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G.R. No. 155001
May 5, 2003
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA,
MANUEL ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY
V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA),
petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION
SYSTEMS CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIAMENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and
MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA,
petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in
his capacity as Head of the Department of Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN
CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN
RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head
of the Department of Transportation and Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under
Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International
Airport Authority (MIAA) and the Department of Transportation and Communications
(DOTC) and its Secretary from implementing the following agreements executed by the
Philippine Government through the DOTC and the MIAA and the Philippine International
Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12,
1997, (2) the Amended and Restated Concession Agreement dated November 26,
1999, (3) the First Supplement to the Amended and Restated Concession Agreement
dated August 27, 1999, (4) the Second Supplement to the Amended and Restated
Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the
Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the
PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct
a comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine
whether the present airport can cope with the traffic development up to the year 2010.
The study consisted of two parts: first, traffic forecasts, capacity of existing facilities,
NAIA future requirements, proposed master plans and development plans; and second,
presentation of the preliminary design of the passenger terminal building. The ADP
submitted a Draft Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of investing in the construction and
operation of a new international airport terminal. To signify their commitment to pursue
the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange Commission (SEC) on September 15,
1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA International Passenger Terminal
III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant to RA 6957
as amended by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA
IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC
to the National Economic and Development Authority (NEDA). A revised proposal,
however, was forwarded by the DOTC to NEDA on December 13, 1995. On January 5,
1996, the NEDA Investment Coordinating Council (NEDA ICC) – Technical Board
favorably endorsed the project to the ICC – Cabinet Committee which approved the
same, subject to certain conditions, on January 19, 1996. On February 13, 1996, the
NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily
newspapers of an invitation for competitive or comparative proposals on AEDC's
unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before 5:00
p.m. of September 20, 1996. The first envelope should contain the Prequalification
Documents, the second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
Documents and the submission of the comparative bid proposals. Interested firms were
permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent
must have adequate capability to sustain the financing requirement for the detailed
engineering, design, construction, operation, and maintenance phases of the project.
The proponent would be evaluated based on its ability to provide a minimum amount of
equity to the project, and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid
Documents. The following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its
financial proposal an additional percentage of gross revenue share of the Government,
as follows:
i. First 5 years
5.0%
ii. Next 10 years
7.5%
iii. Next 10 years
10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
challenge. Proponent may offer an Annual Guaranteed Payment which need not be of
equal amount, but payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation and
maintenance phases of the project as the case may be. For purposes of prequalification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the
minimum amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or
the members of the consortium are banking with them, that the project proponent and/or
the members are of good financial standing, and have adequate resources.
d. The basis for the prequalification shall be the proponent's compliance with the
minimum technical and financial requirements provided in the Bid Documents and the
IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the preparation
of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain
clarifications were made. Upon the request of prospective bidder People's Air Cargo &
Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule
11 of the Implementing Rules and Regulations of the BOT Law, only the proposed
Annual Guaranteed Payment submitted by the challengers would be revealed to AEDC,
and that the challengers' technical and financial proposals would remain confidential.
The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the
Bid Documents was merely indicative and that other revenue sources may be included
by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified
that only those fees and charges denominated as Public Utility Fees would be subject to
regulation, and those charges which would be actually deemed Public Utility Fees could
still be revised, depending on the outcome of PBAC's query on the matter with the
Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the
Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's
queries and the PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the
capitalization of each member company is so structured to meet the requirements and
needs of their current respective business undertaking/activities. In order to comply with
this equity requirement, Paircargo is requesting PBAC to just allow each member of
(sic) corporation of the Joint Venture to just execute an agreement that embodies a
commitment to infuse the required capital in case the project is awarded to the Joint
Venture instead of increasing each corporation's current authorized capital stock just for
prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time of
prequalification, not future or potential capability.
A commitment to put up equity once awarded the project is not enough to establish that
"present" financial capability. However, total financial capability of all member
companies of the Consortium, to be established by submitting the respective
companies' audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension
of a Performance Security to the joint venture in the event that the Concessions
Agreement (sic) is awarded to them. However, Paircargo is being required to submit a
copy of the draft concession as one of the documentary requirements. Therefore,
Paircargo is requesting that they'd (sic) be furnished copy of the approved negotiated
agreement between the PBAC and the AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any
material changes would be made known to prospective challengers through bid
bulletins. However, a final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to
submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and
Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first
envelope containing the prequalification documents of the Paircargo Consortium. On
the following day, September 24, 1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the
amount that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the
issues raised by the latter, and that based on the documents submitted by Paircargo
and the established prequalification criteria, the PBAC had found that the challenger,
Paircargo, had prequalified to undertake the project. The Secretary of the DOTC
approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
Paircargo's financial capability, in view of the restrictions imposed by Section 21-B of the
General Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks
and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its
objections and requested that it be furnished with excerpts of the PBAC meeting and
the accompanying technical evaluation report where each of the issues they raised
were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the
Paircargo Consortium containing their respective financial proposals. Both proponents
offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the
government and to pay the government: 5% share in gross revenues for the first five
years of operation, 7.5% share in gross revenues for the next ten years of operation,
and 10% share in gross revenues for the last ten years of operation, in accordance with
the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed payment for 27 years while Paircargo
Consortium offered to pay the government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal
submitted by the Paircargo Consortium, and gave AEDC 30 working days or until
November 28, 1996 within which to match the said bid, otherwise, the project would be
awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary
Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium
regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International
Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass
approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for
Declaration of Nullity of the Proceedings, Mandamus and Injunction against the
Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC
and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical
Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval,
on a no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the
ad referendum gathered only four (4) of the required six (6) signatures, the NEDA
merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and
PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the
Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport
Passenger Terminal III" (1997 Concession Agreement). The Government granted
PIATCO the franchise to operate and maintain the said terminal during the concession
period and to collect the fees, rentals and other charges in accordance with the rates or
schedules stipulated in the 1997 Concession Agreement. The Agreement provided that
the concession period shall be for twenty-five (25) years commencing from the inservice date, and may be renewed at the option of the Government for a period not
exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall
transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and
Restated Concession Agreement (ARCA). Among the provisions of the 1997
Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to
the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to
the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its
interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of
Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-over of
operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may
be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public
utility fees and charges; the entire Article VIII concerning the provisions on the
termination of the contract; and Sec. 10.02 providing for the venue of the arbitration
proceedings in case a dispute or controversy arises between the parties to the
agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA.
The First Supplement was signed on August 27, 1999; the Second Supplement on
September 4, 2000; and the Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining
"Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation
of MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or
replacement of all airport facilities and equipment which are owned or operated by
MIAA; and further providing additional special obligations on the part of GRP aside from
those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also
provided a stipulation as regards the construction of a surface road to connect NAIA
Terminal II and Terminal III in lieu of the proposed access tunnel crossing Runway
13/31; the swapping of obligations between GRP and PIATCO regarding the
improvement of Sales Road; and the changes in the timetable. It also amended Sec.
6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the
ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing,
removal, demolition or disposal of subterranean structures uncovered or discovered at
the site of the construction of the terminal by the Concessionaire. It defined the scope of
works; it provided for the procedure for the demolition of the said structures and the
consideration for the same which the GRP shall pay PIATCO; it provided for time
extensions, incremental and consequential costs and losses consequent to the
existence of such structures; and it provided for some additional obligations on the part
of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as
regards the construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA
Terminals I and II, had existing concession contracts with various service providers to
offer international airline airport services, such as in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing, and other services, to several international airlines at the NAIA. Some of
these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp.,
and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine
Airlines (PAL), are the dominant players in the industry with an aggregate market share
of 70%.
On September 17, 2002, the workers of the international airline service providers,
claiming that they stand to lose their employment upon the implementation of the
questioned agreements, filed before this Court a petition for prohibition to enjoin the
enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers,
filed a motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and
Constantino Jaraula filed a similar petition with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing
the legality of the various agreements.4
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael
P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A.
Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in
the case as Respondents-Intervenors. They filed their Comment-In-Intervention
defending the validity of the assailed agreements and praying for the dismissal of the
petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo,
on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at
Malacañang Palace, stated that she will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as) null and void."5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27,
2002. The Office of the Solicitor General and the Office of the Government Corporate
Counsel filed their respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral
argument, the Court then resolved in open court to require the parties to file
simultaneously their respective Memoranda in amplification of the issues heard in the
oral arguments within 30 days and to explore the possibility of arbitration or mediation
as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of
the Government Corporate Counsel prayed that the present petitions be given due
course and that judgment be rendered declaring the 1997 Concession Agreement, the
ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT
Law and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003
PIATCO commenced arbitration proceedings before the International Chamber of
Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration
with the Secretariat of the ICC against the Government of the Republic of the
Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated
issues made difficult by their intersecting legal and economic implications. The Court is
aware of the far reaching fall out effects of the ruling which it makes today. For more
than a century and whenever the exigencies of the times demand it, this Court has
never shirked from its solemn duty to dispense justice and resolve "actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction."6 To be sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they
allege will bar the resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers7
having separate concession contracts with MIAA and continuing service agreements
with various international airlines to provide in-flight catering, passenger handling, ramp
and ground support, aircraft maintenance and provisions, cargo handling and
warehousing and other services. Also included as petitioners are labor unions
MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees
Association. These petitioners filed the instant action for prohibition as taxpayers and as
parties whose rights and interests stand to be violated by the implementation of the
PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing
under Philippine laws engaged in the business of providing in-flight catering, passenger
handling, ramp and ground support, aircraft maintenance and provisions, cargo
handling and warehousing and other services to several international airlines at the
Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-paying
international airline and airport-related service operators, each one of them stands to be
irreparably injured by the implementation of the PIATCO Contracts. Each of the
petitioners-intervenors have separate and subsisting concession agreements with MIAA
and with various international airlines which they allege are being interfered with and
violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang
Manggagawa sa Paliparan ng Pilipinas - a legitimate labor union and accredited as the
sole and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor
their petition for prohibition on the nullity of the contracts entered into by the
Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III.
They filed the petition as taxpayers and persons who have a legitimate interest to
protect in the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain
stipulations which directly contravene numerous provisions of the Constitution, specific
provisions of the BOT Law and its Implementing Rules and Regulations, and public
policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts,
have committed grave abuse of discretion amounting to lack or excess of jurisdiction
which can be remedied only by a writ of prohibition, there being no plain, speedy or
adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and
the ARCA which grant PIATCO the exclusive right to operate a commercial international
passenger terminal within the Island of Luzon, except those international airports
already existing at the time of the execution of the agreement. The contracts further
provide that upon the commencement of operations at the NAIA IPT III, the Government
shall cause the closure of Ninoy Aquino International Airport Passenger Terminals I and
II as international passenger terminals. With respect to existing concession agreements
between MIAA and international airport service providers regarding certain services or
operations, the 1997 Concession Agreement and the ARCA uniformly provide that such
services or operations will not be carried over to the NAIA IPT III and PIATCO is under
no obligation to permit such carry over except through a separate agreement duly
entered into with PIATCO.8
With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively
barred from providing international airline airport services at the NAIA Terminals I and II
as all international airlines and passengers will be diverted to the NAIA IPT III. The
petitioning service providers will thus be compelled to contract with PIATCO alone for
such services, with no assurance that subsisting contracts with MIAA and other
international airlines will be respected. Petitioning service providers stress that despite
the very competitive market, the substantial capital investments required and the high
rate of fees, they entered into their respective contracts with the MIAA with the
understanding that the said contracts will be in force for the stipulated period, and
thereafter, renewed so as to allow each of the petitioning service providers to recoup
their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of
MIAA on the other hand allege that with the closure of the NAIA Terminals I and II as
international passenger terminals under the PIATCO Contracts, they stand to lose
employment.
The question on legal standing is whether such parties have "alleged such a personal
stake in the outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions."9 Accordingly, it has been held that the
interest of a person assailing the constitutionality of a statute must be direct and
personal. He must be able to show, not only that the law or any government act is
invalid, but also that he sustained or is in imminent danger of sustaining some direct
injury as a result of its enforcement, and not merely that he suffers thereby in some
indefinite way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is about to be
subjected to some burdens or penalties by reason of the statute or act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases,
petitioners have a direct and substantial interest to protect by reason of the
implementation of the PIATCO Contracts. They stand to lose their source of livelihood, a
property right which is zealously protected by the Constitution. Moreover, subsisting
concession agreements between MIAA and petitioners-intervenors and service
contracts between international airlines and petitioners-intervenors stand to be nullified
or terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The
financial prejudice brought about by the PIATCO Contracts on petitioners and
petitioners-intervenors in these cases are legitimate interests sufficient to confer on
them the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the
House of Representatives, citizens and taxpayers. They allege that as members of the
House of Representatives, they are especially interested in the PIATCO Contracts,
because the contracts compel the Government and/or the House of Representatives to
appropriate funds necessary to comply with the provisions therein.11 They cite
provisions of the PIATCO Contracts which require disbursement of unappropriated
amounts in compliance with the contractual obligations of the Government. They allege
that the Government obligations in the PIATCO Contracts which compel government
expenditure without appropriation is a curtailment of their prerogatives as legislators,
contrary to the mandate of the Constitution that "[n]o money shall be paid out of the
treasury except in pursuance of an appropriation made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are
not brought by parties who have been personally injured by the operation of a law or
any other government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest. Although we are not unmindful of the cases of Imus Electric
Co. v. Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that
appropriation must be made only on amounts immediately demandable, public interest
demands that we take a more liberal view in determining whether the petitioners suing
as legislators, taxpayers and citizens have locus standi to file the instant petition. In
Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this
Court on locus standi, ordinary taxpayers, members of Congress, and even association
of planters, and non-profit civic organizations were allowed to initiate and prosecute
actions before this Court to question the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government agencies or instrumentalities."16
Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained."17 As such ". . . even if, strictly
speaking, they [the petitioners] are not covered by the definition, it is still within the wide
discretion of the Court to waive the requirement and so remove the impediment to its
addressing and resolving the serious constitutional questions raised."18 In view of the
serious legal questions involved and their impact on public interest, we resolve to grant
standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the
instant cases as factual issues are involved which this Court is ill-equipped to resolve.
Moreover, PIATCO alleges that submission of this controversy to this Court at the first
instance is a violation of the rule on hierarchy of courts. They contend that trial courts
have concurrent jurisdiction with this Court with respect to a special civil action for
prohibition and hence, following the rule on hierarchy of courts, resort must first be had
before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the
view that the crux of the instant controversy involves significant legal questions. The
facts necessary to resolve these legal questions are well established and, hence, need
not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming
jurisdiction over the cases at bar. The said rule may be relaxed when the redress
desired cannot be obtained in the appropriate courts or where exceptional and
compelling circumstances justify availment of a remedy within and calling for the
exercise of this Court's primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for
the relaxation of the rule. Both petitioners and respondents agree that these cases are
of transcendental importance as they involve the construction and operation of the
country's premier international airport. Moreover, the crucial issues submitted for
resolution are of first impression and they entail the proper legal interpretation of key
provisions of the Constitution, the BOT Law and its Implementing Rules and
Regulations. Thus, considering the nature of the controversy before the Court,
procedural bars may be lowered to give way for the speedy disposition of the instant
cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware
that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at
the instance of respondent PIATCO. Again, we hold that the arbitration step taken by
PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the
arbitration clause in the Distributorship Agreement in question is valid and the dispute
between the parties is arbitrable, this Court affirmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as contracts produce legal effect between the
parties, their assigns and heirs, only the parties to the Distributorship Agreement are
bound by its terms, including the arbitration clause stipulated therein. This Court ruled
that arbitration proceedings could be called for but only with respect to the parties to the
contract in question. Considering that there are parties to the case who are neither
parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this
Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to
tolerate the splitting of proceedings by allowing arbitration as to some of the parties on
the one hand and trial for the others on the other hand would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we ruled that
the interest of justice would best be served if the trial court hears and adjudicates the
case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate
interests in the resolution of the controversy are not parties to the PIATCO Contracts.
Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA
and hence, cannot be compelled to submit to arbitration proceedings. A speedy and
decisive resolution of all the critical issues in the present controversy, including those
raised by petitioners, cannot be made before an arbitral tribunal. The object of
arbitration is precisely to allow an expeditious determination of a dispute. This objective
would not be met if this Court were to allow the parties to settle the cases by arbitration
as there are certain issues involving non-parties to the PIATCO Contracts which the
arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was
not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the
Paircargo Consortium failed to meet the financial capability required under the BOT Law
and the Bid Documents. They allege that in computing the ability of the Paircargo
Consortium to meet the minimum equity requirements for the project, the entire net
worth of Security Bank, a member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October
14, 1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to
meet the equity requirements of the project. The said Memorandum was in response to
a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the
financial capability of the Paircargo Consortium on the ground that it does not have the
financial resources to put up the required minimum equity of P2,700,000,000.00. This
contention is based on the restriction under R.A. No. 337, as amended or the General
Banking Act that a commercial bank cannot invest in any single enterprise in an amount
more than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial
capability will be evaluated based on total financial capability of all the member
companies of the [Paircargo] Consortium. In this connection, the Challenger was found
to have a combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a
requirement now will be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3, financial capability may also be established by
testimonial letters issued by reputable banks. The Challenger has complied with this
requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the
amount of the money to be used to answer the required thirty percent (30%) equity of
the challenger but rather to be used in establishing if there is enough basis to believe
that the challenger can comply with the required 30% equity. In fact, proof of sufficient
equity is required as one of the conditions for award of contract (Section 12.1 IRR of the
BOT Law) but not for pre-qualification (Section 5.4 of the same document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract
shall be awarded to the bidder "who, having satisfied the minimum financial, technical,
organizational and legal standards" required by the law, has submitted the lowest bid
and most favorable terms of the project.24 Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
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c. Financial Capability: The project proponent must have adequate capability to sustain
the financing requirements for the detailed engineering design, construction and/or
operation and maintenance phases of the project, as the case may be. For purposes of
pre-qualification, this capability shall be measured in terms of (i) proof of the ability of
the project proponent and/or the consortium to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent and/or members of the consortium are banking with them, that they are in
good financial standing, and that they have adequate resources. The government
agency/LGU concerned shall determine on a project-to-project basis and before prequalification, the minimum amount of equity needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996
amending the financial capability requirements for pre-qualification of the project
proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the
minimum technical and financial requirements provided in the Bid Documents and in the
IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which the proponent's financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty percent
(20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the
required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession
agreement. The debt portion of the project financing should not exceed 70% of the
actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any
challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of 30% of
the project cost through (i) proof of the ability to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the
PBAC that it had the ability to provide the minimum equity for the project in the amount
of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a
net worth of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial
Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its
equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show
that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount
of its net worth could not be invested in a single undertaking or enterprise, whether
allied or non-allied in accordance with the provisions of R.A. No. 337, as amended or
the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the
Monetary Board, whenever it shall deem appropriate and necessary to further national
development objectives or support national priority projects, may authorize a
commercial bank, a bank authorized to provide commercial banking services, as well as
a government-owned and controlled bank, to operate under an expanded commercial
banking authority and by virtue thereof exercise, in addition to powers authorized for
commercial banks, the powers of an Investment House as provided in Presidential
Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all
of the equity in a financial intermediary other than a commercial bank or a bank
authorized to provide commercial banking services: Provided, That (a) the total
investment in equities shall not exceed fifty percent (50%) of the net worth of the bank;
(b) the equity investment in any one enterprise whether allied or non-allied shall not
exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment of
the bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking
shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the equity
investment in other banks shall be deducted from the investing bank's net worth for
purposes of computing the prescribed ratio of net worth to risk assets.
