10 of RA
No. 9295, relative to the jurisdiction, power and duty of Marina, reveals no inconsistency
with BMI’s prerogative to investigate maritime incidents. A Memorandum of Agreement
was entered into by Marina and the PCG where Marina clearly abdicated the jurisdiction
alleged by the plaintiff to be exclusively vested in it.”

27
We agree with the decision of the Manila Regional Trial Court. The "plain meaning rule"
or verba legis in statutory construction is thus applicable in this case. Where the words of
a statute are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.

It is stated clearly on the cited portions of the Memorandum of Agreement between the
Maritime Industry Authority (MARINA) and the Philippine Coast Guard (PCG) that both
parties recognize that the jurisdiction of the Board of Marine Inquiry is to conduct
administrative hearings to determine the causes of marine casualties or incidents upon
receipt of a marine protest, and to review on appeal the results and findings of the Special
Board of Marine Inquiry. Hence, there is no doubt that the Board of Marine Inquiry
(BMI) has jurisdiction or authority to investigate marine casualties and incidents.

APPENDIX A

REVISED GUIDELINES ON MOVEMENTS OF VESSELS

DURING HEAVY WEATHER

Department of Transportation and Communications

PUNONGHIMPILAN TANOD BAYBAYIN NG PILIPINAS
(Headquarters Philippine Coast Guard)
139 25th Street, Port Area
1018 Manila

HPCG/CG-3
28
27 June 2007

MEMORANDUM CIRCULAR
NUMBER ........................ 04-07)

I. AUTHORITY:
RA 5173 as amended by PD 601

II. PURPOSE:
To prescribe policies and procedures in order to enhance maritime safety
especially during the occurrence of a tropical depression or typhoon that makes
sea travel dangerous.

III. SCOPE:
This policy applies to all vessels that may be affected by the prevailing weather
disturbance.

IV. DEFINITION OF TERMS:

A. Typhoon Signal Nr 1. - is declared if winds of 30-60 kph (approximately

16-32 knots) are expected in at least 36 hours.

B. Typhoon Signal Nr 2 - is raised if winds of greater than 60 kph up to 100

kph (approximately 32-54 knots and above) is expected in the locality in at
least 24 hours.

C. Typhoon Signal Nr. 3 - is raised if winds of greater than 100 kph up to

185 kph (approximately 54-100 knots and above) is expected in at least 18
hours usually accompanied by heavy rains.

29
 D. Typhoon Signal Nr. 4 - is raised if winds of greater than 185 kph
(approximately 100 knots and above) are expected in the locality in at
least 12 hours usually accompanied by heavy rains.

E. Danger Sector - is defined as the area where a typhoon may probably pass
during the next 48 hours graphically constructed as follows:

1. From the last known position of the typhoon, draw lines 40

degrees on both sides of the typhoon track.

2. Take the maximum predicted distance that the typhoon travels

during the next 48 hours

3. Using the last known position of the typhoon as the center, draw
an arc with a radius equal to the predicted distance determined in the
para E2 above. The area bounded by this arc and the two radial lines
drawn in para E1 above is the DANGER SECTOR.

2 Vessel - Any ship, watercraft or other conveyances used or capable of

being used as a means of transportation.

2 POLICY:

1 General:

1. Safety of Life at Sea should take precedence at all times.

Whenever there is a weather disturbance within the Philippine area of
responsibility (AOR), the PCG Station Commander (from whose AOR
any vessel is scheduled to depart) and the operator/master of the vessel
should study carefully the typhoon movement to ensure that the vessel

30
 will not be within the area directly affected by typhoon signals 1, 2, 3
and 4 or within the danger sector until they reach their destination.

2. In the careful study of the typhoon movement, the Station

Commander merely assists the master of the vessel by providing the
necessary information from which the master formulates his own
decision either to stay in port or move the vessel away from the
typhoon. The technical information supported by the Station
Commander shall not, in any manner, be construed as an instruction
for the master on his possible course of action to evade the typhoon.

3. Due to the distinct geographical characteristics of the different

areas in the country, effects of any particular typhoon signal varies
from one place to another whenever it is hoisted. As such,
responsibility and discretion is left to the ship owners/masters of the
vessels for the decision to sail when PSWS Nr 1 is hoisted in an area
that would affect the vessel. It is expected that shipowners/masters of
the vessels will act according to their best judgment in order to save
lives and property.

2 Specific Guidelines:

1. Movements of any craft/vessel is left to the decision and

responsibility of its master/ ship owner if PSWS Number
1 is hoisted within the vessel's point of origin, the route, and
destination.

2. No vessel of
2,000 gross tons or below shall sail except to take shelter if PSWS

31
 Number 2 is hoisted within its point of origin, the route and point of
destination.

3. No vessel shall sail except to take shelter if PSWS Number 3/

PSWS Number 4 is hoisted within its point of origin, the route and
point of destination.

4. Vessels allowed to take shelter or ride out the storm as covered

by paragraphs 2 and 3 of this section, shall depart without passengers
or cargo on board.

5. The Boarding Teams must advise the vessel on the current

weather report and forecast prior to the departure of the vessel.

2 PROCEDURES:

A.Every Master or any person-in-charge of the vessel shall ensure that the
latest weather bulletin is received and the track of the typhoon is plotted on
the weather chart aboardship.

B.The Master or Patron, upon sensing of the danger as a result of a typhoon,

shall request in writing to leave the port (if necessary) to take shelter in a safer
sea, attesting therein further that the decision to leave the port is his alone.

C.The Master or Patron must disembark passengers and cargo before leaving
port to take shelter at a safer place.

32
 D.It is the responsibility of the Master of the vessel to take the necessary
precaution to avoid risking his ship and injury to his crew and passengers.

2 RESPONSIBILITY:

A.Director, Coast Guard Operations Center:

1. Coordinate with PAGASA on the availability of weather bulletin

every 0500, 1000, 1700 and 2300 and immediately disseminate same
through fastest means of communication to all CG units with priority
to the area directly affected by the typhoon.

