G.R. Nos. 30475-76, November 22, 1989
General Insurance & Surety Corporation, petitioner, vs. Union Insurance Society of Canton, Ltd., et al., respondents.

FACTS

Private respondents, foreign insurance companies, entered into two reinsurance agreements with petitioner General Insurance & Surety Corporation. The First Surplus Reinsurance Agreement, effective 1959-1961, and the Retrocession Quota Share Fire Pool Agreement, effective 1960-1961, both contained arbitration clauses requiring disputes to be settled by arbitration in London. Upon the agreements’ termination, a dispute arose regarding the currency of payment for petitioner’s outstanding obligation. Private respondents demanded payment in pounds sterling or its peso equivalent at the prevailing exchange rate, while petitioner insisted on paying in Philippine pesos at an old, fixed official exchange rate.
Private respondents formally demanded arbitration, appointing their arbitrator and requesting petitioner to do the same. Petitioner refused, contending no genuine controversy existed that warranted arbitration. Consequently, private respondents filed two consolidated cases in the Court of First Instance of Manila, seeking a judicial declaration that a dispute subject to arbitration existed and an order compelling petitioner to comply with the arbitration clauses.

ISSUE

Whether a dispute exists between the parties that is subject to compulsory arbitration under the terms of their reinsurance agreements.

RULING

The Supreme Court affirmed the trial court’s decision, ruling that a genuine dispute exists which must be resolved through arbitration as contractually agreed. The arbitration clauses in both agreements are broad and unambiguous, covering “any dispute at any time arising out of or in any way connected with or relating to this Agreement” and “all differences of whatever nature.” The disagreement over the currency and exchange rate for payment constitutes a classic dispute arising from the interpretation and performance of the contractual obligations, squarely falling within the scope of these clauses.
The Court emphasized that the duty to arbitrate is imperative when there is a valid arbitration agreement and one party refuses to comply. The judicial proceeding was merely a summary remedy to enforce the arbitration agreement, not to adjudicate the merits of the underlying claim. Arguments regarding the merits of the currency dispute are improper for the court and must be addressed to the arbitrators. The termination of the underlying reinsurance contracts does not nullify the arbitration clause, which remains operative for resolving disputes arising from the agreements. Therefore, petitioner was ordered to proceed to arbitration in accordance with the contractual terms.