LIMITED LIABILITY (HYPOTHECARY) DOCTRINE IN MARITIME LAW DOES NOT APPLY IN LABOR CLAIMS

Phil-Nippon Kyoei, Corp. Vs. Rosalia T. Gudelosao, et al.
G.R. No. 181375. July 13, 2016

Facts:

Petitioner, a domestic shipping corporation, purchased a “Ro-Ro” passenger/cargo vessel “MV Mahlia” in Japan in February 2003. For the vessel’s one month conduction voyage from Japan to the Philippines, petitioner, as local principal, and Top Ever Marine Management Maritime Co., Ltd. (TMCL), as foreign principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crewmembers.

They were hired through the local manning agency of TMCL, Top Ever Marine Management Philippine Corporation (TEMMPC). TEMMPC, through their president and general manager, Capt. Oscar Orbeta (Capt. Orbeta), and the eight crewmembers signed separate contracts of employment. Petitioner secured a Marine Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel for P10,800,000.00 against loss, damage, and third party liability or expense, arising from the occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to Batangas, Philippines. This Marine Insurance Policy included Personal Accident Policies for the eight crewmembers for P3,240,000.00 each in case of accidental death or injury.

On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the crewmembers, including Gudelosao and Tancontian, perished. Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for death benefits and other damages against petitioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the Arbitration Branch of the National Labor Relations Commission (NLRC).

LA Ruling:

Labor Arbiter (LA) Pablo S. Magat rendered a Decision10 finding solidary liability among petitioner, TEMMPC, TMCL and Capt. Orbeta. The LA also found SSSICI liable to the respondents for the proceeds of the Personal Accident Policies and attorney’s fees. The LA, however, ruled that the liability of petitioner shall be deemed extinguished only upon SSSICI’s payment of the insurance proceeds.

NLRC Ruling:

The NLRC modified the LA Decision.

The Appeals of Complainants and PNKC are GRANTED but only partially in the case of Complainants’ Appeal, and the Appeal of [SSSICI] is DISMISSED for lack of merit.

NLRC absolved petitioner, TEMMPC and TMCL and Capt. Orbeta from any liability based on the limited liability rule. It, however, affirmed SSSICI’s liability after finding that the Personal Accident Policies answer for the death benefit claims under the Philippine Overseas Employment Administration Standard Employment Contract (POEA-SEC).

Respondents filed a Partial Motion for Reconsideration which the NLRC denied in a Resolution dated May 5, 2006. Respondents filed a petition for certiorari before the CA where they argued that the NLRC gravely abused its discretion in ruling that TEMMPC, TMCL, and Capt. Orbeta are absolved from the terms and conditions of the POEA-SEC by virtue of the limited liability rule. Respondents also argued that the NLRC gravely abused its discretion in ruling that the obligation to pay the surviving heirs rests solely on SSSICI.

CA Ruling:

The CA granted the petition.

The CA found that the NLRC erred when it ruled that the obligation of petitioner, TEMMPC and TMCL for the payment of death benefits under the POEA-SEC was ipso facto transferred to SSSICI upon the death of the seafarers. TEMMPC and TMCL cannot raise the defense of the total loss of the ship because its liability under POEA-SEC is separate and distinct from the liability of the shipowner.

To disregard the contract, which has the force of law between the parties, would defeat the purpose of the Labor Code and the rules and regulations issued by the Department of Labor and Employment (DOLE) in setting the minimum terms and conditions of employment for the protection of Filipino seamen.

The CA noted that the benefits being claimed are not dependent upon whether there is total loss of the vessel, because the liability attaches even if the vessel did not sink. Thus, it was error for the NLRC to absolve TEMMPC and TMCL on the basis of the limited liability rule. Significantly though, the CA ruled that petitioner is not liable under the POEA-SEC, but by virtue of its being a ship owner. Thus, petitioner is liable for the injuries to passengers even without a determination of its fault or negligence. It is for this reason that petitioner obtained insurance from SSSICI -to protect itself against the consequences of a total loss of the vessel caused by the perils of the sea. Consequently, SSSICI’s liability as petitioner’s insurer directly arose from the contract of insurance against liability (i.e., Personal Accident Policy). The CA then ordered that petitioner’s liability will only be extinguished upon payment by SSSICI of the insurance proceeds.

