Oil and Natural Gas Commission vs CA ObliCon

OIL & NATURAL GAS COMMISSION vs. CA, & PACIFIC CEMENT CO., INC. July 23, 1998 | Martinez, J. | When it contains stipulations which admit of several meanings | by: M.G. Albao PETITIONER: Oil and Natural Gas Commission (“ONGC”), a foreign corp. owned and controlled by Gov’t of India RESPONDENT: CA, Pacific Cement Company, Inc. (“PACIFIC”), a private domestic corporation SUMMARY: ONGC and PACIFIC entered into a supply contract, but PACIFIC failed to do deliver the cargo to India. They agreed that PACIFIC will deliver Class “G” cement instead, but upon seeing that it did not comply with their specs, ONGC resorted to arbitration pursuant to Clause 16. The arbitrator ruled in ONGC’s favor, which decision was adopted by the Indian Civil Court, enabling ONGC to collect form PACIFIC. ONGC sought to enforce this ruling in the Philippines, but PACIFIC moved to dismiss. SC ruled that although ONGC erroneously invoked and interpreted Clause 16 as basis of their remedy, the foreign judgment still holds and PACIFIC was, in the end, still liable to ONGC. DOCTRINE: Noscitur a sociis: “where a particular word/phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of the words in which it is found or with which it is associated ”

FACTS: 1. Feb 1983 - Indian company ONGC entered into a contract with domestic company PACIFIC, where the latter was to supply ONGC with 4,300 metric tons of oil well cement, in consideration of ONGC’s payment of $477k through a letter of credit in favor of PACIFIC. 2. The cement was loaded on MV SURUTANA NAVA at Surigao for delivery to Bombay & Calcutta, India. However, because of dispute b/w shipowner & PACIFIC, the cargo was held up in Bangkok and didn’t reach India. - PACIFIC already received payments, but despite several demands of ONGC, the former was not able to deliver 3. Negotiations ensued betweent them, and they resolved that PACIFIC would deliver replacement of Class “G” cement cost free, but upon ONGC’s inspection, the Class “G” cement did NOT conform to ONGC’s specifications. 4. ONGC informed PACIFIC that pursuant to Clause 161 of their contract, it was referring its claim to an arbitrator. 5. July 1988 - ONGC’s chosen arbitrator, Mr. Malhotra, resolved dispute and set arbitral award in favor of ONGC, directing PACIFIC to pay 1) the amount received by PACIFIC thru the letter of credit, 2) reimbursement of expenditure incurred due to ONGC inspection team’s visit to the Phils., 3.) establishment charges, & 4.) losses suffered = $899k (+ interest + 1/2 of arbitration expenses) 6. To execute award, ONGC filed Petition before the Court of the Civil Judge in Dehra Dun, India (hereinafter, “foreign court”), praying that the arbitrator’s decision by made the “Rule of Court” in India. 7. Foreign court issued notices to PACIFIC for objections - PACIFIC complied and sent objections, but when the court directed it to pay filing fees, it instead sent a letter asking how much was to be paid 8. Without responding, foreign court did not admit PACIFIC’s objections, so it issued its ruling, making the arbitrator’s award (“Paper No. 3/B-1) the Rule of the Court, entitling ONGC to get from PACIFIC $899k 9. ONGC sent notices of demand for PACIFIC’s compliance, but refused to pay 10. ONGC filed complaint for enforcement of judgment of 1

Clause 16: “Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute.

the foreign court in RTC Surigao 11. PACIFIC filed a Motion to Dismiss based on the ff.: a. ONGC’s lack of legal capacity to sue b. Lack of cause of action c. ONGC’s claim/demand has been waived/abandoned/extinguished - ONGC filed Opposition, & PACIFIC filed Rejoinder 12. RTC: ruled for ONGC, but said it erred in using Cl. 16 a. ONGC allowed to sue as a foreign corp. suing on an isolated transaction in this case (exception to gen. rule that foreign corp. transacting business in Philippines w/o license cannot sue) b. ONGC’s referral of the dispute b/w the parties to the arbitrator under Clause 16 was ERRONEOUS, as Clause 16’s subject matter was limited to “specifications, designs, drawings, and instrcutions”; that the breach of non-delivery should have been properly litigated before a court of law pursuant to Clause 152 => hence, the proceedings before the arbitrator were null and void, so award can’t be source of ONGC’s right 13. CA: affirmed RTC, and added that: a. foreign court’s judgment can’t be enforced b/c “it contained only the dispositive portion of the decision”, in violation of constitutional req’t that “no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based” b. dismissal of PACIFIC’s objections for nonpayment of filing fees, without the foreign court first replying to PACIFIC’s query, constituted “want of notice or violation of due process” c. arbitration was defective as arbitrator was appointed solely by ONGC, and the fact that appointed arbitrator was former employee of ONGC gave rise to bias in favor of ONGC HELD: petition GRANTED; CA decision reversed; ordered PACIFIC to pay ONGC the amounts adjudged in the foreign judgment of said case It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference.” 2 Clause 15: “All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT, within the local limits of whose jurisdiction and the place from which this supply order is situated."

