RA NO. 9285 Section 2. Declaration of Policy.

— It is hereby declared the policy of the

State to actively promote party autonomy in the resolution of disputes or the freedom of the
parties to make their own arrangements to resolve their disputes. Towards this end, the State
shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an
important means to achieve speedy and impartial justice and declog court dockets. As such,
the State shall provide means for the use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases. Likewise, the State shall enlist active
private sector participation in the settlement of disputes through ADR. This Act shall be
without prejudice to the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a means of achieving
speedy and efficient means of resolving cases pending before all courts in the Philippines
which shall be governed by such rules as the Supreme Court may approve from time to time.
(Emphasis supplied)

STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)

LIMITED, Petitioner, v. SULPICIO LINES INC., Respondent.
G.R. NO. 208603, September 20, 2017

Doctrine: An insured member may be compelled to arbitration pursuant to the Rules of the
Protection and Indemnity Club, which were incorporated in the insurance policy by reference.
Where there are multiple parties, the court must refer to arbitration the parties covered by
the agreement while proceeding with the civil action against those who were not bound by
the arbitration agreement.

Facts: Sulpicio insures its fleet of inter-island vessels (M/V Princess) with
herein Petitioner through local insurance agent, Pioneer Insurance. In 2005,
the M/V Princess was gutted by fire on voyage from Ilo-Ilo to Zamboanga City,
resulting in total loss of its cargos. Sulpicio claimed indemnity from
Steamship under the Protection and Indemnity Insurance Policy, which
however was denied by Steamship and which subsequently rescinded the
contract on account that Sulpicio was grossly negligent in conducting its
business regarding safety, maintaining the seaworthiness of its vessels as well
as proper training of its crew.

Sulpicio filed a complaint with the RTC of Makati against Steamship.

Steamship filed a Motion to Dismiss and/or to refer the case to Arbitration
pursuant to the Alternative Dispute Resolution Act of 2004 and to Rule 47 of
the 2005/06 Club Rules, which supposedly provided for arbitration in London
of disputes between Steamship and its members. RTC denied the motion. On
appeal, the CA denied the Petition for Certiorari in relation to RTC’s dismissal
of the Motion to Dismiss. Hence, this Petition.

Issue: WON the case shall be referred to Arbitration Proceedings pursuant to

ADR Act of 2004.

Ruling: It is the State’s policy to promote a party autonomy in the mode of

resolving disputes. Under the freedom of contract principle, parties to a
contract may stipulate on a particular method of settling any conflict between
them. Arbitration and other alternative dispute resolution methods like

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Domingo, John Rowie, B.
mediation, negotiation, and conciliation are favored over court action.
Republic 9285 expresses this policy.

Section 2. Declaration of Policy. — It is hereby declared the policy of the

State to actively promote party autonomy in the resolution of disputes or
the freedom of the parties to make their own arrangements to resolve
their disputes. Towards this end, the State shall encourage and actively
promote the use of Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of ADR as
an efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This Act shall be
without prejudice to the adoption by the Supreme Court of any ADR
system, such as mediation, conciliation, arbitration, or any combination
thereof as a means of achieving speedy and efficient means of resolving
cases pending before all courts in the Philippines which shall be governed
by such rules as the Supreme Court may approve from time to time.
(Emphasis supplied)

Arbitration, as a mode of settling dispute, was already recognized in the Civil

Code. In 1953, Republic Act No. 876 was passed, which reinforced domestic
arbitration as a process of dispute resolution. Foreign arbitration was likewise
recognized through the Philippine’s adherence to the United Nations
Conventions on the Recognition and Enforcement of Foreign Arbitral Award
of 1958, otherwise known as the New York Convention. Republic Act No.9285
sets the basic principles in the enforcement of foreign awards in the
Philippines.

Consistent with State Policy, “arbitration agreements are liberally construed

in favor of proceeding to arbitration”. Every reasonable interpretation is
indulged to give effect to arbitration agreements. Thus, courts must give effect
to the arbitration clause as much as the terms of the agreement would allow.
Any doubt should be resolved in favor of arbitration.

