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Arbitration Cost Sharing in KCSI Case

Keppel Cebu Shipyard was contracted to repair the M/V Superferry 3 owned by WG&A Shipmanagement. During the repair, a fire gutted the ferry. WG&A filed an insurance claim with Pioneer Insurance, which paid out and was subrogated to WG&A's rights. Pioneer then tried to recover costs from Keppel, arguing it was negligent. The case went to arbitration, where both parties were found negligent and Keppel was ordered to pay damages. Both parties appealed. The Court of Appeals dismissed all claims. The Supreme Court then ruled that both parties should share the costs of arbitration proportionately, as both had valid reasons for litigating but

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Lyn Dela Cruz Dumo
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113 views1 page

Arbitration Cost Sharing in KCSI Case

Keppel Cebu Shipyard was contracted to repair the M/V Superferry 3 owned by WG&A Shipmanagement. During the repair, a fire gutted the ferry. WG&A filed an insurance claim with Pioneer Insurance, which paid out and was subrogated to WG&A's rights. Pioneer then tried to recover costs from Keppel, arguing it was negligent. The case went to arbitration, where both parties were found negligent and Keppel was ordered to pay damages. Both parties appealed. The Court of Appeals dismissed all claims. The Supreme Court then ruled that both parties should share the costs of arbitration proportionately, as both had valid reasons for litigating but

Uploaded by

Lyn Dela Cruz Dumo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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KEPPEL CEBU SHIPYARD, INC. v.

PIONEER INSURANCE AND SURETY


CORPORATION
G.R. Nos. 180880-81, September 25, 2009

FACTS:
WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V “SUPERFERRY 3” and
KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking
and Repair of the above-named vessel ordered by the Owner’s Authorized
Representative shall be carried out under the Keppel Cebu Shipyard Standard
Conditions of Contract for Ship repair, guidelines and regulations on safety and security
issued by Keppel Cebu Shipyard.

In the course of its repair, M/V “Superferry 3” was gutted by fire. Claiming that the extent
of the damage was pervasive, WG&A declared the vessel’s damage as a “total
constructive loss” and, hence, filed an insurance claim with Pioneer.

Pioneer paid the insurance claim of WG&A, which in turn, executed a Loss and
Subrogation Receipt in favor of Pioneer.

Pioneer tried to collect from KCSI, but the latter denied any responsibility for the loss of
the subject vessel. As KCSI continuously refused to pay despite repeated demands,
Pioneer, filed a Request for Arbitration before the Construction Industry Arbitration
Commission CIAC seeking for payment of U.S.$8,472,581.78 plus interest, among
others.

The CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence,
the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at
6% per annum. Both Keppel and Pioneer appealed to the CA.

The cases were consolidated in the CA. the CA rendered a decision dismissing
petitioner’s claims in its entirety. Keppel was declared as equally negligent.

ISSUE:
Who should bear the cost of arbitration?

HELD:
It is only fitting that both parties should share in the burden of the cost of arbitration, on
a pro rata basis. We find that Pioneer had a valid reason to institute a suit against KCSI,
as it believed that it was entitled to claim reimbursement of the amount it paid to WG&A.
However, we disagree with Pioneer that only KCSI should shoulder the arbitration costs.
KCSI cannot be faulted for defending itself for perceived wrongful acts and conditions.
Otherwise, we would be putting a price on the right to litigate on the part of Pioneer.

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