2. Plot in the weather chart the track and forecast position of the
typhoon.

3. Advise immediately CPCG on all major maritime accidents.

4. Monitor continuously all PGC units and take appropriate action

on all reported maritime accidents. Recommend to CSPCG the
activation of the HPCG Battle Staff for Maritime Incident in case of
major incidents.

5. Perform other duties as the CPCG may direct.

B.Coast Guard District Commanders:

1. Monitor and get the entire weather bulletin at all times through
HPCG or other available sources.

2. Plot the prevailing weather condition and weather forecast for the
next 72 hours at the weather board. Display the weather board in a

33
 conspicuous area for the benefit of local seafarers. Further, hoist the
basic day signals to indicate the expected velocity of the winds within
the next 12-24 hours. (See enclosure re characteristics of day signals.)

3. Disseminate to all subordinate units and local shipping agencies

the latest weather update.

4. Render situation report to HPCG at intervals as indicated:

(a) every 12 hours if signal number 1 and 2 are hoisted

(b) every 6 hours if signal number 3 is hoisted
(c) every 3 hours if signal number 4 is hoisted.

(Note: SITREP to include weather and Maritime Traffic Condition.

5. Monitor distress frequencies (VHF-channel 16, CW-5 khz and

SSB-2182 Mghz) particularly during adverse/heavy weather condition.

6. Perform other duties as the CPCG may direct.

C.Coast Guard Station Commanders:

1. Monitor the weather bulletin through the District Headquarters,

HPCG or other available sources.

2. Plot the prevailing weather condition/weather forecast for the

next 72 hours on the weather board.

3. Display the weather board in a conspicuous area for the benefit

of local seafarers. Further, hoist the day signals to indicate the

34
expected velocity of the winds within the next 12-24 hours.

4. Disseminate to all subordinate detachments and local shipping

agencies the latest weather update.

5. Render situation report to the HPCG CGD at intervals as

indicated

(a) every 12 hours if signal number 1 and 2 are hoisted.

(b) every 6 hours if signal number 3 is hoisted
(c) every 3 hours if signal number 4 is hoisted

6. Recommend to appropriate authorities the denial of departure

clearance to any vessel of any category in accordance with typhoon
signal hoisted.

7. Ensure that master's requests to leave port for purposes of

sheltering in a safer area or riding out the storm are put in writing and
properly attested to.

8. Ensure that vessels granted approval to leave port for the purpose
of sheltering or riding out the storm have disembarked their passenger
and cargoes.

9. Monitor distress frequencies (VHF Channel 16, CW-5 khz and

SSB-2182 Mhz) particularly during adverse weather condition.

10. Perform other duties as higher headquarters may direct.

35
 D.Shipping Owners/Operators:

1. Ensure that all vessels are promptly informed of the weather

update, to include the areas where typhoon signals are hoisted.

2. Discourage any vessel's movement except for sheltering

purposes especially when typhoon signals are hoisted or expected to be
hoisted within the area of origin, the route and the destination.

3. Keep track of all weather report for dissemination purposes as

well as monitor all vessel's movement until they reach the port safely.

4. Inform the Coast Guard immediately of any unusual incident

involving maritime safety such as missing craft and/or loss of contact
with any of their vessels.

2 RESCISSION CLAUSE:

This Memorandum circular rescinds MC Nr 03-98.

3 EFFECTIVITY:

This Memorandum Circular takes effect immediately.

(Sgd)

DAMIAN L. CARLOS

36
ADM PCG
Commandant, PCG

APPENDIX B

PUBLIC ACT NO. 521

CARRIAGE OF GOODS BY SEA ACT

Section 1. That the provisions of Public Act No. 521 of the 7th Congress of the United
States, approved on April 16, 1936, be accepted, as it is hereby accepted to be made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade: Provided, that nothing in this Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its
application.

Sec. 2. This Act shall take effect upon its approval. (Approved October 22, 1936).

TITLE I

Sec. 1. When used in this Act —.

(a) The term "carrier" includes the owner or the charterer who enters into a contract of
carriage with a shipper.

(b) The term "contract of carriage" applies only to contracts of carriage by covered by a
bill of lading or any similar document of title, insofar as such document relates to the
carriage of goods by sea, including any bill of lading or any similar document as

37
aforesaid issued under or pursuant to a character party from the moment at which such
bill of lading or similar document of title regulates the relations between a carrier and a
holder of the same.

(c) The term "goods" includes goods, wares, merchandise, and articles of every kind
whatsoever, except live animals and cargo which by the contract of carriage is stated as
being carried on deck and is so carried.

(d) The term "ship" means any vessel used for the carriage of goods by sea.

(e) The term "carriage of goods" covers the period from the time when the goods are
loaded to the time when they are discharged from the ship.

RISKS

Sec. 2. Subject to the provisions of Section 6, under every contract of carriage of goods
by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care,
and discharge of such goods shall be subject to the responsibilities and liabilities and
entitled to the rights and immunities hereinafter set forth.

RESPONSIBILITIES AND LIABILITIES

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

38
 (c) Make the holds, refrigerating and cooling chambers, and all other parts
of the ship in which goods are carried, fit and safe for their reception,
carriage, and preservation.

(2) The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

(3) After receiving the goods into his carrier, or the master or agent of the carrier, shall,
on demand of the shipper, issue to the shipper a bill of lading showing among other
things.

(a) The loading marks necessary for identification of the goods as the same are furnished
in writing by the shipper before the loading of such goods starts, provided such marks are
stamped or otherwise shown clearly upon the goods if uncovered, in such a manner as
should ordinarily remain legible until the end of the voyage.

(b) Either the number of packages or pieces, or the quantity or weight, as the case may
be, as furnished in writing by the shipper.

(c) The apparent order and conditions of the goods: Provided, that no carrier, master, or
agent of the carrier, shall be bound to state or show in the bill of lading any marks,
number, quantity, or weight which he has reasonable ground for suspecting not accurately
to represent the good actually received or which he has had no reasonable means of
checking.

(4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the
goods as therein described in accordance with paragraphs (3) (a), (b), and (c), of this
section: (The rest of the provision is not applicable to the Philippines).

