OIL AND NATURAL GAS 7

COMMISSION V. CA CONFLICT- Enforcement of Judgment GR NO. 114323 23 July 1998 Martinez,

J Yed Petitioner/s: OIL AND NATURAL GAS COMMISSION
Respondent/s: COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC. Recit Ready Summary
Oil and Natural Gas Commission (Indian GOCC) and Pacific Cement (Philippine Company) entered into a
contract whereby the latter will supply 4,300 metric tons of oil well cement to the former for USD 477,300.
However, due to a dispute between the respondent and the owner of the ship where the cargo was loaded for
transport from Surigao City to India, the goods were never delivered to the port of destination. The cargo was
held up in Bangkok. The parties then agreed that respondent will replace the entire 4,300 metric tons with Class
“G” cement cost free but upon inspection, this did not conform to the petitioner’s specifications. Petitioner referred
the dispute to an arbitrator pursuant to Clause 16 of their contract. The arbitrator ruled in favor of petitioner.
Petitioner then filed a petition before the Court of the Civil Judge in Dehra Dun, India (foreign court), praying that
the decision be made “the Rule of Court” in India. The foreign court notified the respondent and asked it to file its
objections; respondent complied. The foreign court required respondent to pay the filing fees but instead of
paying, the latter sent a letter inquiring as to the correct amount and asking for 15 days to comply. The court,
without replying, rejected the objections and upheld the arbitrators award. Because of repondent’s refusal to
comply with the order, petitioner filed a petition before RTC Surigao City to enforce the foreign judgment.
I: Whether the foreign judgment is enforceable in this jurisdiction — YES.
Contrary to the petitioner’s argument, the non-delivery is not subject to arbitration under Clause 16, which is
limited to diputes pertaining to technical matters. Rather, it is Clause 15 which applies, stating that the regular
courts have exclusive jurisdiction. Nevertheless, what was referred to the arbitrator was not the mere non-delivery
of the goods but the subsequent failure of replacement cement to comply with the petitioner’s specification, a
matter which is within the purview of arbitration. Therefore, the arbitrator had jurisdiction to settle the dispute.
As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of the
decree". This is a categorical decoration that the foreign court adopted the findings of facts and law of the
arbitrator as contained in the latter’s Award Paper. This Award Paper contains an exhaustive discussion of the
respective claims and defenses of the parties, and the arbitrator's evaluation of the same. The constitution
does not preclude the validity of “memorandum decisions” which adopt by reference the findings of fact and
conclusions of law contained in the decisions of inferior tribunals. Respondent was also afforded sufficient
opportunity to be heard. It was not incumbent upon the foreign court to reply to the respondent's written
communication. The respondent did not act with prudence and diligence to ascertain the correct amount of
legal fees to be paid. There was no denial of due process. Lastly, The recognition accorded to a foreign
judgment is not necessarily affected by the fact that the court procedures between the countries are different. 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. Facts
1. Oil and Natural Gas Commission (petitioner) is a foreign corporation owned and controlled by the
Government of India. Pacific Cement Company, Inc. (respondent) is a private corporation organized and
existing under the laws of the Philippines. 2. On Feb. 26, 1983, the parties entered unto a contract wherein
respindent undertook to supply petitioner with 4,300 metric tons of oil well cement for a consideration of USD
477,300 by opening an irrevocable, divisible, and confirmed letter of credit.
1
ALS B2021
3. The oil well cement was loaded on board MV SURUTANA NAVA at the port of Surigao City for delivery
at Bombay and Calcutta, India but due to a dispute between the respondent and the shipowner, the cargo
was help up in Bangkok and never reached the point of destination. 4. Despite respondent’s receipt of
payment and several demands made by petitioner, the former failed to deliver. Negotiations ensued and
they agreed that respondent will replace the entire 4,300 metric tons with Class “G” cement cost free at
petitioner’s designated port. 5. However, upon inspection, the Class “G” cement did not conform to
petitioner’s specifications. Pursuant to Clause 16 of their contract, petitioner informed respondents that it
 will refer its claim to an arbitrator. 1 6. Shri N.N. Malhotra, the chosen arbitrator resolved the conflict in favor
of petitioner, ordering respondent to pay a total amount of USD 899,603.77 with interest at the rate of 6%.
To execute this award, petitioner filed a petition before the Court of the Civil Judge in Dehra Dun, India
(foreign court), praying that the decision be made “the Rule of Court” in India. 7. The foreign court issued
notices to respondent for filing objections to the petition, which the latter complied with on Jan. 16, 1989.
The court then directed respondent to pay the filing fees in order for its objections to be given consideration.
But instead of paying, respondent sent a communication inquiring as to the correct filing fees to be paid and
asking for 15 days from the receipt of the court’s reply to comply. 8. Without responding, the foreign court
refused to admit respondent’s objections for failure to pay the
filing fees and issued an order making the arbitrator’s award the “Rule of Court.” 9. Despite notice and
several demands for compliance, respondent refused to pay so petitioner filed a complaint with RTC
Surigao City to enforce the judgment. Respondent moved to dismiss on the following grounds: (1) lack of
legal capacity to sue; (2) Lack of cause of action; (3) Plaintiffs claim or demand has been waived,
abandoned, or otherwise extinguished. 10. RTC upheld petitioner’s legal capacity to sue but dismissed the
complaint for lack of a valid cause of action. The lower court found that the referral of the dispute between
the parties to the arbitrator under Clause 16 was erroneous, saying that the breach, consisting of non-
delivery of the materials should have been properly litigated before a court of law pursuant to Clause 15. 2
The erroneous

1 "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. 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.