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Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. — The following limitations and
restrictions shall also apply regarding equity investments of banks.
a. In any single enterprise. — The equity investments of banks in any single enterprise
shall not exceed at any time fifteen percent (15%) of the net worth of the investing bank
as defined in Sec. X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo
Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total
net worth therefore of the Paircargo Consortium, after considering the maximum
amounts that may be validly invested by each of its members is P558,384,871.55 or
only 6.08% of the project cost,29 an amount substantially less than the prescribed
minimum equity investment required for the project in the amount of P2,755,095,000.00
or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest
opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's financial capacity at the pre-qualification stage, the law requires the
government agency to examine and determine the ability of the bidder to fund the entire
cost of the project by considering the maximum amounts that each bidder may invest in
the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation
and maintenance of the NAIA IPT III project should prove that it has the ability to
provide equity in the minimum amount of 30% of the project cost, in accordance with the
70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of
Paircargo Consortium, the PBAC should determine the maximum amounts that each
member of the consortium may commit for the construction, operation and maintenance
of the NAIA IPT III project at the time of pre-qualification. With respect to Security Bank,
the maximum amount which may be invested by it would only be 15% of its net worth in
view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of
whether or not a bidder is pre-qualified to undertake the project as for all intents and
purposes, such ceiling or legal restriction determines the true maximum amount which a
bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the
project requires an evaluation of the financial capacity of the said bidder at the time the
bid is submitted based on the required documents presented by the bidder. The PBAC
should not be allowed to speculate on the future financial ability of the bidder to
undertake the project on the basis of documents submitted. This would open doors to
abuse and defeat the very purpose of a public bidding. This is especially true in the
case at bar which involves the investment of billions of pesos by the project proponent.
The relevant government authority is duty-bound to ensure that the awardee of the
contract possesses the minimum required financial capability to complete the project. To
allow the PBAC to estimate the bidder's future financial capability would not secure the
viability and integrity of the project. A restrictive and conservative application of the rules
and procedures of public bidding is necessary not only to protect the impartiality and
regularity of the proceedings but also to ensure the financial and technical reliability of
the project. It has been held that:
The basic rule in public bidding is that bids should be evaluated based on the required
documents submitted before and not after the opening of bids. Otherwise, the
foundation of a fair and competitive public bidding would be defeated. Strict observance
of the rules, regulations, and guidelines of the bidding process is the only safeguard to a
fair, honest and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the
time the bids are submitted falls short of the minimum amounts required to be put up by
the bidder, said bidder should be properly disqualified. Considering that at the prequalification stage, the maximum amounts which the Paircargo Consortium may invest
in the project fell short of the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the
PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy,
as the legal effects of the disqualification of respondent PIATCO's predecessor would
come into play and necessarily result in the nullity of all the subsequent contracts
entered by it in pursuance of the project, the Court feels that it is necessary to discuss in
full the pressing issues of the present controversy for a complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is
invalid as it contains provisions that substantially depart from the draft Concession
Agreement included in the Bid Documents. They maintain that a substantial departure
from the draft Concession Agreement is a violation of public policy and renders the 1997
Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid
Documents is intended to be a draft, i.e., subject to change, alteration or modification,
and that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It
argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued
by the PBAC which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the preparation
of the proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public
the best possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law,
competition requires, not only `bidding upon a common standard, a common basis,
upon the same thing, the same subject matter, the same undertaking,' but also that it be
legitimate, fair and honest; and not designed to injure or defraud the government.31
An essential element of a publicly bidded contract is that all bidders must be on equal
footing. Not simply in terms of application of the procedural rules and regulations
imposed by the relevant government agency, but more importantly, on the contract
bidded upon. Each bidder must be able to bid on the same thing. The rationale is
obvious. If the winning bidder is allowed to later include or modify certain provisions in
the contract awarded such that the contract is altered in any material respect, then the
essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded, the winning bidder may modify the
contract and include provisions which are favorable to it that were not previously made
available to the other bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders.
The specifications in such biddings provide the common ground or basis for the bidders.
The specifications should, accordingly, operate equally or indiscriminately upon all
bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a
contract for public work to the lowest responsible bidder, the proposals and
specifications therefore must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing substantial provisions
beneficial to him, not included or contemplated in the terms and specifications upon
which the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the
draft concession agreement is subject to amendment, the pertinent portion of which was
quoted above, the PBAC also clarified that "[s]aid amendments shall only cover items
that would not materially affect the preparation of the proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or amending
certain provisions of the contract bidded upon, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the opportunity to bid on
the same terms. Hence, the determination of whether or not a modification or
amendment of a contract bidded out constitutes a substantial amendment rests on
whether the contract, when taken as a whole, would contain substantially different terms
and conditions that would have the effect of altering the technical and/or financial
proposals previously submitted by other bidders. The alterations and modifications in
the contract executed between the government and the winning bidder must be such as
to render such executed contract to be an entirely different contract from the one that
was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted
with approval the ruling of the trial court that an amendment to a contract awarded
through public bidding, when such subsequent amendment was made without a new
public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution
of a contract after public bidding is a limitation upon the right of the contracting parties to
alter or amend it without another public bidding, for otherwise what would a public
bidding be good for if after the execution of a contract after public bidding, the
contracting parties may alter or amend the contract, or even cancel it, at their will?
Public biddings are held for the protection of the public, and to give the public the best
possible advantages by means of open competition between the bidders. He who bids
or offers the best terms is awarded the contract subject of the bid, and it is obvious that
such protection and best possible advantages to the public will disappear if the parties
to a contract executed after public bidding may alter or amend it without another
previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the
same agreement that was offered for public bidding, i.e., the draft Concession
Agreement attached to the Bid Documents? A close comparison of the draft Concession
Agreement attached to the Bid Documents and the 1997 Concession Agreement
reveals that the documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession
Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two years in
accordance with a prescribed parametric formula and adjustments are made effective
only upon written approval by MIAA; (2) fees other than those included in the first
category which maybe adjusted by PIATCO whenever it deems necessary without need
for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by
PIATCO which have not been previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, pursuant to Administrative Order No. 1,
Series of 1993, as amended. The glaring distinctions between the draft Concession
Agreement and the 1997 Concession Agreement lie in the types of fees included in
each category and the extent of the supervision and regulation which MIAA is allowed to
exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in
accordance with a prescribed parametric formula and effective only upon written
approval by MIAA, the draft Concession Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and
effective upon MIAA approval are classified as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best
appreciated in relation to fees included in the second category identified above. Under
the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems
necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues"
and is defined as "all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex."38 Thus, under the 1997
Concession Agreement, ground handling fees, rentals from airline offices and porterage
fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right
to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that
may be imposed by PIATCO. Such regulation may be made by periodic adjustment and
is effective only upon written approval of MIAA. The full text of said provision is quoted
below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices,
check-in-counter rentals and porterage fees shall be allowed only once every two years
and in accordance with the Parametric Formula attached hereto as Annex F. Provided
that adjustments shall be made effective only after the written express approval of the
MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on the
conformity of the adjustments with the above said parametric formula. The first
adjustment shall be made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the
lobby and vehicular parking fees and other new fees and charges as contemplated in
paragraph 2 of Section 6.01 if in its judgment the users of the airport shall be deprived
of a free option for the services they cover.39
On the other hand, the equivalent provision under the 1997 Concession Agreement
reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
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(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting
Non-Public Utility Revenues in order to ensure that End Users are not unreasonably
deprived of services. While the vehicular parking fee, porterage fee and greeter/well
wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may
intervene and require Concessionaire to explain and justify the fee it may set from time
to time, if in the reasonable opinion of GRP the said fees have become exorbitant
resulting in the unreasonable deprivation of End Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee,
(2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require
PIATCO to explain and justify the fees set by PIATCO. In the draft Concession
Agreement, vehicular parking fee is subject to MIAA regulation and approval under the
second paragraph of Section 6.03 thereof while porterage fee is covered by the first
paragraph of the same provision. There is an obvious relaxation of the extent of control
and regulation by MIAA with respect to the particular fees that may be charged by
PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected
by PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not
been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has
reserved the right to regulate the same under the same conditions that MIAA may
regulate fees under the first category, i.e., periodic adjustment of once every two years
in accordance with a prescribed parametric formula and effective only upon written
approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees
under the third category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this
was included within the category of "Public Utility Revenues" under the 1997
Concession Agreement. This classification is significant because under the 1997
Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment"
of fees upon the occurrence of certain extraordinary events specified in the
agreement.42 However, under the draft Concession Agreement, terminal fees are not
included in the types of fees that may be subject to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except
terminal fees, are denominated in US Dollars44 while payments to the Government are
in Philippine Pesos. In the draft Concession Agreement, no such stipulation was
included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US
Dollars while payments by PIATCO to the Government are in Philippine currency under
the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations
of the Philippine Peso, while being effectively insulated from the detrimental effects of
exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with
respect to reduction in the types of fees that are subject to MIAA regulation and the
relaxation of such regulation with respect to other fees are significant amendments that
substantially distinguish the draft Concession Agreement from the 1997 Concession
Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO
more favorable terms than what was available to other bidders at the time the contract
was bidded out. It is not very difficult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial advantages for PIATCO which were
not available at the time the contract was offered for bidding. It cannot be denied that
under the 1997 Concession Agreement only "Public Utility Revenues" are subject to
MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are
entirely within its control. Moreover, with respect to terminal fees, under the 1997
Concession Agreement, the same is further subject to "Interim Adjustments" not
previously stipulated in the draft Concession Agreement. Finally, the change in the
currency stipulated for "Public Utility Revenues" under the 1997 Concession Agreement,
except terminal fees, gives PIATCO an added benefit which was not available at the
time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to
creditors who have provided, loaned or advanced funds for the NAIA IPT III project does
not result in the assumption by the Government of these liabilities. In fact, nowhere in
the said contract does default of PIATCO's loans figure in the agreement. Such default
does not directly result in any concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
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(b) In the event Concessionaire should default in the payment of an Attendant Liability,
and the default has resulted in the acceleration of the payment due date of the
Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and
assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be
substituted as concessionaire and operator of the Development Facility in accordance
with the terms and conditions hereof, or designate a qualified operator acceptable to
GRP to operate the Development Facility, likewise under the terms and conditions of
this Agreement; Provided that if at the end of the 180-day period GRP shall not have
served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall
be deemed to have elected to take over the Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to
take over the operation of the Development Facility. If the concession company should
elect to designate an operator for the Development Facility, the concession company
shall in good faith identify and designate a qualified operator acceptable to GRP within
one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period
take over the Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
the books of the Concessionaire as owing to Unpaid Creditors who have provided,
loaned or advanced funds actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to its suppliers,
contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of
"Attendant Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III
project triggers the occurrence of certain events that leads to the assumption by the
Government of the liability for the loans. Only in one instance may the Government
escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and
allows a qualified operator to take over as Concessionaire. However, this circumstance
is dependent on the existence and availability of a qualified operator who is willing to
take over the rights and obligations of PIATCO under the contract, a circumstance that
is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that
Section 4.04 of the 1997 Concession Agreement may be considered a form of security
for the loans PIATCO has obtained to finance the project, an option that was not made
available in the draft Concession Agreement. Section 4.04 is an important amendment
to the 1997 Concession Agreement because it grants PIATCO a financial advantage or
benefit which was not previously made available during the bidding process. This
financial advantage is a significant modification that translates to better terms and
conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that
the draft Concession Agreement is subject to amendment because the Bid Documents
permit financing or borrowing. They claim that it was the lenders who proposed the
amendments to the draft Concession Agreement which resulted in the 1997 Concession
Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to
allow the project proponent or the winning bidder to obtain financing for the project,
especially in this case which involves the construction, operation and maintenance of
the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings
therein would involve a substantial amount of investment. It is therefore inevitable for
the awardee of the contract to seek alternate sources of funds to support the project. Be
that as it may, this Court maintains that amendments to the contract bidded upon should
always conform to the general policy on public bidding if such procedure is to be faithful
to its real nature and purpose. By its very nature and characteristic, competitive public
bidding aims to protect the public interest by giving the public the best possible
advantages through open competition.45 It has been held that the three principles in
public bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a
basis for the exact comparison of bids. A regulation of the matter which excludes any of
these factors destroys the distinctive character of the system and thwarts the purpose of
its adoption.46 These are the basic parameters which every awardee of a contract
bidded out must conform to, requirements of financing and borrowing notwithstanding.
Thus, upon a concrete showing that, as in this case, the contract signed by the
government and the contract-awardee is an entirely different contract from the contract
bidded, courts should not hesitate to strike down said contract in its entirety for violation
of public policy on public bidding. A strict adherence on the principles, rules and
regulations on public bidding must be sustained if only to preserve the integrity and the
faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public
service and for furnishing supplies and other materials. It aims to secure for the
government the lowest possible price under the most favorable terms and conditions, to
curtail favoritism in the award of government contracts and avoid suspicion of anomalies
and it places all bidders in equal footing.47 Any government action which permits any
substantial variance between the conditions under which the bids are invited and the
contract executed after the award thereof is a grave abuse of discretion amounting to
lack or excess of jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments
were made on the 1997 Concession Agreement renders the same null and void for
being contrary to public policy. These amendments convert the 1997 Concession
Agreement to an entirely different agreement from the contract bidded out or the draft
Concession Agreement. It is not difficult to see that the amendments on (1) the types of
fees or charges that are subject to MIAA regulation or control and the extent thereof and
(2) the assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that were
previously not available during the bidding process. These amendments cannot be
taken as merely supplements to or implementing provisions of those already existing in
the draft Concession Agreement. The amendments discussed above present new terms
and conditions which provide financial benefit to PIATCO which may have altered the
technical and financial parameters of other bidders had they known that such terms
were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession
Agreement provides:
Section 4.04 Assignment
xxx
xxx
xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability,
and the default resulted in the acceleration of the payment due date of the Attendant
Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire
shall immediately inform GRP in writing of such default. GRP shall within one hundred
eighty (180) days from receipt of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as
concessionaire and operator of the Development facility in accordance with the terms
and conditions hereof, or designate a qualified operator acceptable to GRP to operate
the Development Facility, likewise under the terms and conditions of this Agreement;
Provided, that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have
elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to
takeover the operation of the Development Facility. If the concession company should
elect to designate an operator for the Development Facility, the concession company
shall in good faith identify and designate a qualified operator acceptable to GRP within
one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period
take over the Development Facility and assume Attendant Liabilities.
….
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
the books of the Concessionaire as owing to Unpaid Creditors who have provided,
loaned or advanced funds actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to its suppliers,
contractors and sub-contractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to pay "all amounts recorded and from time
to time outstanding from the books" of PIATCO which the latter owes to its creditors.49
These amounts include "all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses."50 This obligation of the
Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's
creditors should the latter be unable to designate a qualified operator within the
prescribed period.51 In effect, whatever option the Government chooses to take in the
event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of
assuming PIATCO's outstanding loans. This is due to the fact that the Government
would only be free from assuming PIATCO's debts if the unpaid creditors would be able
to designate a qualified operator within the period provided for in the contract. Thus, the
Government's assumption of liability is virtually out of its control. The Government under
the circumstances provided for in the 1997 Concession Agreement is at the mercy of
the existence, availability and willingness of a qualified operator. The above contractual
provisions constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government
funds to construct the infrastructure and development projects necessary for economic
growth and development. This is why private sector resources are being tapped in order
to finance these projects. The BOT law allows the private sector to participate, and is in
fact encouraged to do so by way of incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to unnecessarily expend
scarcely available funds for the project itself. As such, direct guarantee, subsidy and
equity by the government in these projects are strictly prohibited.53 This is but logical
for if the government would in the end still be at a risk of paying the debts incurred by
the private entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee — An agreement whereby the government or any of its
agencies or local government units assume responsibility for the repayment of debt
directly incurred by the project proponent in implementing the project in case of a loan
default.
Clearly by providing that the Government "assumes" the attendant liabilities, which
consists of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a
direct government guarantee for the debts incurred by PIATCO in the implementation of
the NAIA IPT III project. It is of no moment that the relevant sections are subsumed
under the title of "assignment". The provisions providing for direct government
guarantee which is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this
fatal defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA
provides:
Section 4.04 Security
xxx
xxx
xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and
enter into direct agreement with the Senior Lenders, or with an agent of such Senior
Lenders (which agreement shall be subject to the approval of the Bangko Sentral ng
Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior
Lenders, with regard, inter alia, to the following parameters:
xxx
xxx
xxx
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the
Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of
the same, and without prejudice to any other rights of the Senior Lenders or any Senior
Lenders' agent may have (including without limitation under security interests granted in
favor of the Senior Lenders), to either in good faith identify and designate a nominee
which is qualified under sub-clause (viii)(y) below to operate the Development Facility
[NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations
under this Agreement to a transferee which is qualified under sub-clause (viii) below;
xxx
xxx
xxx
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable
to designate a nominee or effect a transfer in terms and conditions satisfactory to the
Senior Lenders within one hundred eighty (180) days after giving GRP notice as
referred to respectively in (iv) or (v) above, then GRP and the Senior Lenders shall
endeavor in good faith to enter into any other arrangement relating to the Development
Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA
Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement
relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the
Senior Lenders within the said 180-day period, then at the end thereof the Development
Facility [NAIA Terminal 3] shall be transferred by the Concessionaire [PIATCO] to GRP
or its designee and GRP shall make a termination payment to Concessionaire [PIATCO]
equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA
Terminal 3] or the sum of the Attendant Liabilities, if greater. Notwithstanding Section
8.01(c) hereof, this Agreement shall be deemed terminated upon the transfer of the
Development Facility [NAIA Terminal 3] to GRP pursuant hereto;
xxx
xxx
xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence
from time to time owed or which may become owing by Concessionaire [PIATCO] to
Senior Lenders or any other persons or entities who have provided, loaned, or
advanced funds or provided financial facilities to Concessionaire [PIATCO] for the
Project [NAIA Terminal 3], including, without limitation, all principal, interest, associated
fees, charges, reimbursements, and other related expenses (including the fees, charges
and expenses of any agents or trustees of such persons or entities), whether payable at
maturity, by acceleration or otherwise, and further including amounts owed by
Concessionaire [PIATCO] to its professional consultants and advisers, suppliers,
contractors and sub-contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to
fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly
negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders,
should the latter fail to appoint a qualified nominee or transferee who will take the place
of PIATCO. If the Senior Lenders and the Government are unable to enter into an
agreement after the prescribed period, the Government must then pay PIATCO, upon
transfer of NAIA IPT III to the Government, termination payment equal to the appraised
value of the project or the value of the attendant liabilities whichever is greater.