(5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the
time of shipment of the marks, number, quantity, and weight, as furnished by him; and
the shipper shall indemnify the carrier against all loss, damages, and expenses arising or
resulting from inaccuracies in such particulars. The right of the carrier to such indemnity

39
shall in no way limit his responsibility and liability under the contract of carriage to any
person other than the shipper.

(6) Unless notice or loss or damage and the general nature of such loss or damage by
given in writing to the carrier or his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.

Said notice of loss or damage may be endorsed upon the receipt for the goods given by
the person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered: Provided, that, if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall
give all reasonable facilities to each other for inspecting and tallying the goods.

(7) After the goods are loaded the bill of lading to be issued by the carrier, master, or
agent of the carrier to the shipper shall if the shipper so demands, be a "shipped" bill of
lading: Provided, that if the shipper shall have previously taken up any document of title
to such goods, he shall surrender the same as against the issue of the "shipped" bill of
lading, but at the option of the carrier such document of title may be noted at the port of
shipment by the carrier, master, or agent with the name or names of the ship or ships upon
which the goods have been shipped and the date or dates of shipment, and when so noted

40
the same shall for the purpose of this section be deemed to constitute a "shipped" bill of
lading.

(8) Any clause, covenant, or agreement in a contract of carriage relieving the carrier of
the ship from liability for loss or damage to or in connection with the goods, arising from
negligence, fault, or failure in the duties and obligations provide in this section or
lessening such liability otherwise than as provided in this Act, shall be null and void and
of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be
deemed to be a clause relieving the carrier from liability.

RIGHTS AND IMMUNITIES

Sec. 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising or
resulting from unseaworthiness unless caused by want of due diligence on the part of the
carrier to make the ship seaworthy and to secure that the ship is properly manned,
equipped, and supplied, and to make the holds, refrigerating and cooling chambers, and
all other parts of the ship in which goods are carried fit and safe for their reception,
carriage, and preservation, in accordance with the provisions of paragraph (1) of Section
(3). Whenever loss or damage has resulted from unseaworthiness, the burden of proving
the exercise of due diligence shall be on the carrier or other person claiming exemption
under this section.

(2) Neither the carrier nor the ship shall be responsible for loss or damage arising or
resulting from —

(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in
the navigation or in the management of the ship;

(b) Fire, unless caused by the actual fault or privity of the carrier;

(c) Perils, dangers, and accidents of the sea or other navigable water;

41
(d) Act of God;

(e) Act of war;

(f) Act of public enemies;

(g) Arrest or restraint of princes, rulers, or people, or seizure under legal process;

(h) Quarantine restrictions;

(i) Act or omission of the shipper or owner of the goods, his agent or representative;

(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether
partial or general: Provided, that nothing herein contained shall be construed to relieve a
carrier from responsibility for the carrier's own acts;

(k) Riotsand civil commotions;

(l) Saving or attempting to save life or property at sea;

(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect,
quality, or vice of the goods;

(n) Insufficiency or packing;

(o) Insufficiency or inadequacy of marks;

(p) Latent defects not discoverable by due diligence;

(q) Any other cause arising without the actual fault and privity of the carrier and without
the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be
on the person claiming the benefit of this exception to show that neither the actual fault or
privity of the carrier nor the fault or neglect of the agents or servants of the carrier
contributed to the loss or damage;

42
(3) The shipper shall not be responsible for loss or damage sustained by the carrier or the
ship arising or resulting from any cause without the act, or neglect of the shipper, his
agents, or his servants;

(4) Any deviation in saving or attempting to save life or property at sea, or any
reasonable deviation shall not be deemed to be an infringement or breach or this Act or of
the contract of carriage, and carrier shall not be liable for any loss or damage resulting
there from: Provided, however, that if the deviation is for the purpose of loading or
unloading cargo or passengers it shall, prima facie, be regarded as unreasonable;

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
per package of lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. This declaration, if embodied in the bill of
lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, that
such maximum shall not be less than the figure above named. In no event shall the carrier
be liable for more than the amount of damage actually sustained.

Neither the carrier nor the ship shall be responsible in any event for loss damage to or in
connection with the transportation of the goods if the nature or value thereof has been
knowingly and fraudulently misstated by the shipper in the bill of lading.

(6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof,

the carrier, master or agent of the carrier, has not consented with knowledge of their
nature and character, may at any time before discharge be landed at any place or
destroyed or rendered innocuous by the carrier without compensation, and the shipper of
such goods shall be liable for all damages and expenses directly or indirectly arising out
of or resulting from such shipment. If any such goods shipped with such knowledge and

43
consent shall become a danger to the ship or cargo, they may in like manner be landed at
any place, or destroyed or rendered innocuous by the carrier without liability on the part
of the carrier except to general average if any.

SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF

RESPONSIBILITIES AND LIABILITIES

Sec. 5. A carrier shall be at liberty to surrender in whole or in part all or any of his rights
and immunities or to increase any of his responsibilities and liabilities under this Act,
provided such surrender or increase shall be embodied in the bill of lading issued to the
shipper.

The provisions of this Act shall not be applicable to charter parties; but if bills of lading
are issued in the case of a ship under a charter party, they shall comply with the terms of
this Act. Nothing in this Act shall be held to prevent the insertion in a bill of lading of any
lawful provisions regarding general average.

SPECIAL CONDITIONS

Sec. 6. Notwithstanding the provisions of the preceding section, a carrier, master or

agent of the carrier, and a shipper shall, in regard to any particular goods be at liberty to
enter into any agreement in any terms as to the responsibility and liability of the carrier
for such goods, and as to the rights and immunities of the carrier in respect to such goods,
or his obligation to seaworthiness, (so far as the stipulation regarding seaworthiness is
contrary to public policy), or the care or diligence of his servants or agents in regard to
the loading, handling, stowage, carriage, custody, care and discharge of the goods carried
by sea; provided, that in this case no bill of lading has been or shall be issued and that the
terms agreed shall be a non-negotiable document and shall be marked as such.

Any agreement so entered into shall have full legal effect: Provided, that this section shall
not apply to ordinary commercial shipments made in the ordinary course of trade but only

44
to other shipments where the character or condition of the property to be carried or the
circumstances, terms and conditions under which the carriage is to be performed are such
as reasonably to justify a special agreement.