"The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable
to act for any reason the Member of the Commission shall appoint another person to act as arbitrator in
accordance with the terms of the contract/supply order. Such person shall be entitled to proceed with
reference from the stage at which it was left by his predecessor. Subject as aforesaid the provisions of the
Arbitration Act, 1940, or any Statutory modification or re-enactment there of and the rules made there under
and for the time being in force shall apply to the arbitration proceedings under this clause.

"The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish
the award.

"The venue for arbitration shall be at Dehra Dun." 2 “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.”
 2
ALS B2021
submission of the dispute to the arbitrator was a mistake of law or fact amounting to want of jurisdiction.
Therefore, the proceedings were null and voidand the foreign court adopted no legal award which could be a
source of an enforceable right. 11. CA affirmed the dismissal. Additionally, the full text of the foreign court’s
judgmemnt contains the dispositive portion only and indicates no findings of fact and law as basis for the
award. Hence, the said judgment cannot be enforced by any Philippine court as it would violate the
constitutional provision 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. 12. The CA also held that respondent’s right to due process
was violated when its objections were dismissed for non-payment of fees without replying to the communication
first. Lastly, the arbitration proceeding was defective because the arbitrator was appointed solely by the
petitioner and the same was a former employee of the latter, giving rise to a presumed bias. MR was denied.
Points of Contention
[Petitioner]
1. The non-delivery of cargo was a matter properly cognizable by the provisions of clause 16, particularly the
phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in any way or relating to the supply
order/contract, design, drawing, specification, instruction . . .". The phrase allows considerable latitude so as to
include non-delivery of the cargo which was a "claim, right or thing relating to the supply order/contract". 2.
Judgment of the civil court of Dehra Dun, India was an affirmation of the factual and legal findings
of the arbitrator and therefore enforceable in this jurisdiction 3. Evidence must be received to repel presumptive
right under a foreign judgment 4. Granting, for the sake of argument, that the nondelivery of the oil well cement
is not a proper subject for arbitration, the failure of the replacement cement to conform to the specifications of
the contract is a matter clearly falling within the ambit of Clause 16.
[Respondent]
1. It was under no legal obligation to make replacement and that it undertook the latter only "in the
spirit of liberality and to foster good business relationship.” 2. The undertaking to deliver the replacement
cement and its subsequent failure to conform to specifications are not anymore subject of the supply
order/contract or any of the provisions thereof. 3. It never benefited from the transaction and it was not able to
recover the cargo unloaded at the
Bangkok port. 4. The foreign court’s judgment3 is bereft of any statement of facts and law on which the award in
favor of petitioner was based. 5. Its right to due process had been blatantly violated: (1) by reason of the fact
that the foreign court never answered its queries as to the amount of docket fees to be paid then refused to
admit its objections for failure to pay the same, and (2) because of the presumed bias on the part of the
arbitrator who was a former employee of the petitioner. Issue/s
1. Whether the non-delivery of the cargo is a proper subject for arbitration under
Clause 16 2. Whether the judgment of the foreign court is enforceable in this jurisdiction
Ruling
1. No
2. Yes Rationale
1. The non-delivery is not a proper subject for arbitration under Clause 16.