Attendant liabilities as defined in the ARCA includes all amounts owed or thereafter may
be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in
its loan obligations but to all other persons who may have loaned, advanced funds or
provided any other type of financial facilities to PIATCO for NAIA IPT III. The amount of
PIATCO's debt that the Government would have to pay as a result of PIATCO's default
in its loan obligations -- in case no qualified nominee or transferee is appointed by the
Senior Lenders and no other agreement relating to NAIA IPT III has been reached
between the Government and the Senior Lenders -- includes, but is not limited to, "all
principal, interest, associated fees, charges, reimbursements, and other related
expenses . . . whether payable at maturity, by acceleration or otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCO's loans not only to its Senior Lenders but all other entities
who provided PIATCO funds or services upon PIATCO's default in its loan obligation
with its Senior Lenders. The fact that the Government's obligation to pay PIATCO's
lenders for the latter's obligation would only arise after the Senior Lenders fail to appoint
a qualified nominee or transferee does not detract from the fact that, should the
conditions as stated in the contract occur, the ARCA still obligates the Government to
pay any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III.
Worse, the conditions that would make the Government liable for PIATCO's debts is
triggered by PIATCO's own default of its loan obligations to its Senior Lenders to which
loan contracts the Government was never a party to. The Government was not even
given an option as to what course of action it should take in case PIATCO defaulted in
the payment of its senior loans. The Government, upon PIATCO's default, would be
merely notified by the Senior Lenders of the same and it is the Senior Lenders who are
authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail
to make such an appointment, the Government is then automatically obligated to
"directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only
way the Government would not be liable for PIATCO's debt is for a qualified nominee or
transferee to be appointed in place of PIATCO to continue the construction, operation
and maintenance of NAIA IPT III. This "pre-condition", however, will not take the
contract out of the ambit of a direct guarantee by the government as the existence,
availability and willingness of a qualified nominee or transferee is totally out of the
government's control. As such the Government is virtually at the mercy of PIATCO (that
it would not default on its loan obligations to its Senior Lenders), the Senior Lenders
(that they would appoint a qualified nominee or transferee or agree to some other
arrangement with the Government) and the existence of a qualified nominee or
transferee who is able and willing to take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates
the Government to pay for all loans, advances and obligations arising out of financial
facilities extended to PIATCO for the implementation of the NAIA IPT III project should
PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint
a qualified nominee or transferee. This in effect would make the Government liable for
PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form of
direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited
proposal for a BOT project may be accepted, the following conditions must first be met:
(1) the project involves a new concept in technology and/or is not part of the list of
priority projects, (2) no direct government guarantee, subsidy or equity is required, and
(3) the government agency or local government unit has invited by publication other
interested parties to a public bidding and conducted the same.56 The failure to meet
any of the above conditions will result in the denial of the proposal. It is further provided
that the presence of direct government guarantee, subsidy or equity will "necessarily
disqualify a proposal from being treated and accepted as an unsolicited proposal."57
The BOT Law clearly and strictly prohibits direct government guarantee, subsidy and
equity in unsolicited proposals that the mere inclusion of a provision to that effect is fatal
and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can
be denied by reason of the existence of direct government guarantee, then its inclusion
in the contract executed after the said proposal has been accepted is likewise sufficient
to invalidate the contract itself. A prohibited provision, the inclusion of which would result
in the denial of a proposal cannot, and should not, be allowed to later on be inserted in
the contract resulting from the said proposal. The basic rules of justice and fair play
alone militate against such an occurrence and must not, therefore, be countenanced
particularly in this instance where the government is exposed to the risk of shouldering
hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot
be done directly cannot be done indirectly.58 To declare the PIATCO contracts valid
despite the clear statutory prohibition against a direct government guarantee would not
only make a mockery of what the BOT Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of
loan between the project proponent and its lenders and to which the Government is not
a party to -- but would also render the BOT Law useless for what it seeks to achieve –to make use of the resources of the private sector in the "financing, operation and
maintenance of infrastructure and development projects"59 which are necessary for
national growth and development but which the government, unfortunately, could illafford to finance at this point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the
State may, during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public utility or
business affected with public interest.
The above provision pertains to the right of the State in times of national emergency,
and in the exercise of its police power, to temporarily take over the operation of any
business affected with public interest. In the 1986 Constitutional Commission, the term
"national emergency" was defined to include threat from external aggression, calamities
or national disasters, but not strikes "unless it is of such proportion that would paralyze
government service."60 The duration of the emergency itself is the determining factor as
to how long the temporary takeover by the government would last.61 The temporary
takeover by the government extends only to the operation of the business and not to the
ownership thereof. As such the government is not required to compensate the private
entity-owner of the said business as there is no transfer of ownership, whether
permanent or temporary. The private entity-owner affected by the temporary takeover
cannot, likewise, claim just compensation for the use of the said business and its
properties as the temporary takeover by the government is in exercise of its police
power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
….
(c) In the event the development Facility or any part thereof and/or the operations of
Concessionaire or any part thereof, become the subject matter of or be included in any
notice, notification, or declaration concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national emergency, GRP shall, by written
notice to Concessionaire, immediately take over the operations of the Terminal and/or
the Terminal Complex. During such take over by GRP, the Concession Period shall be
suspended; provided, that upon termination of war, hostilities or national emergency, the
operations shall be returned to Concessionaire, at which time, the Concession period
shall commence to run again. Concessionaire shall be entitled to reasonable
compensation for the duration of the temporary take over by GRP, which compensation
shall take into account the reasonable cost for the use of the Terminal and/or Terminal
Complex, (which is in the amount at least equal to the debt service requirements of
Concessionaire, if the temporary take over should occur at the time when
Concessionaire is still servicing debts owed to project lenders), any loss or damage to
the Development Facility, and other consequential damages. If the parties cannot agree
on the reasonable compensation of Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration].
Any amount determined to be payable by GRP to Concessionaire shall be offset from
the amount next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision
on temporary government takeover and obligate the government to pay "reasonable
cost for the use of the Terminal and/or Terminal Complex."63 Article XII, section 17 of
the 1987 Constitution envisions a situation wherein the exigencies of the times
necessitate the government to "temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest." It is the welfare
and interest of the public which is the paramount consideration in determining whether
or not to temporarily take over a particular business. Clearly, the State in effecting the
temporary takeover is exercising its police power. Police power is the "most essential,
insistent, and illimitable of powers."64 Its exercise therefore must not be unreasonably
hampered nor its exercise be a source of obligation by the government in the absence
of damage due to arbitrariness of its exercise.65 Thus, requiring the government to pay
reasonable compensation for the reasonable use of the property pursuant to the
operation of the business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or
companies, consisting in the exclusive right (or power) to carry on a particular business
or trade, manufacture a particular article, or control the sale of a particular
commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or
public, and even provides for their prohibition if public interest so requires. Article XII,
Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted
to exist to aid the government in carrying on an enterprise or to aid in the performance
of various services and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are
subject to a higher level of State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is
granted the "exclusive right to operate a commercial international passenger terminal
within the Island of Luzon" at the NAIA IPT III.68 This is with the exception of already
existing international airports in Luzon such as those located in the Subic Bay Freeport
Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in
Laoag City.69 As such, upon commencement of PIATCO's operation of NAIA IPT III,
Terminals 1 and 2 of NAIA would cease to function as international passenger terminals.
This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger
terminals or in any other manner as it may deem appropriate except those activities that
would compete with NAIA IPT III in the latter's operation as an international passenger
terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for
a period of twenty-five (25) years from the In-Service Date71 and renewable for another
twenty-five (25) years at the option of the government.72 Both the 1997 Concession
Agreement and the ARCA further provide that, in view of the exclusive right granted to
PIATCO, the concession contracts of the service providers currently servicing Terminals
1 and 2 would no longer be renewed and those concession contracts whose expiration
are subsequent to the In-Service Date would cease to be effective on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking
imbued with public interest. In entering into a Build–Operate-and-Transfer contract for
the construction, operation and maintenance of NAIA IPT III, the government has
determined that public interest would be served better if private sector resources were
used in its construction and an exclusive right to operate be granted to the private entity
undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government through
the MIAA, which is the government agency authorized to operate the NAIA complex, as
well as DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not
prohibited must be regulated.75 While it is the declared policy of the BOT Law to
encourage private sector participation by "providing a climate of minimum government
regulations,"76 the same does not mean that Government must completely surrender its
sovereign power to protect public interest in the operation of a public utility as a
monopoly. The operation of said public utility can not be done in an arbitrary manner to
the detriment of the public which it seeks to serve. The right granted to the public utility
may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may
be authorized to exclusively operate NAIA IPT III as an international passenger terminal,
the Government, through the MIAA, has the right and the duty to ensure that it is done
in accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate
the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx
xxx
xxx
(e) GRP confirms that certain concession agreements relative to certain services and
operations currently being undertaken at the Ninoy Aquino International Airport
passenger Terminal I have a validity period extending beyond the In-Service Date. GRP
through DOTC/MIAA, confirms that these services and operations shall not be carried
over to the Terminal and the Concessionaire is under no legal obligation to permit such
carry-over except through a separate agreement duly entered into with Concessionaire.
In the event Concessionaire becomes involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and
harmless on full indemnity basis from and against any loss and/or any liability resulting
from any such litigation, including the cost of litigation and the reasonable fees paid or
payable to Concessionaire's counsel of choice, all such amounts shall be fully
deductible by way of an offset from any amount which the Concessionaire is bound to
pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-inintervention for G.R. No. 155001 stated that there are two service providers whose
contracts are still existing and whose validity extends beyond the In-Service Date. One
contract remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not
have an absolute right for the renewal or the extension of their respective contracts,
those contracts whose duration extends beyond NAIA IPT III's In-Service-Date should
not be unduly prejudiced. These contracts must be respected not just by the parties
thereto but also by third parties. PIATCO cannot, by law and certainly not by contract,
render a valid and binding contract nugatory. PIATCO, by the mere expedient of
claiming an exclusive right to operate, cannot require the Government to break its
contractual obligations to the service providers. In contrast to the arrastre and
stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro78
whose contracts consist of temporary hold-over permits, the affected service providers
in the cases at bar, have a valid and binding contract with the Government, through
MIAA, whose period of effectivity, as well as the other terms and conditions thereof,
cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The
provisions of the 1997 Concession Agreement and the ARCA did not strip government,
thru the MIAA, of its right to supervise the operation of the whole NAIA complex,
including NAIA IPT III. As the primary government agency tasked with the job,79 it is
MIAA's responsibility to ensure that whoever by contract is given the right to operate
NAIA IPT III will do so within the bounds of the law and with due regard to the rights of
third parties and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of
the Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC
of the contract for the construction, operation and maintenance of the NAIA IPT III is null
and void. Further, considering that the 1997 Concession Agreement contains material
and substantial amendments, which amendments had the effect of converting the 1997
Concession Agreement into an entirely different agreement from the contract bidded
upon, the 1997 Concession Agreement is similarly null and void for being contrary to
public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of
the 1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the
ARCA, which constitute a direct government guarantee expressly prohibited by, among
others, the BOT Law and its Implementing Rules and Regulations are also null and
void. The Supplements, being accessory contracts to the ARCA, are likewise null and
void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated
Concession Agreement and the Supplements thereto are set aside for being null and
void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez,
Corona, and Carpio-Morales, JJ., concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he
concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.
SEPARATE OPINIONS
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides
that the Supreme Court shall exercise original jurisdiction over, among other actual
controversies, petitions for certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.1 The cases in question, although denominated to be petitions for prohibition,
actually pray for the nullification of the PIATCO contracts and to restrain respondents
from implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its
or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain, speedy and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered
commanding the respondent to desist from further proceedings in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and justice may
require."
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation,
board, officer or person, exercising judicial, quasi-judicial or ministerial functions. What
the petitions seek from respondents do not involve judicial, quasi-judicial or ministerial
functions. In prohibition, only legal issues affecting the jurisdiction of the tribunal, board
or officer involved may be resolved on the basis of undisputed facts.2 The parties
allege, respectively, contentious evidentiary facts. It would be difficult, if not anomalous,
to decide the jurisdictional issue on the basis of the contradictory factual submissions
made by the parties.3 As the Court has so often exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of
the Rules of Court. The Rules provide that any person interested under a contract may,
before breach or violation thereof, bring an action in the appropriate Regional Trial Court
to determine any question of construction or validity arising, and for a declaration of his
rights or duties thereunder.4 The Supreme Court assumes no jurisdiction over petitions
for declaratory relief which are cognizable by regional trial courts.5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs.
Guingona, Jr.7 , the Supreme Court should not be thought of as having been tasked
with the awesome responsibility of overseeing the entire bureaucracy. Pervasive and
limitless, such as it may seem to be under the 1987 Constitution, judicial power still
succumbs to the paramount doctrine of separation of powers. The Court may not at
good liberty intrude, in the guise of sovereign imprimatur, into every affair of
government. What significance can still then remain of the time-honored and widely
acclaimed principle of separation of powers if, at every turn, the Court allows itself to
pass upon at will the disposition of a co-equal, independent and coordinate branch in
our system of government. I dread to think of the so varied uncertainties that such an
undue interference can lead to.
Accordingly, I vote for the dismissal of the petition.
Quisumbing, and Azcuna, JJ., concur.
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International
Airport (NAIA) Terminal III, the subject of the consolidated Petitions before the Court,
are replete with outright violations of law, public policy and the Constitution. The only
proper thing to do is declare them all null and void ab initio and let the chips fall where
they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall
not burden the readers with a retelling thereof. Instead, I will cut to the chase and
directly address the two sets of gut issues:
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to
hear and decide the Petitions? Corollarily, do petitioners have locus standi and should
this Court decide the cases without any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the
Constitution, the laws, and public policy to such an extent as to render all of them void
and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental
importance and of national interest. The subject contracts pertain to the construction
and the operation of the country's premiere international airport terminal - an
ultramodern world-class public utility that will play a major role in the country's economic
development and serve to project a positive image of our country abroad. The five buildoperate-&-transfer (BOT) contracts, while entailing the investment of billions of pesos in
capital and the availment of several hundred millions of dollars in loans, contain
provisions that tend to establish a monopoly, require the disbursements of public funds
sans appropriations, and provide government guarantees in violation of statutory
prohibitions, as well as other provisions equally offensive to law, public policy and the
Constitution. Public interest will inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the
need for arbitration prior to court action, and (c) the alleged lack of sufficient personality,
standing or interest, being in the main procedural matters, must now be set aside, as
they have been in past cases. This Court must be permitted to perform its constitutional
duty of determining whether the other agencies of government have acted within the
limits of the Constitution and the laws, or if they have gravely abused the discretion
entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government
contracts ought to be settled without delay.2 This holding applies with greater force to
the instant cases. Respondent Piatco is partly correct in averring that petitioners can
obtain relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the
finality of any such judgment would be a prolonged state of uncertainty that would be
prejudicial to the nation, the parties and the general public. And, in light of the feared
loss of jobs of the petitioning workers, consequent to the inevitable pretermination of
contracts of the petitioning service providers that will follow upon the heels of the
impending opening of NAIA Terminal III, the need for relief is patently urgent, and
therefore, direct resort to this Court through the special civil action of prohibition is thus
justified.3
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will
require delving into factual questions,4 I submit that their disposition ultimately turns on
questions of law.5 Further, many of the significant and relevant factual questions can be
easily addressed by an examination of the documents submitted by the parties. In any
event, the Petitions raise some novel questions involving the application of the
amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent
Piatco claims that Section 10.02 of the Amended and Restated Concession Agreement
(ARCA) provides for arbitration under the auspices of the International Chamber of
Commerce to settle any dispute or controversy or claim arising in connection with the
Concession Agreement, its amendments and supplements. The government disagrees,
however, insisting that there can be no arbitration based on Section 10.02 of the ARCA,
since all the Piatco contracts are void ab initio. Therefore, all contractual provisions,
including Section 10.02 of the ARCA, are likewise void, inexistent and inoperative. To
support its stand, the government cites Chavez v. Presidential Commission on Good
Government:6 "The void agreement will not be rendered operative by the parties'
alleged performance (partial or full) of their respective prestations. A contract that
violates the Constitution and the law is null and void ab initio and vests no rights and
creates no obligations. It produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their entirety;
thus, a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners
and petitioners-in-intervention have pointed out that, even granting arguendo that the
arbitration clause remained a valid provision, it still cannot bind them inasmuch as they
are not parties to the Piatco contracts. And in the final analysis, it is unarguable that the
arbitration process provided for under Section 10.02 of the ARCA, to be undertaken by
a panel of three (3) arbitrators appointed in accordance with the Rules of Arbitration of
the International Chamber of Commerce, will not be able to address, determine and
definitively resolve the constitutional and legal questions that have been raised in the
Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously
doubt that, being taxpayers and members of the House of Representatives, Petitioners
Baterina et al. have locus standi to bring the Petition in GR No. 155547. In Albano v.
Reyes,7 this Court held that the petitioner therein, suing as a citizen, taxpayer and
member of the House of Representatives, was sufficiently clothed with standing to bring
the suit questioning the validity of the assailed contract. The Court cited the fact that
public interest was involved, in view of the important role of the Manila International
Container Terminal (MICT) in the country's economic development and the magnitude of
the financial consideration. This, notwithstanding the fact that expenditure of public
funds was not required under the assailed contract.
In the cases presently under consideration, petitioners' personal and substantial interest
in the controversy is shown by the fact that certain provisions in the Piatco contracts
create obligations on the part of government (through the DOTC and the MIAA) to
disburse public funds without prior congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are
adversely affected as taxpayers on account of the illegal disbursement of public funds;
and (2) they are prejudiced qua legislators, since the contractual provisions requiring
the government to incur expenditures without appropriations also operate as limitations
upon the exclusive power and prerogative of Congress over the public purse. As
members of the House of Representatives, they are actually deprived of discretion
insofar as the inclusion of those items of expenditure in the budget is concerned. To
prevent such encroachment upon the legislative privilege and obviate injury to the
institution of which they are members, petitioners-legislators have locus standi to bring
suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of
standing to challenge the illegal disbursement of public funds. Messrs. Agan et al., in
particular, are employees (or representatives of employees) of various service providers
that have (1) existing concession agreements with the MIAA to provide airport services
necessary to the operation of the NAIA and (2) service agreements to furnish essential
support services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners
(Messrs. Agan et al. and Messrs. Lopez et al.) are confronted with the prospect of being
laid off from their jobs and losing their means of livelihood when their employercompanies are forced to shut down or otherwise retrench and cut back on manpower.
Such development would result from the imminent implementation of certain provisions
in the contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.
Petitioners-in-intervention are service providers in the business of furnishing airportrelated services to international airlines and passengers in the NAIA and are therefore
competitors of Piatco as far as that line of business is concerned. On account of
provisions in the Piatco contracts, petitioners-in-intervention have to enter into a written
contract with Piatco so as not to be shut out of NAIA Terminal III and barred from doing
business there. Since there is no provision to ensure or safeguard free and fair
competition, they are literally at its mercy. They claim injury on account of their
deprivation of property (business) and of the liberty to contract, without due process of
law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with
legal standing, I have at the outset already established that, given its impact on the
public and on national interest, this controversy is laden with transcendental importance
and constitutional significance. Hence, I do not hesitate to adopt the same position as
was enunciated in Kilosbayan v. Guingona Jr.8 that "in cases of transcendental
importance, the Court may relax the standing requirements and allow a suit to prosper
even when there is no direct injury to the party claiming the right of judicial review."9
The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have
no doubt that, right at the outset, Piatco was not qualified to participate in the bidding
process for the Terminal III project, but was nevertheless permitted to do so. It even won
the bidding and was helped along by what appears to be a series of collusive and
corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes
under the category of an "unsolicited proposal," which is the subject of Section 4-A of
the BOT Law.10 The unsolicited proposal was originally submitted by the Asia's
Emerging Dragon Corporation (AEDC) to the Department of Transportation and
Communications (DOTC) and the Manila International Airport Authority (MIAA), which
reviewed and approved the proposal.
