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G.R. No.

87958 April 26, 1990

National Union Fire Insurance Company of Pittsburg, PA /
American International Underwriters (Philippines), Inc.
Stolt-Nielsen Phil. Inc. and Court of Appeals

On 9 January 1985, United Coconut Chemicals, Inc. (hereinafter
referred to as SHIPPER) shipped distilled C6-C18 fatty acid on board a tanker
owned by Stolt-Nielsen, consigned to "Nieuwe Matex" at Rotterdam,
Netherlands, covered by Tanker Bill of Lading BL No. BAT-1. The shipment
was insured under a marine cargo policy with Petitioner National Union, a
non-life American insurance corporation, through its settling agent in the
Philippines, the American International Underwriters, the other petitioner
The Bill of Lading issued by the Stolt-Nielsen contained a general
statement of incorporation of the terms of a Charter Party between the
SHIPPER and Parcel Tankers, Inc. Said Charter
Party provided for arbitration. A charter party is the
When the cargo arrived at the contract between the
owner of a vessel and the
Netherlands, it was found to be discolored and
charterer for the use of a
totally contaminated. After the claim filed by the vessel. The charterer takes
SHIPPER against Stolt-Nielsen was denied, the over the vessel for either a
National Union indemnified the SHIPPER certain amount of time (a
pursuant to the insurance policy. time charter) or for a
On 21 April 1986, as subrogee of the certain point-to-point
SHIPPER, the National Union filed suit against
Stolt-Nielsen before the RTC of Makati for recovery of the sum of
P1,619,469.21, with interest. Stolt-Nielsen moved to dismiss/suspend the
proceedings on the ground that the RTC had no jurisdiction over the claim,
the same being an arbitrable one; that as subrogee of the SHIPPER, the
National Union is subject to the provisions of the Bill of Lading.
National Union opposed on the ground that it was not legally bound to
submit the claim for arbitration inasmuch as the arbitration clause in the
Charter Party was not incorporated into the Bill of Lading, and that the
arbitration clause is void for being unreasonable and unjust. The RTC initally
denied the Motion, but subsequently reconsidered and deferred resolution on
the Motion to Dismiss/Suspend Proceedings until trial on the merits. Stolt-
Nielsen then filed a Petition for Certiorari before the CA seeking annulment of
the RTC deferment order.
The CA set aside the RTC order and directed National Union to submit
its claim for arbitration.

Are the terms of the Charter Party, particularly the provision on
arbitration, binding on the petitioner?

Yes. The Bill of Lading incorporated by reference the terms of the
Charter Party. The pertinent portion of the Bill of Lading provides in part that
the shipment is carried and pursuant to the terms of the Charter xxx and
all the terms whatsoever of the said Charter. It is settled law that the
charter may be made part of the contract under which the goods are carried
by an appropriate reference in the Bill of Lading. This should include the
provision on arbitration even without a specific stipulation to that effect.
Thus, National Union cannot feign ignorance of the arbitration clause
since it was already charged with notice of the existence of the charter party
due to an appropriate reference thereof in the bill of lading. Furthermore, as
the subrogee of the SHIPPER, National Union is contractually bound by the
terms of the Charter Party. Any claim of inconvenience or additional expense
on its part should not render the arbitration clause unenforceable.
Foreign arbitration as a system of settling commercial disputes of an
international character was recognized when the Philippines adhered to the
New York Convention through Resolution No. 71 of the Senate, giving
reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting
state. The Convention pertinently provides in Article II:

1. Each Contracting State shall recognize an agreement in writing

under which the parties undertake to submit to arbitration all or
any differences which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual
or not, concerning a subject matter capable of settlement by
2. The term "agreement in writing" shall include an arbitral clause in a
contract or an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams.
3. The court of a Contracting State, when seized of an action in a
matter in respect of which the parties have made an agreement
within the meaning of this article, shall, at the request of one of the
parties, refer the parties to arbitration, unless it finds that the said
agreement is null and void, inoperative or incapable of being

It has not been shown that the arbitral clause in question is null and
void, inoperative, or incapable of being performed. Nor has any conflict been
pointed out between the Charter Party and the Bill of Lading. Thus, the CAs
referral to the New York Convention pursuant to the arbitration clause is
indeed called for.