Petitioner filed a Motion for Reconsideration dated November 5, 2007 but this was denied by the CA in its Resolution dated January 11, 2008. On the other hand, since SSSICI did not file a motion for reconsideration of the CA Decision, the CA issued a Partial Entry of Judgment27 stating that the decision became final and executory as to SSSICI on October 27, 2007.

Hence, they filed the petition claiming that the CA erred in ignoring the fundamental rule in Maritime Law that the ship owner may exempt itself from liability by abandoning the vessel and freight it may have earned during the voyage, and the proceeds of the insurance if any. Since the liability of the shipowner is limited to the value of the vessel unless there is insurance, any claim against petitioner is limited to the proceeds arising from the insurance policies procured from SSSICI. Thus, there is no reason in making petitioner’s exoneration from liability conditional on SSSICI’s payment of the insurance proceeds.

Issue:

Whether the doctrine of real and hypothecary nature of maritime law (also known as the limited liability rule) applies in workmen’s compensation claims

SC Ruling:

Doctrine of limited liability is not applicable to claims under POEA-SEC.

In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of Commerce, viz:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freightage he may have earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of their contribution to the common fund, for the results of the acts of the captain, referred to in

Art. 587. Each part-owner may exempt himself from this liability by the abandonment before a notary of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage earned during the voyage.

Article 837 applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and 590 embody the universal principle of limited liability in all cases wherein the shipowner or agent may be properly held liable for the negligent or illicit acts of the captain. These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that the owner or agent abandons the vessel.

When the vessel is totally lost, in which case abandonment is not required because there is no vessel to abandon, the liability of the shipowner or agent for damages is extinguished. Nonetheless, the limited liability rule is not absolute and is without exceptions. It does not apply in cases: (1) where the injury or death to a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and the captain; (2) where the vessel is insured; and (3) in workmen’s compensation claims.

In Abueg v. San Diego, we ruled that the limited liability rule found in the Code of Commerce is inapplicable in a liability created by statute to compensate employees and laborers, or the heirs and dependents, in cases of injury received by or inflicted upon them while engaged in the performance of their work or employment.

Act No. 3428, otherwise known as The Workmen’s Compensation Act is the first law on workmen’s compensation in the Philippines for work-related injury, illness, or death. This was repealed on November 1, 1974 by the Labor Code, and was further amended on December 27, 1974 by Presidential Decree No. 626. The pertinent provisions are now found in Title II, Book IV of the Labor Code on Employees Compensation and State Insurance Fund. The death benefits granted under Title II, Book IV of the Labor Code are similar to the death benefits granted under the POEA-SEC.

Akin to the death benefits under the Labor Code, these benefits under the POEA-SEC are given when the employee dies due to a work-related cause during the term of his contract. The liability of the shipowner or agent under the POEA-SEC has likewise nothing to do with the provisions of the Code of Commerce regarding maritime commerce.

The death benefits granted under the POEA-SEC is not due to the death of a passenger by or through the misconduct of the captain or master of the ship; nor is it the liability for the loss of the ship as result of collision; nor the liability for wages of the crew. It is a liability created by contract between the seafarers and their employers, but secured through the State’s intervention as a matter of constitutional and statutory duty to protect Filipino overseas workers and to secure for them the best terms and conditions possible, in order to compensate the seafarers’ heirs and dependents in the event of death while engaged in the performance of their work or employment.

The POEA-SEC prescribes the set of standard provisions established and implemented by the POEA containing the minimum requirements prescribed by the government for the employment of Filipino seafarers. While it is contractual in nature, the POEA-SEC is designed primarily for the protection and benefit of Filipino seamen in the pursuit of their employment on board ocean-going vessels.

As such, it is deemed incorporated in every Filipino seafarers’ contract of employment. It is established pursuant to POEA’s power “to secure the best terms and conditions of employment of Filipino contract workers and ensure compliance therewith” and “to protect the well-being of Filipino workers overseas” pursuant to Article 17 of the Labor Code as amended by Executive Order (EO) Nos. 79752 and 247.

But while the nature of death benefits under the Labor Code and the POEA-SEC are similar, the death benefits under the POEA-SEC are intended to be separate and distinct from, and in addition to, whatever benefits the seafarer is entitled to under Philippine laws, including those benefits which may be claimed from the State Insurance Fund. Thus, the claim for death benefits under the POEA-SEC is the same species as the workmen’s compensation claims under the Labor Code -both of which belong to a different realm from that of Maritime Law. Therefore, the limited liability rule does not apply to petitioner’s liability under the PO EA-SEC.