Sec. 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering
into any agreement, stipulation, condition, reservation, or exemption as to the
responsibility and liability of the carrier or the ship for the loss or damage to or in
connection with the custody and care and handling of goods prior to the loading on and
subsequent to the discharge from the ship on which the goods are carried by sea.

Sec. 8. The provisions of this Act shall not affect the rights and obligations of the carrier
under the provisions of the Shipping Act, 1916, or under the provisions of Sections 4281
to 4292, inclusive, of the Revised Statutes of the United States, or of any amendments
thereto, or under the provisions of any other enactment for the time being in force relating
to the limitation of the liability of the owners of seagoing vessels.

TITLE II

Sec. 9. Nothing contained in this Act shall be construed as permitting a common carrier
by water to discriminate between competing shippers similarly placed in time and
circumstances, either (a) with respect to their right to demand and receive bills of lading
subject to the provisions of this Act; or (b) when issuing such bills of lading either in the
surrender of any of the carrier's rights and immunities or in the increase of any of the
carrier's responsibilities and liabilities pursuant to Section 5, Title I, of this Act; (c) in any
other way prohibited by the Shipping Act, 1916, as amended.

Sec. 10. (Not applicable to the Philippines.)

Sec. 11. When under the custom of any trade the weight of any bulk cargo inserted in
the bill of lading is a weight ascertained or accepted by a third party other than the carrier
or the shipper and the fact that the weight as ascertained or accepted is stated in the bill of
lading, then notwithstanding anything in this Act, the bill of lading shall not be deemed to
be prima facie evidence against the carrier of the receipt of goods of the weight so

45
inserted in the bills of lading, and the accuracy thereof at the time of shipment shall not
be deemed to have been guaranteed by the shipper.

Sec. 12. (Not applicable to the Philippines.)

Sec. 13. This Act shall apply to all contracts for carriage of goods by seas to or from
ports of the United States in foreign trade. As used in this Act the term "United States"
includes its districts, territories, and possessions: Provided, however, that the Philippine
Legislature may by law exclude its application to transportation to or from ports of the
Philippine Islands. The term "foreign trade" means the transportation of goods between
the ports of the United States and ports of foreign countries. Nothing in this Act shall be
held to apply to contracts for carriage of goods by sea between any port of the United
States or its possessions and any other port of the United States or its possessions:
Provided, however, that any bill of lading or similar document of the title which is
evidence of a contract for the carriage of goods by sea between such ports, containing an
express statement that it shall be subject to the provisions of this Act; shall be subjected
hereto as fully as if subject hereto by the express provisions of this Act: Provided, further,
that every bill of lading or similar document of title which is evidence of a contract for
the carriage of goods by sea from ports of the United States in foreign trade, shall contain
a statement that it shall have effect subject to the provisions of this Act.

Sec. 14. Upon the certification of the Secretary of Commerce that the foreign commerce
of the United States in its competition with that of foreign nations is prejudiced by the
provisions, or any of them, of the Title I of this Act, or by the laws of any foreign country
or countries relating to the carriage of goods by sea, the President of the United States
may, from time to time by proclamation, suspend any or all provisions of Title I of this
Act for such periods of time or indefinitely as may be designated in the proclamation.
The President may at any time rescind such suspension of Title I hereof, and any
provisions thereof which may have been suspended shall thereby be reinstated and again
apply to contracts thereafter made for carriage of goods by sea. Any proclamation of
suspension or rescission of any such suspension shall take effect on the date named
therein, which date shall be not less than ten days from the issue of the proclamation.

46
Any contract for the carriage of goods by sea, subject to the provisions of this Act,
effective during any period when Title I hereof, or any part thereof, is suspended, shall be
subject to all provisions of law now or hereafter applicable to that part of Title I which
may have thus been suspended.

Sec. 15. This Act shall take effect ninety days after the date of its approval; but nothing
in this Act shall apply during a period not to exceed one year following its approval to
any contract for the carriage of goods by sea, made before the date on which this Act is
approved nor to any bill of lading or similar document of title issued, whether before or
after such date of approval in pursuance of any such contract as aforesaid.

Sec. 16. This Act may be cited as the "Carriage of Goods by Sea Act."

Approved: April 16, 1936

APPENDIX C

Republic Act 9295- Domestic Shipping Development Act of 2004

Republic of the Philippines

Congress of the Philippines

Twelve Congress

Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July, two thousand and three.

[ REPUBLIC ACT NO. 9295 ]

AN ACT PROMOTING THE DEVELOPMENT OF PHILIPPINE DOMESTIC SHIPPING, SHIPBUILDING, SHIP REPAIR
AND SHIP BREAKING, ORDAINING REFORMS IN GOVERNMENT POLICIES TOWARDS SHIPPING IN THE
PHILIPPINES, AND FOR OTHER PURPOSES

47
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

CHAPTER 1

GENERALS PROVISIONS

SECTION I. Short Title. – This act shall be known as "the Domestic Shipping Development Act of 2004."

SEC 2. Declaration of Policy. – The State recognizes that shipping is a necessary infrastructure, which is vital to the economic
development of our country.

The Philippines needs a strong and competitive domestic merchant fleet owned and controlled by Filipinos or by corporations at least
sixty percent (60%) of the capital of which is owned by Filipinos and manned by qualified Filipino officers and crew, which shall: (a)
bridge our islands by ensuring safe, reliable, efficient, adequate and economic passenger and cargo service; (b) encourage the dispersal
of industry and the economic development of our regional communities by ensuring the availability of regular, reliable and efficient
shipping services; (c) ensure the growth of exports by providing necessary, competitive and economical domestic sea linkages, (d)
serve as a naval and military auxiliary in times of war and other national emergencies; and (e) function as an employment support base
for our Filipino seafarers.

