G.R. No. 87958; April 26, 1990
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN INTERNATIONAL UNDERWRITER (PHIL.) INC., petitioners, vs. STOLT-NIELSEN PHILIPPINES, INC. and COURT OF APPEALS, respondents.

FACTS

Petitioner National Union Fire Insurance Company insured a shipment of distilled fatty acid for United Coconut Chemicals, Inc. (the shipper). The cargo was carried by respondent Stolt-Nielsen Philippines, Inc. (the carrier) under a Tanker Bill of Lading. Upon arrival in the Netherlands, the consignee found the cargo discolored and contaminated. The shipper’s claim against the carrier was denied. Consequently, the insurer indemnified the shipper and, as subrogee, filed a complaint for recovery of the paid amount against the carrier before the Regional Trial Court (RTC) of Makati.
The carrier moved to dismiss or suspend the proceedings, invoking an arbitration clause. It argued that the Bill of Lading expressly incorporated the terms of a Charter Party between the shipper and Parcel Tankers, Inc., which contained a provision requiring arbitration in New York for any dispute. The insurer opposed, contending it was not bound by the arbitration clause as it was not explicitly incorporated into the Bill of Lading and was void for being unreasonable.

ISSUE

The primary issue is whether the insurer, as subrogee of the shipper, is bound by the arbitration clause contained in the Charter Party, which was incorporated by reference into the Bill of Lading.

RULING

The Supreme Court upheld the Court of Appeals’ decision, ruling that the dispute is arbitrable and that the insurer is bound by the arbitration clause. The Court first addressed a procedural matter, noting that while an order deferring resolution on a motion to dismiss is generally interlocutory, prohibition lies when the trial court acts outside its jurisdiction, as was patently the case here given the arbitration agreement.
On the substantive issue, the Court emphasized that the Bill of Lading explicitly stated: “This shipment is carried under and pursuant to the terms of the Charter… and all the terms whatsoever of the said Charter… apply to and govern the rights of the parties concerned in this shipment.” This clear language incorporates the Charter Party’s terms, including its arbitration clause, into the Bill of Lading. As subrogee, the insurer “steps into the shoes” of the shipper and acquires no greater rights than its predecessor. Therefore, the insurer is contractually bound by all terms governing the shipper, including the agreement to arbitrate.
The Court further noted that arbitration is a recognized mode of dispute settlement under Philippine law (Republic Act No. 876) and international conventions, specifically the 1958 New York Convention, to which the Philippines is a signatory. The arbitration clause was not shown to be null, void, inoperative, or incapable of performance. Consequently, the RTC proceedings must be suspended, and the insurer must refer its claim to arbitration in New York as stipulated. The petition was denied.