The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA
was endorsed to the National Economic Development Authority (NEDA-ICC), which in
turn reviewed it on the basis of its scope, economic viability, financial indicators and
risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the
negotiated Draft Concession Agreement, and published invitations for public bidding,
i.e., for the submission of comparative or competitive proposals. Piatco's predecessorin-interest, the Paircargo Consortium, was the only company that submitted a
competitive bid or price challenge.
At this point, I must emphasize that the law requires the award of a BOT project to the
bidder that has satisfied the minimum requirements; and met the technical, financial,
organizational and legal standards provided in the BOT Law. Section 5 of this statute
states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded
to the bidder who, having satisfied the minimum financial, technical, organizational and
legal standards required by this Act, has submitted the lowest bid and most favorable
terms for the project, based on the present value of its proposed tolls, fees, rentals and
charges over a fixed term for the facility to be constructed, rehabilitated, operated and
maintained according to the prescribed minimum design and performance standards,
plans and specifications. . . ." (Emphasis supplied.)
The same provision requires that the price challenge via public bidding "must be
conducted under a two-envelope/two-stage system: the first envelope to contain the
technical proposal and the second envelope to contain the financial proposal."
Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only those
bidders that have passed the prequalification stage are permitted to have their two
envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification
documents for evaluation; and only the pre-qualified bidders would be entitled to have
their bids opened, evaluated and appreciated. On the other hand, disqualified bidders
are to be informed of the reason for their disqualification. This procedure was confirmed
and reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will
be considered eligible to move to second stage technical proposal evaluation. The
second and third envelopes of pre-disqualified proponents will be returned."11
Aside from complying with the legal and technical requirements (track record or
experience of the firm and its key personnel), a project proponent desiring to prequalify
must also demonstrate its financial capacity to undertake the project. To establish such
capability, a proponent must prove that it is able to raise the minimum amount of equity
required for the project and to procure the loans or financing needed for it. Section
5.4(c) of the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must
comply with the following requirements:
xxx
xxx
xxx
"c. Financial Capability. The project proponent must have adequate capability to sustain
the financing requirements for the detailed engineering design, construction, and/or
operation and maintenance phases of the project, as the case may be. For purposes of
prequalification, this capability shall be measured in terms of: (i) proof of the ability of
the project proponent and/or the consortium to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent and/or members of the consortium are banking with them, that they are in
good financial standing, and that they have adequate resources. The government
Agency/LGU concerned shall determine on a project-to-project basis, and before
prequalification, the minimum amount of equity needed. . . . ." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent12 of the
minimum project cost of US$350 million, the minimum amount of equity required of any
proponent stood at US$105 million. Converted to pesos at the exchange rate then of
P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso
equivalent of the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55.13 This amount was only slightly over 6 percent of the minimum
project cost and very much short of the required minimum equity, which was equivalent
to 30 percent of the project cost. Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This matter was brought to the attention of
the Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal,
concurrent chair of the PBAC, declared in a Memorandum dated 14 October 1996 that
"the Challenger (Paircargo consortium) was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 billion." To
justify his conclusion, he asserted: "It is not a requirement that the networth must be
`unrestricted'. To impose this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should not be
taken as the amount of money to be used to answer the required thirty (30%) percent
equity of the challenger but rather to be used in establishing if there is enough basis to
believe that the challenger can comply with the required 30% equity. In fact, proof of
sufficient equity is required as one of the conditions for award of contract (Sec. 12.1 of
IRR of the BOT Law) but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was
deemed prequalified and thus permitted to proceed to the other stages of the bidding
process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's
findings in effect relieved the consortium of the need to comply with the financial
capability requirement imposed by the BOT Law and IRR. This position is unmistakably
and squarely at odds with the Supreme Court's consistent doctrine emphasizing the
strict application of pertinent rules, regulations and guidelines for the public bidding
process, in order to place each bidder - actual or potential - on the same footing. Thus,
it is unarguably irregular and contrary to the very concept of public bidding to permit a
variance between the conditions under which bids are invited and those under which
proposals are submitted and approved.
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to
the conditions that impose some duty upon it, that bidder is not contracting in fair
competition with those bidders that propose to be bound by all conditions. The essence
of public bidding is, after all, an opportunity for fair competition and a basis for the
precise comparison of bids.15 Thus, each bidder must bid under the same conditions;
and be subject to the same guidelines, requirements and limitations. The desired result
is to be able to determine the best offer or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent
to 30 percent of the minimum project cost, it should not have been prequalified or
allowed to participate further in the bidding. The Prequalification and Bidding Committee
(PBAC) should therefore not have opened the two envelopes of the consortium
containing its technical and financial proposals; required AEDC to match the
consortium's bid; 16 or awarded the Concession Agreement to the consortium's
successor-in-interest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding process having
been flawed and tainted from the very outset, therefore, the award of the concession to
Paircargo's successor Piatco was void, and the Concession Agreement executed with
the latter was likewise void ab initio. For this reason, Piatco cannot and should not be
allowed to benefit from that Agreement.17
AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for
purposes of matching the price challenge of Piatco, AEDC as originator of the
unsolicited proposal would be permitted access only to the schedule of proposed
Annual Guaranteed Payments submitted by Piatco, and not to the latter's financial and
technical proposals that constituted the basis for the price challenge in the first place.
This was supposedly in keeping with Section 11.6 of the 1994 IRR, which provides that
proprietary information is to be respected, protected and treated with utmost
confidentiality, and is therefore not to form part of the bidding/tender and related
documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned
provision. The "proprietary information" referred to in Section 11.6 of the IRR pertains
only to the proprietary information of the originator of an unsolicited proposal, and not to
those belonging to a challenger. The reason for the protection accorded proprietary
information at all is the fact that, according to Section 4-A of the BOT Law as amended,
a proposal qualifies as an "unsolicited proposal" when it pertains to a project that
involves "a new concept or technology", and/or a project that is not on the government's
list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the
possession of exclusive rights (worldwide or regional) over a process; or possession of
intellectual property rights over a design, methodology or engineering concept.18
Patently, the intent of the BOT Law is to encourage individuals and groups to come up
with creative innovations, fresh ideas and new technology. Hence, the significance and
necessity of protecting proprietary information in connection with unsolicited proposals.
And to make the encouragement real, the law also extends to such individuals and
groups what amounts to a "right of first refusal" to undertake the project they
conceptualized, involving the use of new technology or concepts, through the
mechanism of matching a price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived at
after studying economic, financial, technical and other, factors; it is likewise based on
certain assumptions as to the nature of the business, the market potentials, the
probable demand for the product or service, the future behavior of cost items, political
and other risks, and so on. It is thus self-evident that in order to be able to intelligently
match a bid or price challenge, a bidder must be given access to the assumptions and
the calculations that went into crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have provided
AEDC with the necessary information to enable it to make a reasonably informed
matching bid. To put it more simply, a bidder unable to access the competitor's
assumptions will never figure out how the competing bid came about; requiring him to
"counter-propose" is like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challenger's financial and technical proposals containing
the critical information it needed, Undersecretary Cal actually and effectively deprived
AEDC of the ability to match the price challenge. One could say that AEDC did not have
the benefit of a "level playing field." It seems to me, though, that AEDC was actually
shut out of the game altogether.
At the end of the day, the bottom line is that the validity and the propriety of the award to
Piatco had been irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame
within which the winner of the bidding (and therefore the prospective awardee) shall
submit the prescribed performance security, proof of commitment of equity
contributions, and indications of sources of financing (loans); and, in the case of joint
ventures, an agreement showing that the members are jointly and severally responsible
for the obligations of the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the
aforementioned requirements is not only to prevent delays in the project
implementation, but also to expose and weed out unqualified proponents, who might
have unceremoniously slipped through the earlier prequalification process, by
compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the actual
issuance of the Notice of Award, in order to give the favored proponent sufficient time to
comply with the requirements. Hence, to avert or minimize the manipulation of the post-
bidding process, the IRR not only set out the precise sequence of events occurring
between the completion of the evaluation of the technical bids and the issuance of the
Notice of Award, but also specified the timetables for each such event. Definite
allowable extensions of time were provided for, as were the consequences of a failure to
meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from
the time the second-stage evaluation shall have been completed, the Committee must
come to a decision whether or not to award the contract and, within 7 days therefrom,
the Notice of Award must be approved by the head of agency or local government unit
(LGU) concerned, and its issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving substantial
government undertakings as follows: Within 7 days after the decision to award is made,
the draft contract shall be submitted to the ICC for clearance on a no-objection basis. If
the draft contract includes government undertakings already previously approved, then
the submission shall be for information only.
However, should there be additional or new provisions different from the original
government undertakings, the draft shall have to be reviewed and approved. The ICC
has 15 working days to act thereon, and unless otherwise specified, its failure to act on
the contract within the specified time frame signifies that the agency or LGU may
proceed with the award. The head of agency or LGU shall approve the Notice of Award
within seven days of the clearance by the ICC on a no-objection basis, and the Notice
itself has to be issued within seven days thereafter.
The highly regulated time-frames within which the agents of government were to act
evinced the intent to impose upon them the duty to act expeditiously throughout the
process, to the end that the project be prosecuted and implemented without delay. This
regulated scenario was likewise intended to discourage collusion and substantially
reduce the opportunity for agents of government to abuse their discretion in the course
of the award process.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained
delays occurred in the award process, as can be observed from the presentation made
by the counsel for public respondents,19 quoted hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC
failed to match and that negotiations preparatory to Notice of Award should be
commenced. This was the decision to award that should have commenced the running
of the 7-day period to approve the Notice of Award, as per Section 9.1 of the IRR, or to
submit the draft contract to the ICC for approval conformably with Section 9.2.
"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession
Agreement be submitted to the NEDA for clearance on a no-objection basis. This
resolution came more than 3 months too late as it should have been made on the 20th
of December 1996 at the latest.
"16 April 1997 - The PBAC resolved that the period of signing the Concession
Agreement be extended by 15 days.
"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than 3
months too late as the NEDA's decision should have been released on the 16th of
January 1997 or fifteen days after it should have been submitted to it for review.
"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions of
the IRR, the Notice of Award should have been issued fourteen days after NEDA's
approval, or the 28th of January 1997. In any case, even if it were to be assumed that
the release of NEDA's approval on the 18th of April was timely, the Notice of Award
should have been issued on the 9th of May 1997. In both cases, therefore, the release
of the Notice of Award occurred in a decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the
persons in charge of the award process for the time limitations prescribed by the IRR.
Their attitude flies in the face of this Court's solemn pronouncement in Republic v.
Capulong,20 that "strict observance of the rules, regulations and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law
and its IRR were repeatedly violated with unmitigated impunity - and by agents of
government, no less! On account of such violation, the award of the contract to Piatco,
which undoubtedly gained time and benefited from the delays, must be deemed null and
void from the beginning.
Further Amendments Resulted in a Substantially Different Contract, Awarded Without
Public Bidding
But the violations and desecrations did not stop there. After the PBAC made its decision
on December 11, 1996 to award the contract to Piatco, the latter negotiated changes to
the Contract bidded out and ended up with what amounts to a substantially new
contract without any public bidding. This Contract was subsequently further amended
four more times through negotiation and without any bidding. Thus, the contract actually
executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession
Agreement or "CA") differed from the contract bidded out (the draft concession
agreement or "DCA") in the following very significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business of
providing airport-related services for international airlines and passengers.21
2. The CA provided that government is to answer for Piatco's unpaid loans and debts
(lumped under the term Attendant Liabilities) in the event Piatco fails to pay its senior
lenders.22
3. The CA provided that in case of termination of the contract due to the fault of
government, government shall pay all expenses that Piatco incurred for the project plus
the appraised value of the Terminal.23
4. The CA imposed new and special obligations on government, including delivery of
clean possession of the site for the terminal; acquisition of additional land at the
government's expense for construction of road networks required by Piatco's approved
plans and specifications; and assistance to Piatco in securing site utilities, as well as all
necessary permits, licenses and authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing with
the contractor with respect to the operation of NAIA Terminal III, Section 3.02(b) of the
CA excludes and prohibits everyone, including government, from directly or indirectly
competing with Piatco, with respect to the operation of, as well as operations in, NAIA
Terminal III. Operations in is sufficiently broad to encompass all retail and other
commercial business enterprises operating within Terminal III, inclusive of the
businesses of providing various airport-related services to international airlines, within
the scope of the prohibition.
6. Under Section 6.01 of the DCA, the following fees are subject to the written approval
of MIAA: lease/rental charges, concession privilege fees for passenger services, food
services, transportation utility concessions, groundhandling, catering and miscellaneous
concession fees, porterage fees, greeter/well-wisher fees, carpark fees, advertising
fees, VIP facilities fees and others. Moreover, adjustments to the groundhandling fees,
rentals and porterage fees are permitted only once every two years and in accordance
with a parametric formula, per DCA Section 6.03. However, the CA as executed with
Piatco provides in Section 6.06 that all the aforesaid fees, rentals and charges may be
adjusted without MIAA's approval or intervention. Neither are the adjustments to these
fees and charges subject to or limited by any parametric formula.25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft
parking fees, check-in counter fees and other fees are to be quoted and paid in
Philippine pesos. But per Section 1.33 of the CA, all the aforesaid fees save the
terminal fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities
pertinent to NAIA Terminal III, such as payment of lease rentals and performance of
other obligations under the Land Lease Agreement; the obligations under the Tenant
Agreements; and payment of all taxes, fees, charges and assessments of whatever kind
that may be imposed on NAIA Terminal III or parts thereof. But in Section 1.06 of the
CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts recorded and
from time to time outstanding in the books of (Piatco) as owing to Unpaid Creditors who
have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements
and other related expenses, and further including amounts owed by [Piatco] to its
suppliers, contractors and subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the
contractors breach, rescind the contract and select one of four options: (a) take over the
terminal and assume all its attendant liabilities; (b) allow the contractor's creditors to
assign the Project to another entity acceptable to DOTC/MIAA; (c) pay the contractor
rent for the facilities and equipment the DOTC may utilize; or (d) purchase the terminal
at a price established by independent appraisers. Depending on the option selected,
government may take immediate possession and control of the terminal and its
operations. Government will be obligated to compensate the contractor for the
"equivalent or proportionate contract costs actually disbursed," but only where
government is the one in breach of the contract. But under Section 8.06(a) of the CA,
whether on account of Piatco's breach of contract or its inability to pay its creditors,
government is obliged to either (a) take over Terminal III and assume all of Piatco's
debts or (b) permit the qualified unpaid creditors to be substituted in place of Piatco or
to designate a new operator. And in the event of government's breach of contract,
Piatco may compel it to purchase the terminal at fair market value, per Section 8.06(b)
of the CA.
10. Under the DCA, any delay by Piatco in the payment of the amounts due the
government constitutes breach of contract. However, under the CA, such delay does not
necessarily constitute breach of contract, since Piatco is permitted to suspend
payments to the government in order to first satisfy the claims of its secured creditors,
per Section 8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA or draft
concession agreement) - in such substantial manner, without any public bidding, and
after the bidding process had been concluded on December 11, 1996 - is violative of
public policy on public biddings, as well as the spirit and intent of the BOT Law. The
whole point of going through the public bidding exercise was completely lost. Its very
rationale was totally subverted by permitting Piatco to amend the contract for which
public bidding had already been concluded. Competitive bidding aims to obtain the best
deal possible by fostering transparency and preventing favoritism, collusion and fraud in
the awarding of contracts. That is the reason why procedural rules pertaining to public
bidding demand strict observance.26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that
substantive amendments to a contract for which a public bidding has already been
finished should only be awarded after another public bidding:
"The due execution of a contract after public bidding is a limitation upon the right of the
contracting parties to alter or amend it without another public bidding, for otherwise what
would a public bidding be good for if after the execution of a contract after public
bidding, the contracting parties may alter or amend the contract, or even cancel it, at
their will? Public biddings are held for the protection of the public, and to give the public
the best possible advantages by means of open competition between the bidders. He
who bids or offers the best terms is awarded the contract subject of the bid, and it is
obvious that such protection and best possible advantages to the public will disappear if
the parties to a contract executed after public bidding may alter or amend it without
another previous public bidding."28
The aforementioned case dealt with the unauthorized amendment of a contract
executed after public bidding; in the situation before us, the amendments were made
also after the bidding, but prior to execution. Be that as it may, the same rationale
underlying Caltex applies to the present situation with equal force. Allowing the winning
bidder to renegotiate the contract for which the bidding process has ended is
tantamount to permitting it to put in anything it wants. Here, the winning bidder (Piatco)
did not even bother to wait until after actual execution of the contract before rushing to
amend it. Perhaps it believed that if the changes were made to a contract already won
through bidding (DCA) instead of waiting until it is executed, the amendments would not
be noticed or discovered by the public.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
"It is true that modification of government contracts, after the same had been awarded
after a public bidding, is not allowed because such modification serves to nullify the
effects of the bidding and whatever advantages the Government had secured thereby
and may also result in manifest injustice to the other bidders. This prohibition, however,
refers to a change in vital and essential particulars of the agreement which results in a
substantially new contract."
Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR
that prohibited further negotiations and eventual amendments to the DCA even after the
bidding had been concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to
the Draft Concession Agreement shall be issued from time to time. Said amendments
will only cover items that would not materially affect the preparation of the proponent's
proposal."
I submit that accepting such warped argument will result in perverting the policy
underlying public bidding. The BOT Law cannot be said to allow the negotiation of
contractual stipulations resulting in a substantially new contract after the bidding
process and price challenge had been concluded. In fact, the BOT Law, in recognition of
the time, money and effort invested in an unsolicited proposal, accords its originator the
privilege of matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a
competing bidder; and to the right of the original proponent "to match the price" of the
challenger. Thus, only the price proposals are in play. The terms, conditions and
stipulations in the contract for which public bidding has been concluded are understood
to remain intact and not be subject to further negotiation. Otherwise, the very essence
of public bidding will be destroyed - there will be no basis for an exact comparison
between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
phrase amendments . . . from time to time refers only to those amendments to the draft
concession agreement issued by the PBAC prior to the submission of the price
challenge; it certainly does not include or permit amendments negotiated for and
introduced after the bidding process, has been terminated.