Sulpicio contented that it was not aware that there was an Arbitration Clause.

Being a signatory to the contract, Sulpcio agreed with all the terms and
conditions of the Insurance Policy it acquired, which included the 2005/06
Club Rules which contains the Arbitration Clause found on Rule 47 of the
2005/06 Club Rules:

47 Dispute Resolution, Adjudication.

i. in the event of any difference or dispute whatsoever, between or

affecting a Member and the Club and concerning the insurance
afforded by the Club under these rules or any amounts due from
the Club to the Member or the Member to the Club, such
difference or dispute shall in the first instance be referred to

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Domingo, John Rowie, B.
 adjudication by the Directors. That adjudication shall be on the
basis of documents and written submissions alone.
Notwithstanding the terms of this Rule 47, the Managers shall be
entitled to refer any difference or dispute to arbitration in
accordance with sub-paragraph ii below without prior
adjudication by the Directors.

ii. If the Member does not accept the decision of the Directors, or if
the Managers, in their absolute discretion, so decide, the
difference or dispute shall be referred to the arbitration of three
arbitrators, one to be appointed by each of the parties and the
third by the two arbitrators so chosen, in London. The
submission to arbitration and all the proceedings therein shall be
subject to the provisions of the English Arbitration Act, 1996 and
the schedules thereto or any statutory modifications or re-
enactment thereof.

iii. No Member shall be entitled to maintain any action, suit or other

legal proceedings against the Club upon any such difference or
dispute unless and until the same has been submitted to the
Directors and they shall have given their decision thereon, or
shall have made default for three months in so doing; and, if such
decision be not accepted by the Member or such default be made,
unless and until the difference or dispute shall have been referred
to arbitration in the manner provided in this Rule, and the Award
shall have been published; and then only for such sum as the
Award may direct to be paid by the Club. And the sole obligation
of the Club to the Member under these Rules or otherwise
howsoever in respect of any disputed claim made by the Member
shall be to pay such sum as may be directed by such an Award.

iv. In any event no request for adjudication by the Member shall be

made to the Directors in respect of any difference or dispute
between, or matter affecting, the Member and the Club more than
two years from the date when that dispute, difference or matter
arose unless, prior to the expiry of this limitation period, the
Managers have agreed in writing to extend the same.

v. Nothing in this Rule 47 including paragraph i, or in any other

Rule or otherwise shall preclude the Club from taking any legal
action of whatsoever nature in any jurisdiction at its absolute
discretion in order to pursue or enforce any of its rights
whatsoever and howsoever arising including but not limited to: -

a. Recovering sums it considers to be due from the Member

to the Club;
b. Obtaining security for such sums; and/or
c. Enforcement of its right of lien whether arising by law or
under these rules.

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Domingo, John Rowie, B.
 vi. These rules and any contract of insurance between the Club and
the Member shall be governed by and construed in accordance
with English law.(Emphasis in the original)

Under Rule 47, any dispute concerning the insurance afforded by

Steamship must first be brought by a claiming member to the Directors
for adjudication. If this member disagrees with the decision of the
Director, the dispute must be referred to arbitration in London. Despite
the member's disagreement, the Managers of Steamship may refer the
dispute to arbitration without adjudication of the Directors. This
procedure must be complied with before the member can pursue legal
proceedings against Steamship.

There is no ambiguity in the terms and clauses of the Certificate of

Entry Acceptance. Contrary to the ruling of the Court of Appeals, the
Certificate clearly incorporates the entire Club Rules—not only those
provisions relating to cancellation and alteration of the policy.

"[W]hen the text of a contract is explicit and leaves no doubt as to its

intention, the court may not read into it any other intention that would
contradict its plain import.

The incorporation of the Club Rules in the insurance policy is without

any qualification. This includes the arbitration clause even if not
particularly stipulated. A basic rule in construction is that the entire
contract, and each and all of its parts, must be read together and given
effect, with all its clauses and provisions harmonized with one another.

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