To attain this objectives, it is hereby to declared to be the policy of the State to: (a) promote Filipino ownership of vessels operated
under Philippine flag; (b) attract private capital to invest in the shipping industry by creating a healthy and competitive investment and
operating environment; (c) provide necessary assistance and incentives for the continued growth of the Philippine domestic merchant
marine fleet; (d) encourage the improvement and upgrading of the existing domestic merchant marine fleet and Filipino crew to meet
international standard; (e) ensure the continued viability of domestic shipping operations; and (f) encourage the development of a
viable shipbuilding and ship repair industry to support the expansion and modernization of the Philippine domestic merchant marine
fleet and its strict adherence to safety standards which will ensure the seaworthiness of all sea-borne structures.

SEC. 3. Definition of Terms. – As used in and for purposes of this Act, the following terms, whether in singular or plural, are hereby
defined as follows:

(a) "Domestic Shipping" shall mean the transport of passengers or cargo, or both, by ships duly registered and licensed under
Philippine law to engage in trade and commerce between Philippine ports and within Philippine territorial or internal waters, for hire
or compensation, with general or limited clientele, whether permanent, occasional or incidental, with or without fixed routes, and done
for contractual or commercial purposes;

(b) "Domestic Trade" shall mean the sale, barter or exchange of goods, materials or products within the Philippines;

© "Domestic Ship Operator" or "Domestic Ship Owner" may be used interchangeable and shall mean a citizen of the Philippines, or a
commercial partnership wholly owned by Filipinos, or a corporation at least sixty percent (60%) of the capital of which is owned by
Filipinos, which is duly authorized by the Maritime Industry Authority (MARINA) to engage in the business or domestic shipping;

(d) "Shipper" shall mean any person, partnership or corporation who shall procure for itself the services of a domestic ship operator
for the carriage of its cargo in the domestic trade upon payment of proper compensation;

(e) "MARINA" shall mean the Maritime Industry Authority;

(f) "Ship" or "Vessel" may be used interchangeably and shall mean any kind, class or type of craft or artificial contrivance capable of
floating in water, designed to be used, or capable of being used, as a means of floating in water transport in the domestic trade for the
carriage of passengers or cargo, or both, utilizing its own motive power or that of another.

(g) "Importation" shall mean the direct purchase, lease or charter of newly constructed or previously owned ships, or the purchase of
ship’s spare parts from foreign sources or from registered enterprises operating in special economic zones as this term is term is
defined in Republic Act No. 7916 entitled, "The Special Economic Zone Act. Of 1995;"

(h) "Spare Parts" shall mean the replacement parts or components of a vessel, including but not limited to its hull, engines,
machineries, equipments, appurtenances, necessaries, accessories, articles, supplies, materials, steel plates, aluminum plates, other
metal plates, communications equipment, and other parts or components thereof, installed aboard the ship necessary for its safe and
efficient navigation and operation;

(i)"Certificate of Public Convenience" shall mean the license or authority issued by MARINA to a domestic ship operator to engage in
domestic shipping;

48
(j) "Cargo Handling Equipments" shall mean any machinery gear or equipment used by the ship operator or a duly authorized and
licensed port operator to service or handle cargo, on board the vessel, at the pier, or in the terminal or container yard such as, but not
limited to, cranes, forklifts, top lift, stacker, tractor heads, containers, pallet boards, and the like, including all spare parts, replacement
parts, appurtenances, accessories, articles, supplies, and material thereof;

(k) "Shipbuilding" Shall mean the design, construction, launching and outfitting of all types of ships and watercraft;

(l) "Ship repair" Shall mean the overhaul, refurbishment, renovating, improvement, or alternation of the hull, machineries, equipment,
outfits and components of all types of ships;

(m) Shipyard" shall mean the shipbuilding or repair facilities which have the capability to lift vessels above the waterline in order to
effect ship work vessels, appendages, structure, machinery and equipment; and

(n) "Shipbuilder" or "Ship repairer" shall mean the citizen of the Philippines, or a commercial partnership owned by majority of
Filipinos, or a corporation incorporated under the law of the Philippines, the capital of which is owned or controlled in any proportion
by Filipinos or by foreign nationals, or by corporation whether Filipino or foreign-owned, which is duly authorized by the MARINA
to engage in the business of shipbuilding or ship repair or to otherwise operate a shipyard, graving dock or marine repair yard.

CHAPTER II

INVESTMENT INCENTIVES

SEC. 4. Investment of Incentives. – To ensure the continued viability of domestic shipping industry, and to encourage investments in
the domestic shipping industry, the following incentives shall be granted to qualified domestic ship operators:

(a) Exemption from value-added tax on the importation and local purchase of passenger and/or cargo vessels of one hundred fifty
(150) tons and above, including engine and spare parts of said vessels: Provided, that the vessels to be imported shall comply with the
age limit requirement, at the time of acquisition counted from the date of the vessel’s original commissioning, as follows: 1) For
passenger and/or cargo vessels, the age limit is fifteen (15) years old, 2) For tankers, the age limit is ten (10) years old, and 3) For
high-speed passenger craft, the age limit is five (5) years old; and

(b) Exemption from value-added tax on the importation of life-saving equipment, safety and rescue equipment and communication
and navigational safety equipment, steel plates, and other metal plates including marine-grade aluminum plates, used for transport
operations.

The importation of the articles under Section 4(a) and (b) of the Act shall be granted exemption from value-added tax subject to the
following conditions: (1) That said articles are not manufactured domestically in sufficient quantity, of comparable quality and at
reasonable prices; (2) The said articles are directly imported by a MARINA-registered domestic shipping operator; (3) That said
articles are reasonably-needed and will be used exclusively by the registered domestic shipping operators in its transport
operations;(4)That the approval of a MARINA was obtained prior to the importation of said articles; and (5) The Exemption from
value-added tax on the importation of said articles shall be granted to all domestic shipping operators within a period of ten (10) years
from the effectivity of this Act.

