Jastene Joy A.

Libay
IV – Arellano

Compare and Contrast : Magellan vs. Zosa and Oil & Natural Gas Commission vs. CA

This work attempts to lay down the similarities and differences in the Supreme Court
rulings in the cases entitled Magellan vs. Zosa (Magellan case for brevity) and Oil and Natural
Gas Commission vs. Court of Appeals (Oil and Natural Gas case for brevity). The cases discuss,
among others, the validity and effectivity of the subject arbitration clauses with respect to the
appointment of arbitrators. Both cases emphasize the concept of arbitration.

In Magellan case, the dispute between the parties had its origin when Zosa, the
respondent, resigned from his position in the Corporation and demanded his termination
benefits under the Employment Agreement. He then invoked the arbitration clause of the EA
but later on filed an action for damages against petitioners with the court to enforce his
benefits under such Agreement. The petitioners filed a motion to dismiss the instant case since
respondent Zosa's claims should be resolved through arbitration pursuant to the EA.
Meanwhile, the dispute in the Oil and Natural Gas case started in the non-delivery of the 4,300
metric tons of oil well cement to the petitioner due to the Failure to conform with the
specifications of the contract. The primary question that was raised, therefore, is whether or
not the non-delivery of the said cargo is a proper subject for arbitration under the Clause 16 of
their contract.

The jurisdiction over the disputes was one of the main issues that the SC settled in both
cases. In Magellan case, the SC ruled that it is error for the petitioners to claim that the case
should fall under the jurisdiction of the Securities and Exchange Commission (SEC). The
controversy does not in any way involve the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment of errors. Respondent Zosa’s amended
complaint focuses heavily on the illegality of the Employment Agreement’s Arbitration clause
initially invoked by him in seeking his termination benefits under Section 8 of the employment
contract. It is the Regional Trial Court that exercises jurisdiction over questions relating to
arbitration. In Oil and Natural Gas case, the SC also settled the question on jurisdiction. That SC
ruled that with respect to the non-delivery of the oil well cement, the regular courts have
jurisdiction as stipulated by the parties in Clause 15 of their contract. However, the SC further
explained that the petitioner was correct when it said that 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 and thus, subject for arbitration.

Both cases likewise raise the validity and effectivity of the subject arbitration clauses
with respect to the appointment of arbitrators. In Magellan case, respondent argues that the
arbitration clause is void since it would work injustice to him. Under the arbitration clause,
each party shall be represented in the arbitration panel. There are, however, three parties to
the EA – the Corporation (MCHC), Manager (MCMC) and the Employee. Hence, each shall
appoint a representative to the arbitration panel. The SC ruled that the clause should be voided
since MCHC and MCMC represent the same interest. Though they are 2 corporations with
distinct personalities, they represent the same interest. Thus, it would be expected that they
would protect and preserve their own interest and neither would favor Zosa’s interest during
the arbitration. If the arbitration clause would be followed, MCMC would have 1 arbitrator,
MCHC would have another arbitrator, and Zosa would have 1. But MCMC is the manager of
MCHC, MCHC would naturally favor its employed. Thus, their 2 votes would win vs Zosa’s lone
vote. The Oil and Natural Gas case also raises the question on the validity of the arbitration
clause with respect to the appointment of the arbitrator.

Under the arbitration clause, any dispute subject of arbitration shall be referred to the sole
arbitration of the persons appointed by Member of the Commission at the time of dispute. The
respondent asserted that arbitration was defective as the arbitrator was appointed solely by
petitioner, and the fact that appointed arbitrator was former employee of petitioner gave rise to bias in
favor of such petitioner. However, unlike in the Magellan case, the SC in the Oil and Natural Gas
case upheld the validity of the arbitration clause with respect to the appointment of the
arbitrator. At this point, we can see the parties’ participation in the selection or appointment of
arbitrators. In the Magellan case, all parties to the dispute had the right to appoint and be
represented in the arbitration panel. In the Oil and Natural Gas case, however, the right to
appoint the sole arbitrator was placed in the hands of the petitioner pursuant to their contract.

There are a number of differences in the rulings of the SC in both cases. For one, the SC in
the Magellan case settled the issue on whether or not the respondent should be estopped in
assailing the arbitration clause. The SC ruled in the negative and explained that the issue of
estoppel, as likewise noted by the Court of Appeals, found its way for the first time only on
appeal. Well-settled is the rule that issues not raised below cannot be resolved on review in
higher courts. Secondly, employment agreements such as the one at bar are usually contracts
of adhesion. Any ambiguity in its provisions is generally resolved against the party who
drafted the document. The SC clearly ruled in favor of the respondent. In Oil and Natural Gas
case, the SC settled the issue on whether or not the respondent’s right to due process was
violated due to 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
because of the presumed bias on the part of the arbitrator who was a former employee of the
petitioner. Here, the SC ruled against the respondent. It explained that the respondent was
afforded sufficient opportunity to be heard. Respondent’s allegation of presumed bias on the
part of the arbitrator deserves scant consideration in view of the following stipulation in the
contract:

x x x. 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 Commissions employee he had expressed views
on all or any of the matter in dispute or difference.

Finally, the validity of a foreign judgment in our jurisdiction is explained and upheld by the
SC in the Oil and Natural Gas case which is absent in the Magellan case since the latter did not
involve a foreign entity. The SC stated in the Oil and Natural Gas case that a foreign judgment is
presumed to be valid and binding in the country from which it comes, until the contrary is
shown. It is also proper to presume the regularity of the proceedings and the giving of due
notice therein. Consequently, the party attacking a foreign judgment, the respondent herein,
had the burden of overcoming the presumption of its validity which it failed to do in the instant
case.