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public
Bidding
Not satisfied with the Concession Agreement, Piatco - once more without bothering with
public bidding - negotiated with government for still more substantial changes. The
result was the Amended and Restated Concession Agreement (ARCA) executed on
November 26, 1998. The following changes were introduced:
1. The definition of Attendant Liabilities was further amended with the result that the
unpaid loans of Piatco, for which government may be required to answer, are no longer
limited to only those loans recorded in Piatco's books or loans whose proceeds were
actually used in the Terminal III project.30
2. Although the contract may be terminated due to breach by Piatco, it will not be liable
to pay the government any Liquidated Damages if a new operator is designated to take
over the operation of the terminal.31
3. The Liquidated Damages which government becomes liable for in case of its breach
of contract were substantially increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter encounters
liquidity problems was deleted.33
5. Government is made liable for Incremental and Consequential Costs and Losses in
case it fails to comply or cause any third party under its direct or indirect control to
comply with the special obligations imposed on government.34
6. The insurance policies obtained by Piatco covering the terminal are now required to
be assigned to the Senior Lenders as security for the loans; previously, their proceeds
were to be used to repair and rehabilitate the facility in case of damage.35
7. Government bound itself to set the initial rate of the terminal fee, to be charged when
Terminal III begins operations, at an amount higher than US$20.36
8. Government waived its defense of the illegality of the contract and even agreed to be
liable to pay damages to Piatco in the event the contract was declared illegal.37
9. Even though government may be entitled to terminate the ARCA on account of
breach by Piatco, government is still liable to pay Piatco the appraised value of Terminal
III or the Attendant Liabilities, if the termination occurs before the In-Service Date.38
This condition contravenes the BOT Law provision on termination compensation.
10. Government is obligated to take the administrative action required for Piatco's
imposition, collection and application of all Public Utility Revenues.39 No such
obligation existed previously.
11. Government is now also obligated to perform and cause other persons and entities
under its direct or indirect control to perform all acts necessary to perfect the security
interests to be created in favor of Piatco's Senior Lenders.40 No such obligation existed
previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility
Revenues become exorbitant or excessive has been removed.41
13. The illegality and unenforceability of the ARCA or any of its material provisions was
made an event of default on the part of government only, thus constituting a ground for
Piatco to terminate the ARCA.42
14. Amounts due from and payable by government under the contract were made
payable on demand - net of taxes, levies, imposts, duties, charges or fees of any kind
except as required by law.43
15. The Parametric Formula in the contract, which is utilized to compute for
adjustments/increases to the public utility revenues (i.e., aircraft parking and tacking
fees, check-in counter fee and terminal fee), was revised to permit Piatco to input its
more costly short-term borrowing rates instead of the longer-terms rates in the
computations for adjustments, with the end result that the changes will redound to its
greater financial benefit.
16. The Certificate of Completion simply deleted the successful performance-testing of
the terminal facility in accordance with defined performance standards as a precondition for government's acceptance of the terminal facility.44
In sum, the foregoing revisions and amendments as embodied in the ARCA constitute
very material alterations of the terms and conditions of the CA, and give further
manifestly undue advantage to Piatco at the expense of government. Piatco claims that
the changes to the CA were necessitated by the demands of its foreign lenders.
However, no proof whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted
in drastically weakening the position of government to a degree that seems quite
excessive, even from the standpoint of a businessperson who regularly transacts with
banks and foreign lenders, is familiar with their mind-set, and understands what
motivates them. On the other hand, whatever it was that impelled government officials
concerned to accede to those grossly disadvantageous changes, I can only hazard a
guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of
public bidding and for being patently disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior
Public Bidding
After Piatco had managed to breach the protective rampart of public bidding, it
recklessly went on a rampage of further assaults on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement ("FS") executed on August 27, 1999, the following changes
were made to the ARCA:
1. The amounts payable by Piatco to government were reduced by allowing additional
exceptions to the Gross Revenues in which government is supposed to participate.45
2. Made part of the properties which government is obliged to construct and/or maintain
and keep in good repair are (a) the access road connecting Terminals II and III - the
construction of this access road is the obligation of Piatco, in lieu of its obligation to
construct an Access Tunnel connecting Terminals II and III; and (b) the taxilane and
taxiway - these are likewise part of Piatco's obligations, since they are part and parcel of
the project as described in Clause 1.3 of the Bid Documents .46
3. The MIAA is obligated to provide funding for the maintenance and repair of the
airports and facilities owned or operated by it and by third persons under its control. It
will also be liable to Piatco for the latter's losses, expenses and damages as well as
liability to third persons, in case MIAA fails to perform such obligations. In addition,
MIAA will also be liable for the incremental and consequential costs of the remedial
work done by Piatco on account of the former's default.47
4. The FS also imposed on government ten (10) "Additional Special Obligations,"
including the following:
(a) Working for the removal of the general aviation traffic from the NAIA airport
complex48
(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway
at no cost to Piatco49
(c) Implementing the government's existing storm drainage master plan50
(d) Coordinating with DPWH the financing, the implementation and the completion of
the following works before the In-Service Date: three left-turning overpasses (EDSA to
Tramo St., Tramo to Andrews Ave., and Manlunas Road to Sales Ave.);51 and a road
upgrade and improvement program involving widening, repair and resurfacing of Sales
Road, Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and
removal of squatters along Andrews Avenue.52
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or
right of way for the road upgrade and improvement program.53
5. Government is required to work for the immediate reversion to MIAA of the Nayong
Pilipino National Park.54
6. Government's share in the terminal fees collected was revised from a flat rate of
P180 to 36 percent thereof; together with government's percentage share in the gross
revenues of Piatco, the amount will be remitted to government in pesos instead of US
dollars.55 This amendment enables Piatco to benefit from the further erosion of the
peso-dollar exchange rate, while preventing government from building up its foreign
exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA, and
payments are to accrue to the latter's exclusive benefit.56 This move appears to be in
support of the funds MIAA advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an
amendment to the ARCA, upon which it is wholly dependent; therefore, since the ARCA
is void, inexistent and not capable of being ratified or amended, it follows that the FS too
is void, inexistent and inoperative. Second, even assuming arguendo that the ARCA is
somehow remotely valid, nonetheless the FS, in imposing significant new obligations
upon government, altered the fundamental terms and stipulations of the ARCA, thus
necessitating a public bidding all over again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.
The Second Supplement Is Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco on
September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III
but as a public works contractor, to undertake - in the government's stead - the clearing,
removal, demolition and disposal of improvements, subterranean obstructions and
waste materials at the project site.57
The scope of the works, the procedures involved, and the obligations of the contractor
are provided for in Parts II and III of the SS. Section 4.1 sets out the compensation to be
paid, listing specific rates per cubic meter of materials for each phase of the work excavation, leveling, removal and disposal, backfilling and dewatering. The amounts
collectible by Piatco are to be offset against the Annual Guaranteed Payments it must
pay government.
Though denominated as Second Supplement, it was nothing less than an entirely new
public works contract. Yet it, too, did not undergo any public bidding, for which reason it
is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a
firm reputedly owned by a former high-ranking DOTC official. But that is another story
altogether.
The Third Supplement Is Likewise Void and Inexistent
The Third Supplement ("TS"), executed between the government and Piatco on June
22, 2001, passed on to the government certain obligations of Piatco as Terminal III
concessionaire, with respect to the surface road connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III
project was the proposed construction of an access tunnel crossing Runway 13/31,
which. would connect Terminal III to Terminal II. The Bid Documents in Section
4.1.2.3[B][i] declared that the said access tunnel was subject to further negotiation; but
for purposes of the bidding, the proponent should submit a bid for it as well. Therefore,
the tunnel was supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access
tunnel was not economically viable at that time. In lieu thereof, the parties agreed that a
surface access road (now called the T2-T3 Road) was to be constructed by Piatco to
connect the two terminals. Since it was plainly in substitution of the tunnel, the surface
road construction should likewise be considered part and parcel of the same project,
and therefore part of Piatco's obligation as well. While the access tunnel was estimated
to cost about P800 million, the surface road would have a price tag in the vicinity of
about P100 million, thus producing significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3
Road, nevertheless shifted to government some of the obligations pertaining to the
former, as follows:
1. Government is now obliged to remove at its own expense all tenants, squatters,
improvements and/or waste materials on the site where the T2-T3 road is to be
constructed.58 There was no similar obligation on the part of government insofar as the
access tunnel was concerned.
2. Should government fail to carry out its obligation as above described, Piatco may
undertake it on government's behalf, subject to the terms and conditions (including
compensation payments) contained in the Second Supplement.59
3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60
The TS depends upon and is intended to supplement the ARCA as well as the First
Supplement, both of which are void and inexistent and not capable of being ratified or
amended. It follows that the TS is likewise void, inexistent and inoperative. And even if,
hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement imposing as it does significant new obligations upon government - would in effect alter
the terms and stipulations of the ARCA in material respects, thus necessitating another
public bidding. Since the TS was not subjected to public bidding, it is consequently
utterly void as well. At any rate, the TS created new monetary obligations on the part of
government, for which there were no prior appropriations. Hence it follows that the
same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to the
present, I noted that the whole process was riddled with significant lapses, if not outright
irregularity and wholesale violations of law and public policy. The rationale of beginning
at the beginning, so to speak, will become evident when the question of what to do with
the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts and
highlight the more prominent objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating an
unauthorized, direct government guarantee of Piatco's obligations in favor of the
lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the
NAIA Terminal III Project, may be accepted by government provided inter alia that no
direct government guarantee, subsidy or equity is required. In short, such guarantee is
prohibited in unsolicited proposals. Section 2(n) of the same legislation defines direct
government guarantee as "an agreement whereby the government or any of its
agencies or local government units (will) assume responsibility for the repayment of
debt directly incurred by the project proponent in implementing the project in case of a
loan default."
Both the CA and the ARCA have provisions that undeniably create such prohibited
government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to
Section 4.04 of the CA, provides thus:
"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior
Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate
the Senior Loans, the Senior Lenders shall have the right to notify GRP of the same . . .;
(v) . . . the Senior Lenders may after written notification to GRP, transfer the
Concessionaire's rights and obligations to a transferee . . .;
(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the
Senior Lenders shall endeavor . . . to enter into any other arrangement relating to the
Development Facility . . . If no agreement relating to the Development Facility is arrived
at by GRP and the Senior Lenders within the said 180-day period, then at the end
thereof the Development Facility shall be transferred by the Concessionaire to GRP or
its designee and GRP shall make a termination payment to Concessionaire equal to the
Appraised Value (as hereinafter defined) of the Development Facility or the sum of the
Attendant Liabilities, if greater. . . ."
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
"Attendant Liabilities refer to all amounts in each case supported by verifiable evidence
from time to time owed or which may become, owing by Concessionaire to Senior
Lenders or any other persons or entities who have provided, loaned or advanced funds
or provided financial facilities to Concessionaire for the Project, including, without
limitation, all principal, interest, associated fees, charges, reimbursements, and other
related expenses (including the fees, charges and expenses of any agents or trustees
of such persons or entities), whether payable at maturity, by acceleration or otherwise,
and further including amounts owed by Concessionaire to its professional consultants
and advisers, suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective in the event of a default by Piatco
on any of its loan obligations to the Senior Lenders, and the amount to be paid by
government is the greater of either the Appraised Value of Terminal III or the aggregate
amount of the moneys owed by Piatco - whether to the Senior Lenders or to other
entities, including its suppliers, contractors and subcontractors. In effect, therefore, this
agreement already constitutes the prohibited assumption by government of
responsibility for repayment of Piatco's debts in case of a loan default. In fine, a direct
government guarantee.
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v)
and (vi) that would require, first, an attempt (albeit unsuccessful) by the Senior Lenders
to transfer Piatco's rights to a transferee of their choice; and, second, an effort (equally
unsuccessful) to "enter into any other arrangement" with the government regarding the
Terminal III facility, before government is required to make good on its guarantee. What
is abundantly clear is the fact that, in the devious labyrinthine process detailed in the
aforesaid section, it is entirely within the Senior Lenders' power, prerogative and control
- exercisable via a mere refusal or inability to agree upon "a transferee" or "any other
arrangement" regarding the terminal facility - to push the process forward to the ultimate
contractual cul-de-sac, wherein government will be compelled to abjectly surrender and
make good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior
Lenders in the event of Piatco's default. This is literally true, in the sense that Section
4.04(c)(vi) of ARCA speaks of government making the termination payment to Piatco,
not to the lenders. However, it is almost a certainty that the Senior Lenders will already
have made Piatco sign over to them, ahead of time, its right to receive such payments
from government; and/or they may already have had themselves appointed its
attorneys-in-fact for the purpose of collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum,61 the
termination payment is to be made to Piatco, not to the lenders; and there is no
provision anywhere in the contract documents to prevent it from diverting the proceeds
to its own benefit and/or to ensure that it will necessarily use the same to pay off the
Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage
and other liens on the terminal facility. Such deficiency puts the interests of government
at great risk. Indeed, if the unthinkable were to happen, government would be paying
several hundreds of millions of dollars, but the mortgage liens on the facility may still be
foreclosed by the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to
adequately protect government's interests. More accurately, the contracts would
consistently weaken and do away with protection of government interests. As such, they
are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
While on this subject, it is well to recall the earlier discussion regarding a particularly
noticeable alteration of the concept of "Attendant Liabilities." In Section 1.06 of the CA
defining the term, the Piatco debts to be assumed/paid by government were qualified by
the phrases recorded and from time to time outstanding in the books of the
Concessionaire and actually used for the project. These phrases were eliminated from
the ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification
for such a drastic change, the only conclusion, possible is that it intends to have all of its
debts covered by the guarantee, regardless of whether or not they are disclosed in its
books. This has particular reference to those borrowings which were obtained in
violation of the loan covenants requiring Piatco to maintain a minimum 70:30 debt-toequity ratio, and even if the loan proceeds were not actually used for the project itself.
This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the
amount which government has guaranteed to pay as termination payment is the greater
of either (i) the Appraised Value of the terminal facility or (ii) the aggregate of the
Attendant Liabilities. Given that the Attendant Liabilities may include practically any
Piatco debt under the sun, it is highly conceivable that their sum may greatly exceed the
appraised value of the facility, and government may end up paying very much more
than the real worth of Terminal III. (So why did government have to bother with public
bidding anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with
the spirit and the intent of the BOT Law. The law meant to mobilize private resources
(the private sector) to take on the burden and the risks of financing the construction,
operation and maintenance of relevant infrastructure and development projects for the
simple reason that government is not in a position to do so. By the same token,
government guarantee was prohibited, since it would merely defeat the purpose and
raison d'être of a build-operate-and-transfer project to be undertaken by the private
sector.
To the extent that the project proponent is able to obtain loans to fund the project, those
risks are shared between the project proponent on the one hand, and its banks and
other lenders on the other. But where the proponent or its lenders manage to cajol or
coerce the government into extending a guarantee of payment of the loan obligations,
the risks assumed by the lenders are passed right back to government. I cannot
understand why, in the instant case, government cheerfully assented to re-assuming the
risks of the project when it gave the prohibited guarantee and thus simply negated the
very purpose of the BOT Law and the protection it gives the government.
Contract Termination Provisions in the Piatco Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or
terminated by the government through no fault of the project proponent or by mutual
agreement, the Government shall compensate the said project proponent for its actual
expenses incurred in the project plus a reasonable rate of return thereon not exceeding
that stated in the contract as of the date of such revocation, cancellation or termination:
Provided, That the interest of the Government in this instances [sic] shall be duly
insured with the Government Service Insurance System or any other insurance entity
duly accredited by the Office of the Insurance Commissioner: Provided, finally, That the
cost of the insurance coverage shall be included in the terms and conditions of the
bidding referred to above.
"In the event that the government defaults on certain major obligations in the contract
and such failure is not remediable or if remediable shall remain unremedied for an
unreasonable length of time, the project proponent/contractor may, by prior notice to the
concerned national government agency or local government unit specifying the turnover date, terminate the contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or proportionate contract cost as
defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances
when termination compensation may be allowed:
1. Termination by the government through no fault of the project proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on certain major
contractual obligations
To emphasize, the law does not permit compensation for the project proponent when
contract termination is due to the proponent's own fault or breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that
government is to pay termination compensation to Piatco even when termination is
initiated by government for the following causes:
"(i) Failure of Concessionaire to finish the Works in all material respects in accordance
with the Tender Design and the Timetable;
(ii) Commission by Concessionaire of a material breach of this Agreement . . .;
(iii) . . . a change in control of Concessionaire arising from the sale, assignment, transfer
or other disposition of capital stock which results in an ownership structure violative of
statutory or constitutional limitations;
(iv) A pattern of continuing or repeated non-compliance, willful violation, or nonperformance of other terms and conditions hereof which is hereby deemed a material
breach of this Agreement . . ."62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase
"Subject to Section 4.04." The effect of this insertion is that in those instances where
government may terminate the contract on account of Piatco's breach, and it is
nevertheless required under the ARCA to make termination compensation to Piatco
even though unauthorized by law, such compensation is to be equivalent to the
payment amount guaranteed by government - either a) the Appraised Value of the
terminal facility or (b) the aggregate of the Attendant Liabilities, whichever amount is
greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision
permits a project proponent to recover the actual expenses it incurred in the prosecution
of the project plus a reasonable rate of return not in excess of that provided in the
contract; or to be compensated for the equivalent or proportionate contract cost as
defined in the contract, in case the government is in default on certain major contractual
obligations.
Furthermore, in those instances where such termination compensation is authorized by
the BOT Law, it is indispensable that the interest of government be duly insured.
Section 5.08 the ARCA mandates insurance coverage for the terminal facility; but all
insurance policies are to be assigned, and all proceeds are payable, to the Senior
Lenders. In brief, the interest being secured by such coverage is that of the Senior
Lenders, not that of government. This can hardly be considered compliance with law.
In essence, the ARCA provisions on termination compensation result in another
unauthorized government guarantee, this time in favor of Piatco.
A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the
National Honor
Still another contractual provision offensive to law and public policy is Section 8.01(d) of
the ARCA, which is a "bolder and badder" version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct
government guarantees, but likewise a direct government subsidy for unsolicited
proposals. Section 13.2. b. iii. of the 1999 IRR defines a direct government subsidy as
encompassing "an agreement whereby the Government . . . will . . . postpone any
payments due from the proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of
preventing a disruption of the operations in the Terminal and/or Terminal Complex, in the
event that at any time Concessionaire is of the reasonable opinion that it shall be unable
to meet a payment obligation owed to the Senior Lenders, Concessionaire shall give
prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In such
circumstances, the Senior Lenders (or the Senior Lenders' Representative) may ensure
that after making provision for administrative expenses and depreciation, the cash
resources of Concessionaire shall first be used and applied to meet all payment
obligations owed to the Senior Lenders. Any excess cash, after meeting such payment
obligations, shall be earmarked for the payment of all sums payable by Concessionaire
to GRP under this Agreement. If by reason of the foregoing GRP should be unable to
collect in full all payments due to GRP under this Agreement, then the unpaid balance
shall be payable within a 90-day grace period counted from the relevant due date, with
interest per annum at the rate equal to the average 91-day Treasury Bill Rate as of the
auction date immediately preceding the relevant due date. If payment is not effected by
Concessionaire within the grace period, then a spread of five (5%) percent over the
applicable 91-day Treasury Bill Rate shall be added on the unpaid amount commencing
on the expiry of the grace period up to the day of full payment. When the temporary
illiquidity of Concessionaire shall have been corrected and the cash position of
Concessionaire should indicate its ability to meet its maturing obligations, then the
provisions set forth under this Section 8.01(d) shall cease to apply. The foregoing
remedial measures shall be applicable only while there remains unpaid and outstanding
amounts owed to the Senior Lenders." (Emphasis supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly
mandates the indefinite postponement of payment of all of Piatco's obligations to the
government, in order to ensure that Piatco's obligations to the Senior Lenders are paid
in full first. That is nothing more or less than the direct government subsidy prohibited by
the BOT Law and the IRR. The fact that Piatco will pay interest on the unpaid amounts
owed to government does not change the situation or render the prohibited subsidy any
less unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA.