Any sale, transfer or disposition of articles covered under Section 4(a) and (b) within ten (10) years from the effectivity of this Act to
another registered shipping operators enjoying similar incentives shall required prior approval of MARINA. If the sale, transfer or
disposition was made without prior approval of MARINA, both the vendor and the transferee or assignee shall be liable to pay twice
the amount of value –added tax exemption given him: Provided, further. That if the sale transfer or disposition was made to a
nonexempt entity or to a party other than registered domestic ship operator within ten (10) years from the effectivity of this Act, both
the vendor and the transferee or assignee shall be solidarily liable to pay twice the amount of the value-added tax waived: Provided,
Finally, That the sale transfer or disposition made after ten (10) years from the effectivity of this Act shall be made by informing
MARINA in writing. The purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any
internal revenue tax on such importation. The tax due on such importation Shall constitute a lien on the article itself, and such lien
shall be superior to all charges or lien on the goods irrespective of the possessor thereof, The Bureau of Inter Revenue (BIR) shall be
furnished with the notice of actions taken by the MARINA.

© Net operating loss carry over. A net operating loss in any taxable year immediately preceding the current taxable year, which had
not been previously offset as a deduction from gross income shall be carried over for the next three (3) consecutive taxable years
immediately following the year of such loss subject to the pertinent provisions of the National Internal Revenue Code of 1997, as
amended.

(d) Accelerated depreciation, Fixed assets may be depreciated as follows:

49
(i)To the extent of not more than twice as fast as the normal rate of depreciation or depreciated at normal rate of depreciation if the
expected life is ten (10) years or less; or

(ii) Depreciation over any number of years between five (5) years and the expected life if the latter is more than ten (10) years, and the
depreciation thereon allowed as deduction from taxable income: Provided, That the domestic shipping operator notifies the BIR at the
beginning of the depreciation period which depreciation rate allowed by the Section will be used.

CHAPTER III

DEREGULATION OF THE DOMESTIC

SHIPPING INDUSTRY-AUTHORITY OF

THE MARITIME INDUSTRY AUTHORITY

SEC. 5. Authority to operate.- No franchise, certificate or any other from of authorization for the carriage of cargo or passenger, or
both, in the domestic trade, shall be granted except to domestic ship owners or operators.

SEC. 6. Foreign Vessels Engaged in Trade and Commerce in Philippine Territorial Water. – No foreign vessels shall be allowed to
transport passengers or cargo between ports or places within the Philippine Territorial Waters, except upon the grant of Special Permit
by the MARINA when no domestic vessels is available or suitable to provide the needed shipping service and public interest warrants
the same.

SEC. 7. Issuance of Authority to Operate. – The MARINA shall the power and authority to issue certificate of public convenience to
qualified domestic ship operators, taking into consideration the economic and beneficial effect which the proposed service shall have
to the port, province of region which it proposes to serve, and the financial capacity of the domestic ship operator to provide and
sustain safe reliable, adequate, efficient and economic service in accordance with the standard set of the government regulation.

Every domestic operator shall state in its application the route it proposes to serve, and the service its proposes to offer. Domestic ship
operators who do not intend to operate in a fixed route shall nevertheless state in its application the service it propose to offer.

SEC. 8. Deregulation of the Domestic Shipping Industry. – In order to encourage investment in the Domestic Shipping Industry by
existing domestic operators and attract new investment from new operators and investors, domestic ship operators are hereby
authorized to establish their own domestic shipping rates: Provided, That the effective competition is fostered and public interest is
served.

The MARINA shall monitor all shipping operations and exercise regulatory intervention where it is established, after due process that
public interest needs to be protected and safeguarded.

SEC. 9. Safety Standards. – All vessels operated by domestic ship operators shall at all time be in seaworthy condition, properly
equipped with adequate life-saving, communication, safety and other equipment, operated and maintained in accordance with the
standards set by MARINA, and manned by duly licensed and competent vessel crew.

The MARINA shall have the power to inspect vessels and all equipment on board vessels to ensure compliance with safety standards.

SEC. 10. Jurisdiction; Powers; and Duties of MARINA. – The MARINA shall have the power and authority to:

1. Register vessels;
2. Issue certificates of public convenience, or any extensions or amendments thereto, authorizing the operation of all kinds,
classes and types of vessels in domestic shipping: Provided, That no such certificate shall be valid for a period of more than
twenty-five (25) years;
3. Modify, suspend or revoke at any time, upon notice and hearing, any certificate, license or accreditation it may have issued
to any domestic ship operator;
4. Establish and prescribe routes, zones of areas of operations of domestic ship operators;
5. Require any domestic ship operator to provide shipping services to any coastal area, island or region in the country where
such services are necessary for the development of the area, to meet emergency sealift requirements, or when public
interest so requires;
6. Set safety standards for vessels in accordance with applicable conventions and regulations;
7. Require all domestic ship operators to comply with operational and safety standards for vessels set by applicable
conventions and regulations, maintain its vessels in safe and serviceable condition, meet the standards of safety of life at
sea and safe manning requirements, and furnish safe, adequate, efficient, reliable and proper service at all times;
8. Inspect all vessels to ensure and enforce compliance with safety standards and other regulations;

50
 9. Ensure that all domestic ship operators shall have the financial capacity to provide and sustain safe, reliable, efficient and
economic passenger or cargo service, or both;
10. Determine the impact which any new service shall have to the locality it will serve;
11. Adopt and enforce such rules and regulations which will ensure compliance by every domestic ship operator with required
safety standards and other rules and regulations on vessels safety;
12. Adopt such rules and regulations which ensure the reasonable stability of passengers and freight rates and, if necessary, to
intervene in order to protect public interest;
13. Hear and adjudicate any compliant made in writing involving any violation of this law or the rules and regulations of the
Authority;
14. Impose such fines and penalties on, including the revocation of licenses of, any domestic ship operator who shall fail to
maintain its vessels in safe and serviceable condition, or who shall violate or fail to comply with safety regulations;
15. Investigate any complaint made in writing against any domestic ship operator, or any shipper, or any group of shippers
regarding any matters involving violations of the provisions of this Act;
16. Upon notice and hearing, impose such fines, suspend or revoke certificates of public convenience or other license issued,
or otherwise penalize any ship operator, shipper or group of shippers found violating the provisions of this Act; an
17. 17 Issue such rules and regulations necessary to implement the provisions of this Act: Provided, That such rules and
regulations cannot change or in any way amend or be contrary to the intent and purposes of this Act.

CHAPTER IV

RATES

Sec. 11. Rates. – Every domestic ship operator shall have the right to fix its own passenger or cargo rates, or both.

