FACTS: On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) entered into, and executed, a Shiprepair Agreement wherein KCSI agreed to carry out renovation and reconstruction of M/V Superferry 3 (Superferry 3), owned by WG&A, using its (KCSI’s) dry docking facilities. Prior to the execution of the Shiprepair Agreement, Superferry 3 was already insured by WG&A with Pioneer for US$8,472,581.78.

On February 8, 2000, while undergoing repair, Superferry 3 was gutted by fire. WG&A declared the vessel’s damage as a “total constructive loss” and filed an insurance claim with Pioneer.

On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78. In exchange, WG&A executed a Loss and Subrogation Receipt in favor of Pioneer.

Believing that KCSI was solely responsible for the loss of Superferry 3, Pioneer tried to collect the amount of US$8,472,581.78 form KCSI but it was frustrated. Thus, Pioneer sought arbitration with the Construction Industry Arbitration Commission (CIAC) pursuant to the arbitration clause in the Shiprepair Agreement.

During the arbitration proceedings, an amicable settlement was forged between KCSI and WG&A. Pioneer, thus, stayed on as the remaining claimant.

On October 28, 2002, the CIAC rendered its Decision finding that both WG&A and KCSI were equally guilty of negligence which resulted in the fire and loss of Superferry 3. The CIAC also ruled that the liability of KSCI was limited to the amount of P50,000,000.00 pursuant to Clause 20 of the Shiprepair Agreement.

Accordingly, the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per annum from the time of the filing of the case up to the time the decision was promulgated, and 12% interest per annum added to the award, or any balance thereof, after it would become final and executory. The CIAC further ordered that the arbitration costs be imposed on both parties on a pro rata basis.

ISSUE: who should be responsible for the loss of Superferry 3.

HELD: was resolved by the CIAC against both parties. As this finding of fact by the CIAC was affirmed by the CA, the Court must have a strong and cogent reason to disturb it.

It is a hornbook doctrine that, save for certain exceptions, the findings of fact of administrative agencies and quasi-judicial bodies like the CIAC, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but finality when affirmed by the CA. It is well-settled that “the consequent policy and practice underlying our Administrative Law is that courts of justice should respect the findings of fact of said administrative agencies, unless there is absolutely no evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial.” Moreover, in petitions for review on certiorari, only questions of law may be put into issue.

Be that as it may, the Court, after making its own assiduous assessment of the case, concurs with the conclusions arrived at by the tribunals below that the loss of Superferry 3 cannot be attributed to one party alone.

WG&A was negligent because, although it utilized the welders of KCSI, it used them outside the agreed area, the restaurant of the promenade deck. If they did not venture out of the restaurant, the sparks or the hot molten slags produced by the welding of the steel plates would not have reached the combustible lifejackets stored at the deck below.

On the part of KCSI, it failed to secure a hot work permit pursuant to another work order. Had this been applied for by the KCSI worker, the hot work area could have been inspected and safety measures, including the removal of the combustible lifejackets, could have been undertaken. In this regard, KCSI is responsible.

In short, both WG&A and KCSI were equally negligent for the loss of Superferry 3. The parties being mutually at fault, the degree of causation may be impossible of rational assessment as there is no scale to determine how much of the damage is attributable to WG&A’s or KCSI’s own fault. Therefore, it is but fair that both WG&A and KCSI should equally shoulder the burden for their negligence.

With respect to the defenses of KCSI that it was a co-assured under Clause 22 (a) of the contract and that its liability is limited to P50,000,000.00 under Clause 20 of the Shiprepair Agreement, the Court maintains the earlier ruling on the invalidity of Clause 22 (a) of the Shiprepair Agreement.

It cannot, however, maintain the earlier ruling on the invalidity of Clause 20 of the Shiprepair Agreement, which limited KCSI’s liability to P50,000,000.00. In the September 25, 2009 Decision, the Third Division found Clause 20 of the Shiprepair Agreement invalid, seeing it as an unfair imposition by KCSI, being the dominant party, on WG&A. TCASIH

Basic is the rule that parties to a contract may establish such stipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, and public policy. While greater vigilance is required in determining the validity of clauses arising from contracts of adhesion, the Court has nevertheless consistently ruled that contracts of adhesion are not invalid per se and that it has, on numerous occasions, upheld the binding effect thereof.

In its Decision, the Third Division placed great weight in the testimony of Engr. Elvin F. Bello, WG&A’s fleet manager, that while he assented to the Shiprepair Agreement, he did not sign the fine-print portion thereof where Clause 20 was found because he did not want WG&A to be bound by them. This testimony however, was correctly found by the CIAC as clearly self-serving, because such intention of WG&A was belied by its actions before, during and after the signing of the Shiprepair Agreement.

As pointed out by the CA, WG&A and its related group of companies, which were all extensively engaged in the shipping business, had previously dry-docked and repaired its various ships with KCSI under ship repair agreements incorporating the same standard conditions on at least 22 different occasions. Yet, in all these instances, WG&A had not been heard to complain of being strong-armed and forced to accept the fine-print provisions imposed by KCSI to limit its liability.

Also, as pointed out by the CIAC, if it were true that WG&A did not want to be bound under such an onerous clause, it could have easily transacted with other ship repairers, which may not have included such a provision.

After the signing of the Shiprepair agreement, the record is bereft of any other evidence to show that WG&A had protested such a provision limiting the liability of KCSI. Indeed, the parties bound themselves to the terms of their contract which became the law between them.

While contracts of adhesion may be struck down as void and unenforceable for being subversive of public policy, the same can only be done when, under the circumstances, the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely depriving the former of the opportunity to bargain on equal footing. This is not the situation in this case.

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