Earlier, I mentioned that Section 8.01(d) of the ARCA completely eliminated the proviso
in Section 8.04(d) of the CA which gave government the right to appoint a financial
controller to manage the cash position of Piatco during situations of financial distress.
Not only has government been deprived of any means of monitoring and managing the
situation; worse, as can be seen from Section 8.01(d) above-quoted, the Senior
Lenders have effectively locked in on the right to exercise financial controllership over
Piatco and to allocate its cash resources to the payment of all amounts owed to the
Senior Lenders before allowing any payment to be made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders
the power and the authority to determine how much (if at all) and when the Philippine
government (as grantor of the franchise) may be allowed to receive from Piatco. In that
situation, government will be at the mercy of the foreign lenders. This is a situation
completely contrary to the rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotions - shame and disgust at the parties'
(especially the government officials') docile submission and abject servitude and
surrender to the imperious and excessive demands of the foreign lenders, on the one
hand; and vehement outrage at the affront to the sovereignty of the Republic and to the
national honor, on the other. It is indeed time to put an end to such an unbearable,
dishonorable situation.
The Piatco Contracts Unarguably Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the
Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and
maintain the Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco,
for the entire term of the concession agreement, "the exclusive right to operate a
commercial international passenger terminal within the Island of Luzon" with the
exception of those three terminals already existing63 at the time of execution of the
ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate,
or any other form of authorization for the operation of a public utility" that is "exclusive in
character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA
Terminal III which . . . is a 'terminal for public use' is a public utility." Consequently, the
constitutional prohibition against the exclusivity of a franchise applies to the franchise
for the operation of NAIA Terminal III as well.
What was granted to Piatco was not merely a franchise, but an "exclusive right" to
operate an international passenger terminal within the "Island of Luzon." What this grant
effectively means is that the government is now estopped from exercising its inherent
power to award any other person another franchise or a right to operate such a public
utility, in the event public interest in Luzon requires it. This restriction is highly
detrimental to government and to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his Memorandum for the President
dated 21 May 2002:
"Section 3.02 on 'Exclusivity'
"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a
commercial international airport within the Island of Luzon with the exception of those
already existing at the time of the execution of the Agreement, such as the airports at
Subic, Clark and Laoag City. In the case of the Clark International Airport, however, the
provision restricts its operation beyond its design capacity of 850,000 passengers per
annum and the operation of new terminal facilities therein until after the new NAIA
Terminal III shall have consistently reached or exceeded its design capacity of ten (10)
million passenger capacity per year for three (3) consecutive years during the
concession period.
"This is an onerous and disadvantageous provision. It effectively grants PIATCO a
monopoly in Luzon and ties the hands of government in the matter of developing new
airports which may be found expedient and necessary in carrying out any future plan for
an inter-modal transportation system in Luzon.
"Additionally, it imposes an unreasonable restriction on the operation of the Clark
International Airport which could adversely affect the operation and development of the
Clark Special Economic Zone to the economic prejudice of the local constituencies that
are being benefited by its operation." (Emphasis supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to
constitute a monopoly on account of the very nature of its business and the absence of
competition, such a situation does not however constitute justification to violate the
constitutional prohibition and grant an exclusive franchise or exclusive right to operate a
public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside
the point. As correctly argued,64 the existence of a monopoly by a public utility is a
situation created by circumstances that do not encourage competition. This situation is
different from the grant of a franchise to operate a public utility, a privilege granted by
government. Of course, the grant of a franchise may result in a monopoly. But making
such franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed
exclusivity; it also guaranteed that the government will not improve or expand the
facilities at Clark - and in fact is required to put a cap on the latter's operations - until
after Terminal III shall have been operated at or beyond its peak capacity for three
consecutive years.65 As counsel for public respondents pointed out, in the real world
where the rate of influx of international passengers can fluctuate substantially from year
to year, it may take many years before Terminal III sees three consecutive years'
operations at peak capacity. The Diosdado Macapagal International Airport may thus
end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco,
the economic progress of a region has had to be sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or
any other form of authorization for the operation of a public utility shall be . . . for a
longer period than fifty years." After all, a franchise held for an unreasonably long time
would likely give rise to the same evils as a monopoly.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition
and obtain an extension. This fact can be gleaned from Section 8.03(b) of the ARCA,
which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of Termination. -
a) x x x
xxx
xxx
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof,
Concessionaire shall be entitled to collect the Liquidated Damages specified in Annex
'G'. The full payment by GRP to Concessionaire of the Liquidated Damages shall be a
condition precedent to the transfer by Concessionaire to GRP of the Development
Facility. Prior to the full payment of the Liquidated Damages, Concessionaire shall to the
extent practicable continue to operate the Terminal and the Terminal Complex and shall
be entitled to retain and withhold all payments to GRP for the purpose of offsetting the
same against the Liquidated Damages. Upon full payment of the Liquidated Damages,
Concessionaire shall immediately transfer the Development Facility to GRP on 'as-iswhere-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears. Although it
enables government to avoid having to make outright payment of an obligation that will
likely run into billions of pesos, this easy payment plan will nevertheless cost
government considerable loss of income, which it would earn if it were to operate
Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco) will be on
"installment basis," interest charges on the remaining unpaid balance would
undoubtedly cause the total outstanding balance to swell. Piatco would thus be entitled
to remain in the driver's seat and keep operating the terminal for an indefinite length of
time.
The Contracts Create Two Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco contracts.
The first and more obvious one refers to the business of operating an international
passenger terminal in Luzon, the business end of which involves providing international
airlines with parking space for their aircraft, and airline passengers with the use of
departure and arrival areas, check-in counters, information systems, conveyor systems,
security equipment and paraphernalia, immigrations and customs processing areas;
and amenities such as comfort rooms, restaurants and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA
Terminal III will be the only facility to be operated as an international passenger
terminal;66 that NAIA Terminals I and II will no longer be operated as such;67 and that
no one (including the government) will be allowed to compete with Piatco in the
operation of an international passenger terminal in the NAIA Complex.68 Given that, at
this time, the government and Piatco are the only ones engaged in the business of
operating an international passenger terminal, I am not acutely concerned with this
particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts
for Piatco - in the business of providing international airlines with the following:
groundhandling, in-flight catering, cargo handling, and aircraft repair and maintenance
services. These are lines of business activity in which are engaged many service
providers (including the petitioners-in-intervention), who will be adversely affected upon
full implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and (e)70 of
both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international
passenger terminal at the NAIA, and therefore the only place within the NAIA Complex
where the business of providing airport-related services to international airlines may be
conducted. On the other hand, Section 3.01(d) of the ARCA requires government,
through the MIAA, not to allow service providers with expired MIAA contracts to renew
or extend their contracts to render airport-related services to airlines. Meanwhile,
Section 3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to
allow service providers - those with subsisting concession agreements for services and
operations being conducted at Terminal I - to carry over their concession agreements,
services and operations to Terminal III, unless they first enter into a separate agreement
with Piatco.
The aforementioned provisions vest in Piatco effective and exclusive control over which
service provider may and may not operate at Terminal III and render the airport-related
services needed by international airlines. It thereby possesses the power to exclude
competition. By necessary implication, it also has effective control over the fees and
charges that will be imposed and collected by these service providers.
This intention is exceedingly clear in the declaration by Piatco that it is "completely
within its rights to exclude any party that it has not contracted with from NAIA Terminal
III."71
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict,
control or regulate the concessionaire's discretion and power to reject any service
provider and/or impose any term or condition it may see fit in any contract it enters into
with a service provider. In brief, there is no safeguard whatsoever to ensure free and fair
competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique
business opportunity. It announced72 that it has accredited three groundhandlers for
Terminal III. Aside from the Philippine Airlines, the other accredited entities are the
Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and
the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of
the Philippine Airport and Ground Services, Inc. or PAGS,73 while Orbit is a whollyowned subsidiary of Friendship Holdings, Inc.,74 which is in turn owned 80 percent by
PAGS.75 PAGS is a service provider owned 60 percent by the Cheng Family;76 it is a
stockholder of 35 percent of Piatco77 and is the latter's designated contractor-operator
for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear to be very
much in line with the following provisions contained in the First Addendum to the Piatco
Shareholders Agreement,79 executed on July 6, 1999, which appear to constitute a sort
of master plan to create a monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. x x x
xxx
x x x.;
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates
shall, at all times during the Concession Period, be exclusively authorized by (PIATCO)
to engage in the provision of ground-handling, catering and fueling services within the
Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period,
be the only entities authorized to construct and operate a warehouse for all cargo
handling and related services within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade
being fostered by the Piatco Contracts through the erection of barriers to the entry of
other service providers into Terminal III. In Tatad v. Secretary of the Department of
Energy,80 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall regulate
or prohibit monopolies when the public interest so requires. No combinations in restraint
of trade or unfair competition shall be allowed.'
"A monopoly is a privilege or peculiar advantage vested in one or more persons or
companies, consisting in the exclusive right or power to carry on a particular business or
trade, manufacture a particular article, or control the sale or the whole supply of a
particular commodity. It is a form of market structure in which one or only a few firms
dominate the total sales of a product or service. On the other hand, a combination in
restraint of trade is an agreement or understanding between two or more persons, in the
form of a contract, trust, pool, holding company, or other form of association, for the
purpose of unduly restricting competition, monopolizing trade and commerce in a
certain commodity, controlling its production, distribution and price, or otherwise
interfering with freedom of trade without statutory authority. Combination in restraint of
trade refers to the means while monopoly refers to the end.
"x x x
xxx
xxx
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses
competition. The desirability of competition is the reason for the prohibition against
restraint of trade, the reason for the interdiction of unfair competition, and the reason for
regulation of unmitigated monopolies. Competition is thus the underlying principle of
[S]ection 19, Article XII of our Constitution, . . ."81
Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be
employed: "A 'monopoly' embraces any combination the tendency of which is to prevent
competition in the broad and general sense, or to control prices to the detriment of the
public. In short, it is the concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and competition
actually excluded, but that power exists to raise prices or exclude competition when
desired."83 (Emphasis supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire
virtually limitless power over the charging of fees, rentals and so forth. What little
"oversight function" the government might be able and minded to exercise is less than
sufficient to protect the public interest, as can be gleaned from the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
"For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire
may make any adjustments it deems appropriate without need for the consent of GRP
or any government agency subject to Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting
Non-Public Utility Revenues in order to ensure that End Users are not unreasonably
deprived of services. While the vehicular parking fee, porterage fee and
greeter/wellwisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP
may require Concessionaire to explain and justify the fee it may set from time to time, if
in the reasonable opinion of GRP the said fees have become exorbitant resulting in the
unreasonable deprivation of End Users of such services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire can
defy the government without fear of any sanction. Moreover, Section 6.06 - taken
together with Section 6.03(c) of the ARCA - falls short of the standard set by the BOT
Law as amended, which expressly requires in Section 2(b) that the project proponent is
"allowed to charge facility users appropriate tolls, fees, rentals and charges not
exceeding those proposed in its bid or as negotiated and incorporated in the contract x
x x."
The Piatco Contracts Violate Constitutional Prohibitions Against
Impairment of Contracts and Deprivation of Property Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires
government, through DOTC/MIAA, not to permit the carry-over to Terminal III of the
services and operations of certain service providers currently operating at Terminal I
with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an
international passenger terminal at the NAIA;85 thus, Terminals I and II shall no longer
operate as such,86 and no one shall be allowed to compete with Piatco in the operation
of an international passenger terminal in the NAIA.87 The bottom line is that, as of the
In-Service Date, Terminal III will be the only terminal where the business of providing
airport-related services to international airlines and passengers may be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease
honoring existing contracts with service providers after the In-Service Date, as they
cannot be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its existing
contracts with these service providers.
Notably, government is not in a position to require Piatco to accommodate the displaced
service providers, and it would be unrealistic to think that these service providers can
perform their service contracts in some other international airport outside Luzon.
Obviously, then, these displaced service providers are - to borrow a quaint expression up the river without a paddle. In plainer terms, they will have lost their businesses
entirely, in the blink of an eye.
What we have here is a set of contractual provisions that impair the obligation of
contracts and contravene the constitutional prohibition against deprivation of property
without due process of law.88
Moreover, since the displaced service providers, being unable to operate, will be forced
to close shop, their respective employees - among them Messrs. Agan and Lopez et al.
- have very grave cause for concern, as they will find themselves out of employment
and bereft of their means of livelihood. This situation comprises still another violation of
the constitution prohibition against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right.
Nonetheless, where that privilege has been availed of by the petitioners-in-intervention
service providers for years on end, a situation arises, similar to that in American Interfashion v. GTEB.89 We held therein that a privilege enjoyed for seven years "evolved
into some form of property right which should not be removed x x x arbitrarily and
without due process." Said pronouncement is particularly relevant and applicable to the
situation at bar because the livelihood of the employees of petitioners-intervenors are at
stake.
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal
III and restricting entry of future service providers, thereby infringed upon the freedom guaranteed to and heretofore enjoyed by international airlines - to contract with local
service providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to liberty,
which includes the right to enter into all contracts,90 and/or the right to make a contract
in relation to one's business.91
By Creating New Financial Obligations for Government,
Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of the
treasury, except in pursuance of an appropriation made by law.92 The immediate effect
of this constitutional ban is that all the various agencies of government are constrained
to limit their expenditures to the amounts appropriated by law for each fiscal year; and
to carefully count their cash before taking on contractual commitments. Giving flesh and
form to the injunction of the fundamental law, Sections 46 and 47 of Executive Order
292, otherwise known as the Administrative Code of 1987, provide as follows:
"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the
expenditure of public funds shall be entered into unless there is an appropriation
therefor, the unexpended balance of which, free of other obligations, is sufficient to
cover the proposed expenditure; and . .
"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of a
contract for personal service, for supplies for current consumption or to be carried in
stock not exceeding the estimated consumption for three (3) months, or banking
transactions of government-owned or controlled banks, no contract involving the
expenditure of public funds by any government agency shall be entered into or
authorized unless the proper accounting official of the agency concerned shall have
certified to the officer entering into the obligation that funds have been duly appropriated
for the purpose and that the amount necessary to cover the proposed contract for the
current calendar year is available for expenditure on account thereof, subject to
verification by the auditor concerned. The certificate signed by the proper accounting
official and the auditor who verified it, shall be attached to and become an integral part
of the proposed contract, and the sum so certified shall not thereafter be available for
expenditure for any other purpose until the obligation of the government agency
concerned under the contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident
from the tenor of the language of the law that the existence of appropriations and the
availability of funds are indispensable pre-requisites to or conditions sine qua non for
the execution of government contracts. The obvious intent is to impose such conditions
as a priori requisites to the validity of the proposed contract."93
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential
precedents, the three Supplements to the ARCA, which were not approved by NEDA,
imposed on government the additional burden of spending public moneys without prior
appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were
imposed on the government:
• To construct, maintain and keep in good repair and operating condition all airport
support services, facilities, equipment and infrastructure owned and/or operated by
MIAA, which are not part of the Project or which are located outside the Site, even
though constructed by Concessionaire - including the access road connecting Terminals
II and III and the taxilane, taxiways and runways
• To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the
airports and facilities owned or operated by it and by third persons under its control in
order to ensure compliance with international standards; and holding MIAA liable to
Piatco for the latter's losses, expenses and damages as well as for the latter's liability to
third persons, in case MIAA fails to perform such obligations; in addition, MIAA will also
be liable for the incremental and consequential costs of the remedial work done by
Piatco on account of the former's default.
• Section 4 of the FS imposed on government ten (10) "Additional Special Obligations,"
including the following:
Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at no
cost to Piatco
Implementing the government's existing storm drainage master plan
Coordinating with DPWH the financing, implementation and completion of the following
works before the In-Service Date: three left-turning overpasses (Edsa to Tramo St.,
Tramo to Andrews Ave., and Manlunas Road to Sales Ave.) and a road upgrade and
improvement program involving widening, repair and resurfacing of Sales Road,
Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and
removal of squatters along Andrews Avenue
Dealing directly with BCDA and the Philippine Air Force in acquiring additional land or
right of way for the road upgrade and improvement program
Requiring government to work for the immediate reversion to MIAA of the Nayong
Pilipino National Park, in order to permit the building of the second west parallel taxiway
• Section 5 of the FS also provides that in lieu of the access tunnel, a surface access
road (T2-T3) will be constructed. This provision requires government to expend funds to
purchase additional land from Nayong Pilipino and to clear the same in order to be able
to deliver clean possession of the site to Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the government to deliver,
within 120 days from date thereof, clean possession of the land on which the T2-T3
Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the
expenditures of public funds not included in any congressional appropriation or
authorized by any other statute. Piatco however attempts to take these stipulations out
of the ambit of Sections 46 and 47 of the Administrative Code by characterizing them as
stipulations for compliance on a "best-efforts basis" only.
To determine whether the additional obligations under the Supplements may really be
undertaken on a best-efforts basis only, the nature of each of these obligations must be
examined in the context of its relevance and significance to the Terminal III Project, as
well as of any adverse impact that may result if such obligation is not performed or
undertaken on time. In short, the criteria for determining whether the best-efforts basis
will apply is whether the obligations are critical to the success of the Project and,
accordingly, whether failure to perform them (or to perform them on time) could result in
a material breach of the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS
take on a different aspect. In particular, each of the following may all be deemed to play
a major role in the successful and timely prosecution of the Terminal III Project: the
obtention of land required by PIATCO for the taxilane and taxiway; the implementation
of government's existing storm drainage master plan; and coordination with DPWH for
the completion of the three left-turning overpasses before the In-Service Date, as well
as acquisition and delivery of additional land for the construction of the T2-T3 access
road.
Conversely, failure to deliver on any of these obligations may conceivably result in
substantial prejudice to the concessionaire, to such an extent as to constitute a material
breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly
terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek
payment of Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the
concessionaire may instead require government to pay the Incremental and
Consequential Losses under Section 1.23 of the ARCA.94 The logical conclusion then
is that the obligations in the Supplements are not to be performed on a best-efforts
basis only, but are unarguably mandatory in character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete
implementation of the road upgrading and improvement program for Sales, Andrews
and Manlunas Roads (which provide access to the Terminal III site) prior to the InService Date, it is essential to take note of the fact that there was a pressing need to
complete the program before the opening of Terminal III.95 For that reason, the MIAA
was compelled to enter into a memorandum of agreement with the DPWH in order to
ensure the timely completion of the road widening and improvement program. MIAA
agreed to advance the total amount of P410.11 million to DPWH for the works, while the
latter was committed to do the following:
"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest,
fees, plus other costs of money within the periods CY2004 and CY2006 with payment of
no less than One Hundred Million Pesos (PhP100M) every year.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation
the repayments for the advances made by MIAA, to ensure that the advances are fully
repaid by CY2006. For this purpose, DPWH shall include the amounts to be
appropriated for reimbursement to MIAA in the "Not Needing Clearance" column of their
Agency Budget Matrix (ABM) submitted to the Department of Budget and
Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to
complete the upgrading program for the crucially situated access roads prior to the
targeted opening date of Terminal III; and that, had MIAA not agreed to lend the P410
Million, DPWH would not have been able to complete the program on time. As a
consequence, government would have been in breach of a material obligation. Hence,
this particular undertaking of government may likewise not be construed as being for
best-efforts compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the fact
that both agencies were maneuvered into (or allowed themselves to be maneuvered
into) an agreement that would ensure delivery of upgraded roads for Piatco's benefit,
using funds not allocated for that purpose. The agreement would then be presented to
Congress as a done deal. Congress would thus be obliged to uphold the agreement and
support it with the necessary allocations and appropriations for three years, in order to
enable DPWH to deliver on its committed repayments to MIAA. The net result is an
infringement on the legislative power over the public purse and a diminution of
Congress' control over expenditures of public funds - a development that would not
have come about, were it not for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised during the
Oral Argument on December 10, 2002: What do we do with the Piatco Contracts and
Terminal III?96 (Feeding directly into the resolution of the decisive question is the other
nagging issue: Why should we bother with determining the legality and validity of these
contracts, when the Terminal itself has already been built and is practically complete?)
Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without
exception, are void ab initio, and therefore inoperative. Even the very process by which
the contracts came into being - the bidding and the award - has been riddled with
irregularities galore and blatant violations of law and public policy, far too many to
ignore. There is thus no conceivable way, as proposed by some, of saving one (the
original Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement
(referred to in the various pleadings as the Contract Bidded Out) as the contract that
should be kept in force and effect to govern the situation, inasmuch as it was never
executed by the parties. What Piatco and the government executed was the
Concession Agreement which is entirely different from the Draft Concession Agreement.
Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable
mutilation of public policy and an insult to ourselves if we opt to keep in place a contract
- any contract - for to do so would assume that we agree to having Piatco continue as
the concessionaire for Terminal III.
Despite all the insidious contraventions of the Constitution, law and public policy Piatco
perpetrated, keeping Piatco on as concessionaire and even rewarding it by allowing it to
operate and profit from Terminal III - instead of imposing upon it the stiffest sanctions
permissible under the laws - is unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we decide to
keep in place. For all it may care, we can do just as well without one, if we only let it
continue and operate the facility. After all, the real money will come not from building the
Terminal, but from actually operating it for fifty or more years and charging whatever it
feels like, without any competition at all. This scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, should not AEDC
automatically be considered the winning bidder and therefore allowed to operate the
facility? My answer is a stone-cold 'No'. AEDC never won the bidding, never signed any
contract, and never built any facility. Why should it be allowed to automatically step in
and benefit from the greed of another?
Should government pay at all for reasonable expenses incurred in the construction of
the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the
expense of Piatco and, in particular, its funders, contractors and investors - both local
and foreign. After all, there is no question that the State needs and will make use of
Terminal III, it being part and parcel of the critical infrastructure and transportationrelated programs of government.
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein
was void, the principle of payment by quantum meruit was found applicable, and the
contractor was allowed to recover the reasonable value of the thing or services
rendered (regardless of any agreement as to the supposed value), in order to avoid
unjust enrichment on the part of government. The principle of quantum meruit was
likewise applied in Eslao v. Commission on Audit,98 because to deny payment for a
building almost completed and already occupied would be to permit government to
unjustly enrich itself at the expense of the contractor. The same principle was applied in
Republic v. Court of Appeals.99
One possible practical solution would be for government - in view of the nullity of the
Piatco contracts and of the fact that Terminal III has already been built and is almost
finished - to bid out the operation of the facility under the same or analogous principles
as build-operate-and-transfer projects. To be imposed, however, is the condition that the
winning bidder must pay the builder of the facility a price fixed by government based on
quantum meruit; on the real, reasonable - not inflated - value of the built facility.
How the payment or series of payments to the builder, funders, investors and
contractors will be staggered and scheduled, will have to be built into the bids, along
with the annual guaranteed payments to government. In this manner, this whole sordid
mess could result in something truly beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL
and VOID.
Footnotes
1 An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector.
2 G.R. No. 155001.
3 G.R. No. 155547.
4 G.R. No. 155661.
5 An international airport is any nation's gateway to the world, the first contact of
foreigners with the Philippine Republic, especially those foreigners who have not been
in contact with the wonderful exports of the Philippine economy, those foreigners who
have not had the benefit of enjoying Philippine export products. Because for them, when
they see your products, that is the face of the Philippines they see. But if they are not
exposed to your products, then it's the airport that's the first face of the Philippines they
see. Therefore, it's not only a matter of opening yet, but making sure that it is a world
class airport that operates without any hitches at all and without the slightest risk to
travelers. But it's also emerging as a test case of my administration's commitment to
fight corruption to rid our state from the hold of any vested interest, the Solicitor
General, and the Justice Department have determined that all five agreements covering
the NAIA Terminal 3, most of which were contracted in the previous administration, are
null and void. I cannot honor contracts which the Executive Branch's legal offices have
concluded (as) null and void.
I am, therefore, ordering the Department of Justice and the Presidential Anti-Graft
Commission to investigate any anomalies and prosecute all those found culpable in
connection with the NAIA contract. But despite all of the problems involving the PIATCO
contracts, I am assuring our people, our travelers, our exporters, my administration will
open the terminal even if it requires invoking the whole powers of the Presidency under
the Constitution and we will open a safe, secure and smoothly functioning airport, a
world class airport, as world class as the exporters we are honoring today. (Speech of
President Arroyo, emphasis supplied)
6 Art. VIII, Sec. 1, Philippine Constitution.
7 MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and Philippine Airlines.
8 Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and (e)
and 3.02, ARCA.
9 Kilosbayan, Inc. v. Morato, G.R. No. 118910, July 17, 1995, 246 SCRA 540, 562-563,
citing Baker v. Carr, 369 U.S. 186, 7 L. Ed. 633 (1962).
10 Id.; Bayan v. Zamora, G.R. No. 138570, October 10, 2000; 342 SCRA 449, 478.
11 Rollo, G.R. No. 155547, p.12.
12 Article VI, Section 29 (1).
13 G.R. No. 39842, March 28, 1934, 59 Phil 823.
14 G.R. No. 29627, December 19, 1989; 180 SCRA 254, 260-261.
15 G. R. No. 113375, May 5, 1994.
16 Id.
17 Id. citing Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
18 Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian
Reform, G. R. No. 78742, July 14, 1989; 175 SCRA 343, 364-365 [1989].
19 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993; 217 SCRA 633, 652.
20 G.R. No. 136154, February 7, 2001; 351 SCRA 373, 381.
21 G.R. No. 135362, December 13, 1999; 320 SCRA 610.
22 Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, February 7, 2001;
351 SCRA 373, 382.
23 Rollo, G.R. No.155001, pp. 2487-2488.
24 Section 5, R.A. No. 7718.
25 At the United States Dollar-Philippine Peso exchange rate of US$1:P26.239 quoted
by the Bangko Sentral ng Pilipinas at that time.
26 Rollo, G.R. No.155001, pp. 2471-2474.
27 Id. at 2475-2477. Derived from the figures on the authorized capital stock and the
shares of stock that are subscribed and paid-up.
28 Id. at 2478-2484.
29Member Maximum
Amount of Equity
Security Bank
P528,525,656.55
PAGS
26,735,700.00
Paircargo
3,123,515.00
TOTAL
P558,384,871.55
30 Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July 12,
1991; 199 SCRA 134, 146-147. Emphasis supplied.
31 Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989, 175
SCRA 701, 713. Citations omitted.
32 A. Cobacha & D. Lucenario, Law on Public Bidding and Government Contracts 13
(1960).
33 Diamond v. City of Mankato, et al., 93 N.W. 912.
34 G.R. No. L-5439, December 29, 1954; 96 Phil 368.
35 Id. at 375.
36 Section 6.03, draft Concession Agreement.
37 Sections 1.33 and 6.03(b), 1997 Concession Agreement.
38 Sections 1.27 and 6.06, 1997 Concession Agreement.
39 Emphasis supplied.
40 Emphasis supplied.
41 Referred to as "Passenger Service Fee" under the draft Concession Agreement.
42 Section 6.05 Interim Adjustment
(a) Concessionaire may apply for and, if warranted, may be granted an interim
adjustment of the fees and charges constituting Public Utility Revenues upon the
occurrence of extraordinary events resulting from any of the following:
a depreciation since the last adjustment by at least fifteen percent (15%) of the value of
the Philippine Peso relative to the US Dollar using the exchange rates published by the
Philippine Dealing System as reference;
an increase since the last adjustment by at least fifteen percent (15%) in the Metro
Manila Consumer Price Index based on National Census and Statistics Office
publications;
an increase since the last adjustment in MERALCO power rates billing by at least fifteen
percent (15%);
an increase since the last adjustment in the 180-day Treasury Bill interest rates by at
least thirty (30%).
xxx
xxx
xxx
43 Section 6.05, draft Concession Agreement.
44 Section 1.33, 1997 Concession Agreement.
45 Supra note 31.
46 Malaga v. Penachos, Jr., G.R No. 86695, September 3, 1992; 213 SCRA 516, 526.
47 A. Cobacha & D. Lucenario, Law on Public Bidding and Government Contracts 6-7
(1960).
48 Emphasis supplied.
49 Concession Agreement, Art. 4, Sec. 4.04 (b) and (c), Art. 1, Sec. 1.06, July 12, 1997.
50 Ibid.
51 Id. at Art. 4, Sec. 4.04 (c).
52 Record of the Senate Second Regular Session 1993-1994, vol. III, no. 42, p. 362.
53 Republic Act No. 7718, Secs. 2 and 4-A, Implementing Rules and Regulations, Rule
11, Secs. 11.1 and 11.3.
54 Emphasis and caption supplied.
55 Sec. 1.06, ARCA.
56 Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994; Implementing Rules
and Regulations, Rule 10, Sec. 10.1.
57 Implementing Rules and Regulations, Rule 10, Sec. 10.4.
58 North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October 31, 1936;
Intestate estate of the deceased Florentino San Gil. Josefa R. Oppus v. Bonifacio San
Gil, G.R. No. 48115, October 12, 1942; San Diego v. Municipality of Naujan, G.R. No. L9920, February 29, 1960; Favis vs. Municipality of Sabañgan, G.R. No. L-26522, 27
February 1969; City of Manila vs. Tarlac Development Corporation, L-24557, L-24469 &
L-24481, 31 July 1968; In the matter of the Petition for Declaratory Judgment on Title to
Real Property (Quieting of Title) Pechueco Sons Company v. Provincial Board of
Antique, G.R. No. L-27038, January 30, 1970; Fornilda v. The Branch 164, Regional
Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306, October 5, 1988; Laurel v.
Civil Service Commission, G.R. No. 71562, October 28, 1991; Davac v. Court of
Appeals, G.R. No. 106105, April 21, 1994.
59 Republic Act No. 7718, Sec. 1.
60 III Record of the Constitutional Commission, pp. 266-267 (1986).
61 Id.
62 Except for providing for the suspension of all payments due to the Government for
the duration of the takeover, Article V, Section 5.10(b) of the ARCA contains the same
provision. Emphasis and caption supplied.
63 Id.
64 Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good
Government, G.R. No. 75885, May 27, 1987 citing Freund, The Police Power (Chicago,
1904).
65 Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968.
66 Black's Law Dictionary, 4th Ed., p. 1158.
67 36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21 L ed 394.
68 Concession Agreement ("CA") dated July 12, 1997, Art. III, Sec. 3.02(a); Amended
and Restated Concession Agreement ("ARCA") dated November 26, 1998, Art. III, Sec.
3.02(a).
69 Ibid.
70 Id. at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
71 The day immediately following the day on which the Certificate of Completion is
issued or deemed to be issued.
72 Id. at CA, Art. III, Sec. 3.01(a) and (b); ARCA, Art. III, Sec. 3.01 (a) and (b).
73 Id. at CA, Art. III, Sec. 3.01(d) and (e); ARCA, Art. III, Sec. 3.01(d) and (e).
74 Executive Order No. 903, as amended, Sec. 4 (b) and (c).
75 Art. XII, Sec. 19, Philippine Constitution.
76 Republic Act No. 7718, Sec. 1.
77 Transcript of Oral Arguments, p. 157, December 10, 2002.
78 G.R. No. L-54958, September 2, 1983; 09 Phil. 400.
79 Executive Order No. 903, July 21, 1983, provides:
Section 5. Functions, Powers, and Duties. — The Authority shall have the following
functions, powers and duties:
xxx
(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development,
maintenance, operation and improvement of the Airport and to control and/or supervise
as may be necessary the construction of any structure or the rendition of any service
within the Airport;
VITUG, J.:
1 Article VIII, Section 5(1), 1987 Constitution.
2 Matuguina Integrated Products, Inc. vs. CA, 263 SCRA 490; Mafinco Trading
Corporation vs. Ople, 70 SCRA 139.
3 Mafinco Trading Corporation vs. Ople, supra.
4 Section 1, Rule 63, Rules of Court.
5 In re: Bermudez, 145 SCRA 160.
6 235 SCRA 630, 720.
7 298 SCRA 795.
PANGANIBAN, J.:
1 See Kilosbayan, Inc. v. Guingona Jr., 232 SCRA 110, May 5, 1994; and Basco v. Phil.
Amusements and Gaming Corporation, 197 SCRA 52, May 14, 1991.
2 COMELEC v. Quijano-Padilla, GR No. 151992, September 18, 2002.
3 Vide: ABS-CBN Broadcasting Corp. v. Commission on Elections, 323 SCRA 811,
January 28, 2000; likewise, COMELEC v. Quijano-Padilla, supra.
4 See Respondent PIATCO's Memorandum, pp. 25-26.
5 See public respondents' Memorandum, p. 24.
6 307 SCRA 394, 399, May 19, 1999, per Panganiban, J.
7 175 SCRA 264, July 11, 1989.
8 Supra, Paras, J.
9 As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora, 342 SCRA 449,
480-481, October 10, 2000.
10 RA No. 6957 as amended by RA No. 7718.
11 Par. 3.6.1 on page 8 of the Bid Documents.
12 Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the Bid Documents.
However, this was later clarified in Bid Bulletin No. 3(B)(6) to read 30% of Project Cost,
to bring the same in line with the draft concession agreement's Art. II Sec. 2.01(a),
which specifically set the project's debt-to-equity ratio at 70:30, thereby requiring a
minimum equity of 30% of project cost.
13 The consortium was composed of Paircargo, PAGS and Security Bank. Paircargo's
audited financial statements as of 1993 and 1994 showed a net worth of P2,783,592
and P3,123,515 respectively. PAGS' audited financial statements as of 1995 showed a
paid-up capital of P5,000,000 and deposits on future subscriptions of P21,735,700, or
an aggregate of P26,735,700 of equity available to invest in the project. Security Bank's
audited statements for 1995 showed a net worth of P3,523,504,377. However, the
bank's entire net worth was not available for investment in the project since Sec. 21-B of
the General Banking Act provides inter alia that a commercial bank's equity investment
in any one enterprise, whether allied or non-allied, should not exceed 15% of the net
worth of the investing bank. This limitation is reiterated in Sec. 1381.1.a. of the Manual
for Banks and Other Financial Intermediaries. Thus, the maximum amount which
Security Bank could have legally invested in the project was only P528,525,656.55. And
consequently, the maximum amount of equity which the consortium could have put up
was only P558,384,871.55.
14 199 SCRA 134, July 12, 1991.
15 Malaga v. Penachos Jr., 213 SCRA 516, September 3, 1992.
16 Part of the bid process under the BOT Law is the right of the originator of an
unsolicited proposal to match a price challenge. Pursuant to Sec. 4-A, "in the event
another proponent submits a lower price proposal, the original proponent shall have the
right to match that price within thirty (30) working days."
17 Cf. Malaga v. Penachos, Jr., supra.
18 §11.2, 1994 IRR.
19 Public respondents' Memorandum, pp. 86-87; prepared jointly by the solicitor
general, the acting government corporate counsel, and their respective deputies and
assistants.
20 Supra, note 14, per Medialdea, J.
21 §§3.01(d), 3.01(e), 3.02(a), 3.02(b) and 5.15 of the CA.
22 See §1.06 of the CA.
23 §3.02 of the CA.
24 §2.05 of the CA.
25 The parametric formula referred to in the CA applies only to the following so-called
public utility fees: aircraft parking and tacking fees, check-in counter fees and terminal
fees.
26 Fernandez, A Treatise on Government Contracts under Philippine Law, 2001 ed., p.
70.
27 96 Phil. 368, December 29, 1954.
28 Id., p. 375, per Paras, CJ.
29 63 SCRA 170, 177-178, March 21, 1975, per Antonio, J.
30 Cf . §1.06 of the ARCA vis-à-vis § 1.06 of the CA.
31 §4.04 and 8.01 of the ARCA vis-à-vis §8.04 of the CA.
32 As cf. Annex "G" of the ARCA vis-à-vis Annex "G" of the CA.
33 Cf . §8.04(d) of the ARCA vis-à-vis §9.01(d) of the CA.
34 Cf . §2.05 of the ARCA vis-à-vis §2.05 of the CA.
35 Cf . §5.08(a) of the ARCA vis-à-vis §5.08(a) of the CA.
36 Cf . § 6.03(a)(i) of the ARCA vis-à-vis §6.03(a) of the CA.
37 Cf . §8.01(b) and §12.09 of the ARCA vis-à-vis §8.04(b) and 12.09 of the CA.
38 Cf . §8.03(a)(i) of the ARCA vis-à-vis §8.06(a)(i) of the CA.
39 §2.05(g) of the ARCA.
40 §4.04(b) of the ARCA.
41 §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA.
42 Cf . §8.01(b) of the ARCA vis-à-vis § 8.04(b) of the CA.
43 §12.14 of the ARCA.
44 Cf. §§1.11(b) and 5.06 of the ARCA vis-à-vis §§1.11(b) and 5.06 of the CA.
45 §2 of the FS, amending §1.36 of the ARCA.
46 §3 of the FS, amending §2.05(d) of the ARCA.
47 Ibid.
48 §4 of the FS, adding §2.05(h) to ARCA.
49 §4 of the FS, adding §2.05(i) to ARCA.
50 §4 of the FS, adding §2.05(p) to ARCA.
51 Per §4 of the FS, adding §2.05(n) to ARCA.
52 Per §4 of the FS, adding §2.05(o) to ARCA.
53 Per §4 of the FS, adding §2.05(p) to ARCA.
54 Per §4 of the FS, adding §2.05(j) to ARCA.
55 §8 of the FS, amending §6.01(c) of the ARCA.
56 §9 of the FS, amending §6.02 of the ARCA.
57 §Sec. 21 of the SS.
58 Per §3.1 of the TS.
59 Vide §3.4 of the TS.
60 §4.2 of the TS.
61 Page 37.
62 §8.01 (a) of the ARCA.
63 Namely, the airports at the Subic Bay Freeport Special Economic Zone, the Clark
Special Economic Zone, and Laoag City.
64 Memorandum, pp. 5-7, of the petitioners-in-intervention.
65 §3.02 a): ". . . With regard to CSEZ, GRP shall ensure that, until such time as the
Development Facility Capacity shall have been consistently reached or exceeded for
three (3) consecutive years during the Concession Period, (i) Clark International Airport
shall not be operated beyond its design capacity of Eight Hundred Fifty Thousand
(850,000) passengers per annum and (ii) no new terminal facilities shall be operated
therein. "Development Facility Capacity" refers to the ten million (10,000,000)
passenger capacity per year of the Development Facility."
66 §3.02(a) of the ARCA and §3.02(a) of the CA.