Sec. 12. Government Cargo. – Every domestic ship operator shall have the obligation to carry mail on mutually agreed terms and
conditions, and preferential, negotiated conditions shall be given for the carriage of other government cargo.

Sec. 13. Monopolized Routes. – The MARINA shall have the authority to draw up such rules and regulations necessary for service in
monopolized routes to determine the fairness of passenger and cargo rates needed to sustain the service taking into consideration the
economic and beneficial effect which the service shall have to the port, province, island or region it proposes to serve, the volume of
passengers and cargo available, the level and quality of service offered by the ship operator, and the available port facilities and
terminal handling services.

CHAPTER V

COMPULSORY

INSURANCE COVERAGE

Sec. 14. Compulsory Insurance Coverage for Passenger and Cargo. – To meet its financial responsibility for any liability which a
domestic ship operator may incur for any breach of the contract of carriage, every domestic ship operators shall be required to submit
annually the following:

1. Adequate insurance coverage for each passenger in an amount to be computed in accordance with existing laws,
rules and regulations, and the total amount of such coverage shall be equivalent to the total number of passenger
accommodations being offered by the vessel;
2. Adequate insurance coverage for cargo in an amount to be computed in accordance with existing laws, rules and
regulations, and the total amount of such coverage shall be equivalent to the total cargo capacity being offered
by the vessel; and
3. If a domestic ship operator should offer both passenger and cargo service, then the total insurance coverage
shall be in the total sum equivalent to that stipulated in paragraphs (1) and (2) of this section.

Provided, That if a domestic ship operator should operate more than one (1) vessel, the amount of insurance coverage required under
this section, for purposes of proving financial capacity, shall be the amount equivalent to the total number of passenger
accommodations, or total cargo capacity, or both, of the largest operating vessel which the domestic ship operator may have: Provided,
further, That the total insurance coverage which may be required of any domestic ship operator shall not exceed the value of such
vessel: Provided, finally, That adequate insurance coverage shall be obtained from any duly licensed insurance company or
international protection and indemnity association.

Sec. 15. Other Insurance Coverage. – The MARINA shall have the power to require every ship operator to obtain such other
compulsory insurance coverage necessary to adequately cover claims for damages.

CHAPTE VI

51
 PROHIBITED ACTS

AND PRACTICES

Sec. 16. Prohibited Acts and Practices of Domestic Ship Operators. – The MARINA shall have the power to impose such fines and
penalties against every domestic ship operator who shall:

1. Operate without a valid certificate of public convenience, accreditation or other form of authority required by
this Act;
2. Refuse to accept or carry any passenger or cargo without just cause;
3. Fail to maintain its vessels in safe and serviceable condition, or violate safety rules and regulations;
4. Fail to obtain or maintain adequate insurance coverage;
5. Fail to meet or maintain safe manning requirements; and
6. Such other acts which the MARINA shall determine, after due notice and hearings, to be detrimental or
prejudicial to the safety, stability and integrity of domestic shipping.

CHAPTER VII

FEES, FINES AND PENALTIES

Sec. 17. Fees – The MARINA shall have the power to impose, fix, collect and receive, in accordance with the schedules approved by
its Board, such fees necessary for the licensing, supervision, regulation, inspection, approval and accreditation of domestic ship
operators and the promotion and development of the country’s maritime industry. The MARINA shall have the power to establish and
manage a trust fund for this purpose.

Fees prescribed by the MARINA under this section shall be imposed and collected in order to recover the cost for rendering the
service and shall not be used in order to impose a penalty on the domestic ship operator. Excessive fees, multiple fees and duplicative
fees shall at all times be avoided.

The supervision fee provided in Section 40(e) of Commonwealth Act No. 146 insofar as the same applies to the operation,
management, control and regulation of vessels, steamboats, steamship lines, ferries, water craft and the like, is hereby repealed.

Sec. 18. Fines and Penalties. – The MARINA, upon notice and hearing and a determination of the existence of any breach or violation
of the provisions of this Act or any rules and regulations issued pursuant thereto, shall have the power and authority to:

1. Suspend or revoke any certificate or public convenience,

license, permit, accreditation, or other form of authority issued to any domestic ship operator who shall violate
any provision of this Act or any rules and regulations issued pursuant thereto, or any condition imposed on such
certificate of public convenience, license, permit or accreditation;

2. Impose a fine on a domestic ship operator who shall operate without a

valid certificate of public convenience, license, permit, accreditation, or other form of authority;

3. Impose a fine on a domestic ship operator in an amount to be

determined by the MARINA for refusing to accept, or to carry passengers or cargo, without just cause, or for
engaging in any prejudicial, discriminatory or disadvantageous act towards any class of passengers or shippers;

4. Impose a fine on any domestic ship operator in an amount to be

determined by the MARINA, or suspend or revoke the certificate of public convenience of such domestic ship
operator, or both, who shall fail to meet the standards of such safety or who refuses to comply with or violates
safety regulations imposed by the MARINA or fails to maintain its vessels in safe and serviceable condition;

5. Impose a fine on any domestic ship operator in an amount to be

determined by the MARINA, or impose such other penalty, including the revocation of any certificate or
license, who fails to procure or renew required insurance policies;

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 6. Impose a fine on any domestic ship operator in an amount to be

determined by the MARINA, or impose such other penalty, including the revocation of any certificate or license
who fails to meet or maintain safe manning requirements; and

7. Impose such other fines and penalties the MARINA may deem

necessary and appropriate in order to enforce the provisions of this Act.

CHAPTER VIII

SHIPBUILDING

AND SHIP REPAIR

Sec. 19. Shipbuilding and Ship Repair Investment Incentives. – To encourage investments and to ensure the development of a viable
shipbuilding and repair industry, the following incentives are hereby granted:

a. Exemption from value-added tax on the importation of capital

equipment, machinery, spare parts, life-saving and navigational equipment, steel plates and other metal plates, including marine-grade
aluminum plates to be used in the construction, repair, renovation or alteration of any merchant marine vessel operated or to be
operated in the domestic trade.