3 “Award dated 23.7.88. Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of

award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be
entitled to get from defendant US$899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three
point seventy seven only) along with 9% interest per annum till the last date of realization."
3
ALS B2021
1. SC held that petitioner’s first contention is bereft of merit. It has misquoted the said phrase, shrewdly
inserting a comma between the words "supply order/contract" and "design" where none actually exists.
An accurate reproduction of the phrase reads, ". . . 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 . . ." 2. The absence of a comma between the words "supply
order/contract" and "design" indicates that the former cannot be taken separately but should be viewed
in conjunction with the words "design, drawing, specification, instruction or these conditions". To fall
within the purview of this phrase, the "claim, right or thing whatsoever" must arise out of or relate to the
design, drawing, specification, or instruction of the supply order/contract. 3. The doctrine of noscitur a
sociis is equally applicable in the ascertainment of the meaning and scope of vague contractual
stipulations. W here a particular word or phrase is ambiguous in itself or is equally susceptible of various
meanings, its obscurity or doubt may be reviewed by reference to associated words. A close
examination of clause 16 reveals that it covers 3 matters: a. 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 b. 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 c. otherwise concerning the materials or the execution or failure to execute the
same during
stipulated/extended period or after the completion/abandonment thereof. 4. The first and second
only refer to questions relating to the design, drawing, instructions, specifications or quality of the
materials. In the third, the clause “execution or failure to execute the same" may be read as "execution
or failure to execute the supply order/contract." But in accordance with the doctrine of noscitur a sociis,
this reference to the supply order/contract must be construed in the light of the preceding words, limited
only to the design, drawing, instructions, specifications or quality of the materials of the supply
order/contract. 5. The non-delivery is not in the nature of a dispute arising from failure to execute the
supply order/contract design, drawing, instructions, specifications or quality of the materials. Clause 16
should pertain only to matters involving the technical aspects of the contract, considering that the
underlying purpose of referral to arbitration is for the technical matters to be deliberated upon by a
person possessed with the required skill and expertise, otherwise absent in regular courts. 6. The non-
delivery is a matter properly cognizable by the regular courts as stipulated in Clause 15. 4 The provisions
of a contract should not be read in isolation from the rest of the instrument but, on the contrary,
interpreted in the light of the other related provisions. Petitioner’s interpretation of Clause 16 as to
contemplate even the non-delivery would render Clause 15 a mere superfluity. Parties did not intend
arbitration to be the sole means of settling disputes. 7. Clause 16 is confined to all claims or disputes
arising from or relating to the design, drawing, instructions, specifications or quality of the materials of
the supply order/contract, while Clause 15 cover all other claims or disputes.

Nevertheless, the failure of the replacement cement to conform to the specifications of the contract
is a matter falling within the ambit of Clause 16.

1. What was referred to arbitration was no longer the mere non-delivery of the cargo at the first instance
but also the failure of the replacement cargo to conform to the specifications of the contract, a matter
clearly within the coverage of Clause 16. 2. Whether or not respondent was able to recover the cargo is
immaterial to its subsisting duty to make good its promise to deliver. It is also difficult to believe
respondent’s representation since in its memorandum, it was asserted that the Civil Court of Bangkok
had already ruled that the non-delivery of the cargo was due solely to the fault of the carrier. Therefore,
it is logical to

Id.
 4
ALS B2021
assume that the necessary consequence of this is the recovery by the respondent of the cargo or
the value thereof.

2. The judgment of the foreign court is enforceable.

1. As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of
the decree". This is a categorical decoration that the foreign court adopted the findings of facts and law
of the arbitrator as contained in the latter’s Award Paper. Award Paper No. 3/B-1, contains an exhaustive
discussion of the respective claims and defenses of the parties, and the arbitrator's evaluation of the
same. Inasmuch as the foregoing is deemed to have been incorporated into the foreign court's judgment,
CA was in error when it described the latter to be a "simplistic decision containing literally, only the
dispositive portion." 2. The constitutional mandate does not preclude the validity of “memorandum
decisions” which adopt by reference the findings of fact and conclusions of law contained in the
decisions of inferior tribunals. The cases of Francisco v. Permskul and Romero v. CA both held that a
memorandum decision do not transgress the requirements of Sec. 14, Art. VIII of the Constitution. 3.
Incorporation by reference is allowed to avoid the cumbersome reproduction of the decision of the lower
courts, or portions thereof, in the decision of the higher court, particularly when the decision sought to be
incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in this case
(Award consisted of 18 single spaced pages). 4. The recognition accorded to a foreign judgment is not
necessarily affected by the fact that the court procedures between the countries are different. Matters of
remedy and procedure are governed by the lex fori or the internal law of the forum. 5. 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. 6. The essence of due process is to be found in the
reasonable opportunity to be heard and submit any evidence. What is repugnant to due process is the
denial of opportunity to be heard. 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. 7. On the pretext that respondent was yet awaiting the foreign court's reply, almost a year passed
without the respondent paying the legal fees. Thus, on February 2, 1990, the foreign court rejected the
objections and proceeded to adjudicate upon the petitioner's claims. 8. Respondent was afforded
sufficient opportunity to be heard. It was not incumbent upon the foreign court to reply to the
respondent's written communication. On the contrary, a genuine concern for its cause should have
prompted the private respondent to ascertain with all due diligence the correct amount of legal fees to be
paid. The respondent did not act with prudence and diligence. 9. Lastly, on the allegation of presumed
bias, SC gave scant consideration in view of the parties’
stipulation that:
“. . . 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.” 10. According to the case of Northwest Orient Airlines, Inc. v. CA, foreign judgment is presumed
to be valid and binding in the country from which it comes, until the contrary is shown. The party attacking a
foreign judgment has the burden of overcoming the presumption of validity. Here, respondent failed to do so.
Disposition

Petition granted. Pacific Cement is ordered to pay the amounts adjudged by the foreign court.
 5
ALS B2021