ISSUE-RATIO: 1. WON non-delivery of the cargo cement is a proper subject for arbitration under Clause 16? – NO - In their argument, ONGC misquoted the phrase by shrewdly inserting a comma between the words “supply order/contract” and “design” where none actually exists (see bolded part of Footnote #1) - Given the true wording of that part of Clause 16, it is clear that to be able to invoke said caluse, the claim must arise out of or relate to the design, drawing, specification, or instruction of the supply order/contract (ONGC: non-delivery of the cargo is still covered by the clause “failure to execute the same” under Clause 16) - SC: No! The doctrine of noscitur a sociis (equally applicable in construction of statutes as well as in ascertainment of meaning and scope of vague and contractual stipulations), which means that where a particular word/phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of the words in which it is found or with which it is associated (“its obscurity or doubt may be reviewed by reference to associated words”)

WON the failure of the replacement cement (“Class G”) to conform to the specifications of the contract is a matter within the ambit of Clause 16 – YES - The subsequent agreement forged between ONGC and PACIFIC for the latter to deliver Class “G” cement as replacement was valid. However, when, upon inspection, it turned out that the replacement cement did not conform to the specifications of the contract, its being brought up before the arbitrator was clearly within the coverage of Clause 16 (PACIFIC: claims that it was under no legal obligation to make replacement, but it did so only out of liberality, and hence, the undertaking to deliver the replacement cement and its failure to conform to specifications are not anymore subject of the contract’s provisions) - SC: No! The replacement was undertaken precisely because of PACIFIC’s recognition of its duty to do so under the supply order/contract, Clause 16 of which remains in force and effect. => WON PACIFIC was able to recover the original cargo is immaterial! => That PACIFIC hasn’t recovered yet is also hard to believe since Bangkok Court already ruled in their favor, so the logical assumption is that they have or will eventually recover 2.

WON foreign court is enforceable despite PACIFIC’s allegation that it is “bereft of statement of facts & law upon which the award of ONGC was based” – YES - The foreign court’s categorical declaration that “Award Paper No. 3/B-1 shall be part of the decree” means that it adopted the findings of facts and law of the arbitrator, which contained exhaustive discussions of the parties’ claims & defenses and the arbitrator’s subsequent evaluation. => CA erred in saying that this was a “simplistic decision, containing only the dispositive portion” - In this jurisdiction, incorporation by reference is allowed if only to avoid the cumbersome reproduction of the decision of the lower courts, or portions thereof, in the decision of the higher court. (the Award Paper here was 18 single-spaced pages long!) 3.

=> hence, even the clause “failure to execute the same” must be construed in light of the preceding words with which it is associated, meaning, it, too, is limited only to the design, drawing, instructions, specifications, or quality of the materials of the supply order/contract - that Clause 16 should pertain only to matters involving the technical aspects of the contract is but a logical inference considering that the underlying purpose of a referral to arbitration is for such technical matters to be deliberated upon by a person possessed with the required skill and expertise which may be otherwise absent in the regular courts. => SC agrees with CA that the non-delivery of the oil well cement was a matter cognizable by the regular courts, as stipulated by the parties in Clause 15 - SC enumerated the ff. fundamental principles in the interpretation of contracts and other instruments: i. CC 1373: “If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual.” ii. CC 1374: “The various stipulations of a contract shall be interpreted together, attributing the doubtful ones that sense which may result from all of them taken jointly.” iii. Sec. 11, RoC 130: “Instrument construed so as to give effect to all provisions. In the construction of an instrument, where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.” => The whole & every part of a contract must be considered in fixing the meaning of any of its harmounious whole. The rule is that a construction that would render a provision inoperative should be avoided; instead, apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious whole.

4.

WON foreign judgment is affected by the fact that the procedure in which their judgment was rendered differs from our courts – NO - SC already held before that matters of remedy and procedure are governed by the lex fori or the internal law of the forum. => Hence, if under the procedural rules of the Indian court here, a valid judgment may be rendered by adopting the arbitrator's findings, then the same must be accorded respect. - In the same vein, if the procedure in the foreign court mandates that an Order of the Court becomes final and executory upon failure to pay the necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the foreign court simply because our rules provide otherwise. (PACIFIC: due process rights violated!) => SC: Essence of due process is to be found in the reasonable opportunity to be heard. Thus, there is no violation of due process even if no hearing was conducted, where the party was given a chance to explain his side of the controversy and he waived his right to do so. (PACIFIC: the arbitrator is presumed to be biased!) => SC: This was stipulated, hence, PACIFIC agreed to it. 5. Also, foreign judgment is presumed to be valid & binding until contrary is shown by party attacking such judgment. He has burden of overcoming such presumption.