The importation of the above articles shall be granted exemption from

value-added tax subject to the following conditions: (1) That said articles are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices; (2) That said articles are directly imported by a MARINA-registered shipbuilder and ship
repairer; (3) That said articles are reasonably needed and will be used exclusively by the registered shipbuilder and ship repairer; (4)
That the approval of MARINA was obtained prior to the importation of said articles; and (5) That shipbuilders and ship repairers may
avail of the exemption from value-added tax provided herein within a period of ten (10) years from the approval of this Act.

Any sale, transfer or disposition of articles under Section 19(a) within ten (10) years from the effectivity of this Act to another
registered shipbuilder or repairer enjoying similar incentive shall require prior approval of MARINA. If the sale , transfer or
disposition was made without prior approval of MARINA, both the vendor and the transferee or assignee shall be liable to pay twice
the amount of the value-added tax exemption given him: Provided, further, That if the sale , transfer or disposition was made to a
nonexempt entity or to a party other than a registered shipbuilder or repairer within ten (10) years from the effectivity of this Act, both
the vendor and the transferee or assignee shall be solidarily liable to pay twice the amount of the value-added tax waived: Provided,
finally, That the sale, transfer or disposition made after ten (10) years from the effectivity of this Act shall be made by informing
MARINA in writing. The purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any
internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all chargers
or liens on the goods, irrespective of the possessor thereof. The BIR shall be furnished with notice of actions taken by the MARINA.

b. Net operating loss carry-over. A net operating loss in any taxable year immediately preceding the current taxable year,
which had not been previously offset as a deduction from gross income shall be carried over as a deduction from gross
income for the next three (3) consecutive taxable years immediately following the year of such loss subject to the pertinent
provisions of the National Internal Revenue Code of 1997, as amended;
c. Accelerated depreciation. Fixed assets may be depreciated as follows;

i. To the extent of not more than twice as fast as the normal rate of depreciation or depreciated at normal rate of depreciation
if the expected life is ten (10) years or less; or

ii. Depreciated over any number of years between five (5) years and the expected life if the latter is more than ten (10) years,
and the depreciation thereon allowed as deduction from taxable income; Provided. That the registered shipbuilder and ship
repairer notifies the BIR at the beginning of the depreciation period which depreciation rate allowed by this section will be
used.

Sec. 20. Restriction on Vessel Importations. – Ten (10) years from the effective date of this Act and every year thereafter, the
MARINA shall evaluate and determine the progressive capability of MARINA-registered shipyards to build and construct new vessels
for the domestic trade.

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In its first year of evaluation, the MARINA shall determine the capability of MARINA-registered shipyards to build new vessels
below 500 GRT. If, upon evaluation, the capability of MARINA-registered shipyards to build classed vessels below 500 GRT in
quantities sufficient to meet, domestic demand is proven, then all domestic ship operators shall be discouraged from importing new or
previously owned vessels that are less than 500 GRT for the domestic trade and vessels built in MARINA-registered shipyards shall be
given priority for entry in the Philippine Registry and allowed to operate in the domestic trade.

The MARINA shall undertake a yearly evaluation of the progressive capabilities of all MARINA-registered shipyards to build larger
classed vessels for the domestic trade in quantities sufficient to meet the demand of domestic ship owners and shall correspondingly
adjust the size of vessels which may be sourced from MARINA-registered shipyards.

CHAPTER IX

TRANSITORY PROVISIONS

Sec. 21. Period of Transition. – Upon the approval of this Act, existing liner operators shall continue to operate in their approved
routes.

Sec. 22. Classification of Vessels in the Domestic Trade. – All vessels, whether newly built or previously owned, which are acquired
on or after the effectivity of this Act shall be classed by a government-recognized classification society on the date of acquisition prior
to its operation in the domestic trade.

Sec. 23. Retirement of Old Vessels. – Immediately upon the approval of this Act, the MARINA shall prepare and implement a
mandatory vessel retirement program for all unclassed vessels that fail to meet the classification standards of a government-recognized
classification society.

All vessels which have attained the maximum vessel age stipulated by MARINA’s mandatory vessel retirement program and which do
not carry a class certificate issued by a government-recognized classification society shall not be allowed to operate in the domestic
trade and shall be automatically de-listed from the Philippine Registry.

CHAPTER X

FINAL PROVISIONS

Sec. 24. Temporary Take-Over of Operations. – In times of national emergency, when the public interest so requires, the State may,
during emergencies and under reasonable terms prescribed by it, temporarily trade and commerce, or prescribe its rates or routes of
operation. Immediately upon the cessation of the emergency, the State shall immediately reinstate to the domestic ship operator the
operation of its vessel under the same terms and conditions existing prior to the occurrence of the emergency.

Sec. 25. Separability Clause. – If, for any reason, any section, subsection, sentence, clause or term of this Act is held to be illegal,
invalid or unconstitutional, such parts not affected by such declaration shall remain in full force and effect.

Sec. 26. Repealing Clause. – The provisions of Commonwealth Act No. 146, insofar as the same applies to the operation,
management, control and regulation of vessels, steamboats, steamship lines, ferries, water craft and the like, as well as the provisions
of Presidential Decree No. 474, Executive Order Nos. 125 and 125-A, and such other laws, presidential decrees, executive orders,
issuances, rules and regulations or parts thereof, which are inconsistent with the provisions of this Act are hereby repealed, amended
or modified accordingly.

Sec. 27. Effectivity. – This Act shall take effect fifteen (15) days following its publication in at least two (2) newspapers of general
circulation.

Approved,

(Sgd.) JOSE DE VENECIA JR. (Sgd.) FRANKLIN M. DRILON

Speaker of the House of Representatives President of the Senate

This Act which is a consolidation of Senate Bill No 2731 and House Bill No. 5563 was finally passed by the Senate and House of
Representatives on February 6, 2004 and February 7, 2004, respectively.

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 (Sgd.) ROBERTO P. NAZARENO (Sgd.) OSCAR G. YABES
Secretary General House of Representatives Secretary of the Senate

Approved: May 03 2004

(Sgd.) GLORIA MACAPAGAL-ARROYO

President of the Philippines

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