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 Govt 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 ONGCs 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 ONGCs 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 didnt 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 ONGCs inspection, the Class
G cement did NOT conform to ONGCs specifications.
4. ONGC informed PACIFIC that pursuant to Clause 161 of
their contract, it was referring its claim to an arbitrator.
5. July 1988 - ONGCs 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 teams 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 arbitrators 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
PACIFICs objections, so it issued its ruling, making the
arbitrators 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 PACIFICs
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. ONGCs lack of legal capacity to sue
b. Lack of cause of action
c. ONGCs 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. ONGCs referral of the dispute b/w the parties to
the arbitrator under Clause 16 was
ERRONEOUS, as Clause 16s 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 cant be source of ONGCs right
13. CA: affirmed RTC, and added that:
a. foreign courts judgment cant be enforced b/c
it contained only the dispositive portion of the
decision, in violation of constitutional reqt 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 PACIFICs objections for nonpayment of filing fees, without the foreign court
first replying to PACIFICs 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 contracts provisions)
- SC: No! The replacement was undertaken precisely because
of PACIFICs 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 hasnt 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 PACIFICs

allegation that it is bereft of statement of facts & law
upon which the award of ONGC was based YES
- The foreign courts 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 arbitrators 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.