67 §3.02(b) and (c) of the ARCA, and §3.02(b) of the CA.
68 §3.02(b) and (c) of the ARCA and §3.02(b) of the CA. Pertinent portions of §3.02(b)
of the ARCA are quoted hereinbelow:
"(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger terminals
in order to allow Concessionaire, during the entire Concession Period, to exclusively
operate a commercial international passenger terminal within the island of Luzon;
provided that the aforesaid exclusive right to operate a commercial international
passenger terminal shall be without prejudice to the international passenger terminal
operations already existing on the date of this Agreement in SBFSEZ, CSEZ and Laoag
City (but subject to the limitation with regard to CSEZ referred to in Section 3.02[a]).
Neither shall GRP, DOTC or MIAA use or permit the use of Terminals I and/or II under
any arrangement or scheme, for compensation or otherwise, with any party which would
directly or indirectly compete with Concessionaire in the latter's operation of and the
operations in the Terminal and Terminal Complex, including without limitation the use of
Terminals I and/or II for the handling of international traffic; provided that if Terminals I
and/or II are operated as domestic passenger terminals, the conduct of any activity
therein which under the ordinary course of operating a domestic passenger terminal is
normally undertaken, shall not be considered to be in direct or indirect competition with
Concessionaire in its operation of the Development Facility."
69 Sec. 3.01(d) of the ARCA and the CA reads as follows:
"(d) For the purpose of an orderly transition, MIAA shall not renew any expired
concession agreement relative to any service or operation currently being undertaken at
the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession
agreement which may expire subsequent hereto, except to the extent that the
continuation of existing services and operations shall lapse on or before the In-Service
Date. Nothing herein shall be construed to prohibit MIAA from maintaining
arrangements for the uninterrupted provision of essential services at the Ninoy Aquino
International Airport Passenger Terminal I until the Terminal shall have commenced
operations on the In-Service Date, and thereafter, from making such arrangements as
are necessary for the utilization of NAIA Passenger Terminal I as a domestic passenger
terminal or as a facility other than an international passenger terminal.
70 Sec. 3.01(e) of the ARCA and the CA reads as follows:
"(e) GRP confirms that certain concession agreements relative to certain services or
operations currently being undertaken at the Ninoy Aquino International Airport
Passenger Terminal I have a validity period extending beyond the In-Service Date. GRP,
through DOTC/MIAA, confirms that these services and operations shall not be carried
over to the Terminal and that Concessionaire is under no legal obligation to permit such
carry-over except through a separate agreement duly entered into with Concessionaire.
In the event Concessionaire becomes involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and
harmless on a full indemnity basis from and against any loss and/or liability resulting
from any such litigation, including the cost of litigation and the reasonable fees paid or
payable to Concessionaire's counsel of choice, all such amounts being fully deductible
by way of an offset from any amount which Concessionaire is bound to pay GRP under
this Agreement."
71 PIATCO Comment, par. 9, on p. 6.
72 PIATCO letter dated October 14, 2002 addressed to the Board of Airline
Representatives, copy attached as Annex "OO-Service Providers".
73 Based on the PAGSGlobeground GIS as of July 2000, attached as Annex "LLService Providers" to the Memorandum of petitioners-in-intervention.
74 Based on the Orbit GIS as of August 2000, attached as Annex "MM-Service
Providers" to the Memorandum of petitioners-in-intervention.
75 Based on the Friendship Holdings, Inc. GIS as of December 2001, attached as
Annex "NN-Service Providers" to the Memorandum of petitioners-in-intervention.
76 Per the Articles of Incorporation of PAGS, attached as Annex "Y-Service Providers"
to the petition-in-intervention.
77 Per the GIS of Piatco as of May 2000.
78 Per §5.15 of both the CA and the ARCA.
79 Copy of which was presented by Piatco to the Senate Blue Ribbon Committee during
committee hearings.
80 281 SCRA 330, November 5, 1997.
81 Id., pp. 355-358, per Puno, J.
82 89 SCRA 336, April 11, 1979.
83 Id., p. 376, per Antonio, J.
84 Please see footnote 70 supra.
85 §3.02(a) of the CA and §3.02(a) of the ARCA.
86 §3.02(b) of the CA and §3.02(b) and (c) of the ARCA.
87 Ibid.
88 §1, Art. III, Constitution.
89 197 SCRA 409, May 23, 1991, per Gutierrez Jr., J.
90 See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.
91 Davao Stevedores Mutual Benefit Association v. Compañia Maritima, 90 Phil. 847,
February 29, 1952.
92 §29(1), Article VI, 1987 Constitution.
93 Commission on Elections v. Quijano-Padilla, GR No. 151992, September 18, 2002,
p. 20, per Sandoval-Gutierrez, J.
94 §1.23 of the ARCA defines Incremental and Consequential Costs as "additional costs
properly documented and reasonably incurred by Concessionaire (including without
limitation additional overhead costs, cost of any catch-up program, demobilization, remobilization, storage costs, termination penalties, increase in construction costs,
additional interest expense, costs, fees and other expenses and increase in the cost of
financing) in excess of a budgeted or contracted amount, occasioned by, among other
things, delay in the prosecution of Works by reason not attributable to Concessionaire
or a deviation from the Tender Design or any suspension or interference with the
operation of the Terminal Complex by reason not attributable to Concessionaire. . . ."
95 Memorandum of Agreement between the Manila International Airport Authority and
the Department of Public Works and Highways, p. 2.
96 When I asked this question, Atty. Jose A. Bernas replied that if Piatco is deemed a
builder in good faith then it may be entitled to some form of compensation under the
principle barring unjust enrichment. But if it is found to be a builder in bad faith then it
may not be entitled to compensation. (See TSN, December 10, 2002, pp. 58-71.) Faced
with the same question, Solicitor General Alfredo L. Benipayo responded that the facility
will not be torn down but taken over by government by virtue of police power or eminent
domain. (Id., pp. 94-99.) When asked the same question, Atty. Eduardo delos Angeles
explained that under the provision on Step in Rights, the senior lenders can designate a
qualified operator to operate the facility. (Id., pp. 225-226.) This solution, however,
assumes that this contractual provision is valid.
97 200 SCRA 704, August 16, 1991.
98 195 SCRA 730, April 8, 1991.
99 299 SCRA 199, November 25, 1998.
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Random Musings of A Wandering Jaguar
Agan vs PIATCO GR No 155001 05 May 2003
11 Wednesday Mar 2015
Posted by Rachel Chan in Case Digests, Constitutional Law I≈ Leave a comment
Facts: Petitioners filed instant petitions for prohibition seeking to prohibit the Manila
International Airport Authority (MIAA) and the Department of Transportation and
Communications (DOTC) and its Secretary from implementing the following agreements
executed by the Philippine Government through the DOTC and the MIAA and the
Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement
signed on July 12, 1997, (2) the Amended and Restated Concession Agreement dated
November 26, 1999, (3) the First Supplement to the Amended and Restated
Concession Agreement dated August 27, 1999, (4) the Second Supplement to the
Amended and Restated Concession Agreement dated September 4, 2000, and (5) the
Third Supplement to the Amended and Restated Concession Agreement dated June 22,
2001 (collectively, the PIATCO Contracts).
Issue: Whether or not petitioning employees has legal standing to raise validity of the
PIATCO contracts?
Decision: Petition granted and contracts declared null and void. Petitioner’s have direct
and substantial interest to protect by reason of the implementation of the PIATCO
contracts. They stand to lose their source of livelihood, a property right which is
protected by the Constitution. Subsisting agreements between MIA and petitioners
stand to be terminated by the PIATCO contracts. The financial prejudice brought about
by the PIATCO contract to petitioners is legitimate interests sufficient to give them legal
standing to file the petition.
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ConstitutionStatutesExecutive IssuancesJudicial IssuancesOther
IssuancesJurisprudenceInternational Legal ResourcesAUSL Exclusive
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-49308
May 13, 1948
MARIA LUISA MARTINEZ, petitioner,
Vs.
MANUEL H. BARREDO, ET AL., respondents.
Delfin L. Gonzales for petitioner.
Antonio Barredo for respondents.
PARAS, J.:
On April 11, 1940, a taxicab owned by Fausto Barredo and driven by Rosendo Digman
collided in Manila thoroughfare with Chevrolet car driven by Maria Luisa Martinez. The
collision gave rise to mutual charges to damage to property through reckless
imprudence, one by Maria Luisa Martinez against Digman, and the other by Fausto
Barredo against Maria Luisa Martinez. After investigation, the fiscal filed an information
against Digman and quashed Barredo’s complaint. Digman entered a plea of guilty of
criminal case and was therefore sentenced to pay a fine of P605.97 and to indemnify
Maria Luisa Martinez in the same amount, with subsidiary imprisonment in case of
insolvency, and the costs. Digman failed to pay any of these amounts and had to
undergo corresponding subsidiary imprisonment. Due to the inability of Digman to pay
the indemnity, Maria Luisa Martinez, filed an action in the Court of First Instance of
Manila against Fausto Barredo, as Digman’s employer, for the purpose of holding him
subsidiarily liable for said indemnity under articles 102 and 103 of the Revised Penal
Code. At the trial Maria Luisa Martinez relied solely of the judgment of conviction
against Rosendo Digman, the writ of execution issued against him, a certificate of the
Director of Prisons regarding Digman’s service of subsidiary imprisonment, and the
information filed against Digman. Maria Luisa Martinez obtained a favorable judgment
from which Barredo appealed to the Court of Appeals. The letter court, reversing the
decision of the Court of First Instance, held that the judgment of conviction was not
conclusive against Barredo and its weight as prima facie evidence was overcome by the
evidence presented by Barredo. Hence the present appeal of Maria Luisa Martinez by
way of certiorari.
The Important question is whether a judgment of conviction sentencing the defendant to
pay an indemnity is conclusive in an action against his employer for enforcement of the
latter’s subsidiary liability under articles 102 and 103 of the Revised Penal Code. The
appealed decision makes reference to two earlier decision of this Court, namely, City of
Manila vs. Manila Electric Co., 52 Phil., 586, holding that such judgment of conviction is
not admissible, and Arambulo vs. Manila Electric Co., 55 Phil., 75, in effect holding that
it is merely prima facie evidence, and to the prevailing view in the United States to the
effect that the person subsidiary liable is bound by the judgment if the former had the
notice of the criminal case and could have defendant it had he seen fit to do so, and that
otherwise such judgment is only prima facie evidence.
After very careful reflection, we have arrived at the opinion that the judgment of
conviction, in the absence of any collusion between the defendant and the offended
party, should bind the person subsidiary liable. The stigma of a criminal conviction
surpasses in effect and implications mere civil liability. Common sense dictates that a
finding of guilt in a criminal case in which proof beyond reasonable doubt is necessary,
should be nullified in a subsequent civil action requiring only preponderance of evidence
to support a judgment, unless those who support the contrary rule should also hold that
an absolution in a civil case will operate to automatically set aside the verdict against
the defendant in a criminal case. It is anomalous, to say the least, to suppose that the
driver, excelling that “Dr. Jekyll and Mr. Hyde”, could be guilty of reckless negligence in
so far as his obligation to pay indemnity is concerned, and at the same time could be
free from any blame when said indemnity is concerned, and at the same time could be
free from any blame when said indemnity is sought to be collected in his employer,
although the right to indemnity arose from and was based on one and the same act of
the driver.
The employer can not be said to have been deprive of his day in court, because the
situation before us is not one wherein the employer is sued for a primary liability under
article 1903 of the Civil Code, but one in which enforcement is sought of a subsidiary
civil liability incident to and defendant upon his driver’s criminal negligence which is a
proper issue to be tried and decided only in criminal action. In other words, the
employer becomes ipso facto subsidiary liable upon his driver’s conviction and upon
proof of the latter’s insolvency, in the same way that acquittal wipes out not only the
employee’s primary civil liability but also his employer’s subsidiary liability for such
criminal negligence. (Almeida et al., vs. Abaroa, 8 Phil., 178, affirmed in 218 U.S., 476;
Law ed., 1116; Wise and Co. vs. Lariton, 45 Phil., 314, 320; Francisco vs. Onrubia, 46
Phil., 327; Province of Ilocos Sur vs. Tolentino, G.R. No. 34186, 56 Phil., 829; Moran,
Comments on the Rules of Court, Vol. II, p. 403.).
It is high time that the employer exercise the greatest care in selecting his employees,
taking real and deep interest in their welfare; intervening in any criminal action brought
against them by reason of or as a result of the performance of their duties if only in the
way of giving them the benefit of counsel; and consequently doing away with practice of
leaving them to their fates. If this be done, the American rule requiring notice on the part
of the employer shall have been satisfied.
It becomes unnecessary to rely on the circumstance that the filing of mutual charges by
Fausto Barredo and Maria Luisa Martinez, with the result, as abovestated, that while the
fiscal proceeded in filing the information against Digman, he quashed the charges of
Fausto Barredo, may easily lead to the presumption that the latter should have had
knowledge of the criminal case against his driver. We need not also make any
pronouncement to the effect that the prevailing American view is based upon
substantive and procedural laws not similar to those obtaining to his jurisdiction.
Wherefore, the decision of the Court of Appeals is reversed, and Fausto Barredo, now
substituted by his heirs and legal representatives, are hereby sentenced to pay, subject
to Executive Order No. 32 on Moratorium, to the petitioner, Maria Luisa Martinez, the
sum of P605.97, with legal interest from the date of the filing of complaint. So ordered
with costs against the respondents.
Pablo and Bengzon, JJ., concur.
Separate Opinions
PERFECTO, J., concurring:
The proposition that a final judgment of conviction against an accused cannot be
admitted as evidence in a civil action for damages against the same accuse to prove the
facts upon which the judgment was founded appears to us so shocking to common
sense as to merit being classified in the category of a judicial doctrine. The fact that the
proposition has been and is supported by a number of wise judges and respectable
authors on evidence does not imply any intention to disparage or any suggestion that
said judges and authors less deserve our respect. We only mean to express an honest
opinion dictated by conscience, over and above any pretense of dogmatism or
infallibility on the part of those who see things differently.
When the offended spouse in a case of adultery or concubinage institutes a civil action
for divorce, according to our laws and judicial practice, the plaintiff need not present
again the evidence for the prosecution upon which a judgment of conviction was
rendered in a criminal proceedings so as to prove the facts constituting the legal ground
for divorce. Such laws and judicial practice are in accordance with the way of reasoning
the sense of logic and justice of our people. There is no perceivable valid ground why
the same rule and practice should not be followed in a civil case for the enforcement of
a civil liability subsidiary to the main civil liability springing from the criminal offense of
damage to property. It is not easy to understand why our own logic has to be
surrendered to the dicta of authority, whether domestic or foreign, adverse to the
dictates of our own conscience.
In the case at bar, according to the express provisions of the Revised Penal Code,
respondents’ liability was and is dependent on the criminal responsibility of his driver.
That criminal responsibility entails civil liability for the damages of the chauffeur. When
the latter can not meet the civil responsibility, the obligation to satisfy the same devolves
by law upon his employer who, therefore, has to shoulder a subsidiary civil liability.
Once the criminal offense from which the principal and subsidiary civil liability arises has
been proved conclusively by the final conviction of the guilty driver, there is no sense in
contending that, in the action to enforce the subsidiary of liability, the final judgment of
conviction cannot be admitted as conclusive evidence and the offended party has to go
to the trouble of reproducing or repeating evidence for the prosecution of the criminal
case.
The employer cannot invoke the protection of the due process of law clause, because
by express provision of the Revised Penal Code, upon the institution of the criminal
proceedings against his driver, he becomes a party in the criminal proceedings, in virtue
of his subsidiary civil liability. The law presumes that the employer cannot fail to be
acquainted with the criminal proceedings, the presumption being based on the very
nature of things, and, in the present case, there is conclusive evidence that the
employer was cognizant of the criminal proceedings against his driver. The presumption
of the law is based on actual experience. When a taxicab, used for public service,
causes damage to the taxicab will surely take notice then of the criminal prosecution
instituted against his driver, not only because the owner cannot fail to notice the
damage that his taxicab may have suffered, but because the driver has to be
suspended from the service by the employer in view of the former’s offense or of the
suspension of his driver’s license.
BRIONES, M., conforme:
Estoy conforme con la ponencia. Me reservo, sin embargo, el registrar un dictamen
separado para mas tarde.
FERIA, J., with whom concurs MORAN, C.J., dissenting:
It is well settled that the judgment of conviction of the defendant in a criminal
proceedings can not be admitted in evidence in a civil action for damages against the
same defendant to prove the facts upon which it was founded. Wharton’s Criminal
Evidence, 11th ed. Pp. 1462-1463; Jones on Evidence, 1938 ed. Pp. 1119-1120; 5
Wigmore on Evidence, 3rd ed. P. 689; 2 Freeman on Judgment, fifth ed. Section 653; 34
C.J., section 1388, p. 971; 30 American Jurisprudence, sec. 293, p. 1005.
There seems to be a tendency to relax the rule, and in several cases, among them,
Magbie, vs. Avery, 18 Johns, 532, quoted in Schnidler vs. Royal Ins. Co. of City of New
York vs. Militello, 100 Colo., 343; 67 Pac. (2w.), 625, quoted in 5 Wigmore on Evidence,
3rd ed. Pp. 692-693, and Approximately Fifty Nine Gambling Devises vs. People, ex rel.
Barke, 130 Pac. (2nd ed.), 920, the judgment of conviction in a criminal action was
admitted, in a civil case against the same defendant, as prima facie evidence of the
facts Involved, having the legal effect of shifting the burden of going forward with the
evidence. But the rules has never been relaxed to the extent of regarding a judgment of
conviction as conclusive, in a civil action against the same defendants, of the facts
adjudicated in the criminal action. The only case in which it was so considered is in
Eagle Star British Dominion, Ins. Co. vs. Heller, 149 Va., 82; 123 A.L.R. 490, referred to
in 30 of Am. Jur., Sec. 293, p. 1005, which was not followed in Same vs. Davidson, I
NYS (2d), 374, by the Court of Appeals of New York, and in North River Ins. Co. of City
of New York vs. Militello, 100 Col., 343; 67 Pac. (2d) 625, (quoted with approval by Prof.
Wigmore in his work in Evidence, Vol. V, p. 693), in which the Supreme Court of
Colorado said that “it would be more definitely a legislative function to declare such a
public policy" of regarding the judgment As “conclusive evidence for the purpose of
establishing the material fact even though such fact was the basis of the conviction.
Mr. Morgan, Professor of Evidence in Yale University and member of the American
Institute of Law, in discussing on May 7, 1941, the tentative draft of section 621 of the
Model Code of Evidence with provides that “A subsisting or misdemeanor is admissible
as tending to prove the facts recited therein and every fact essential to sustain the
judgment,” said the following:
Rule 621. Judgments of Conviction — goes farther than the cases do because it makes
a judgment of conviction admissible wherever it is relevant. The present cases admit it
against a defendant; that is a majority of them — may be I am going too far. The
majority of the modern cases admit a defendant who has been convicted and against
his privies so far as we have those cases; then there are some statutes that admit it in
cases where another person is charged with the same crime. We have gone farther
than that, and we believed that the reason back of the rule is that it is just as applicable
generally as in the particular cases which the common laws recognizes. There is one
case that makes it conclusive evidence in every case, Heller vs. Insurance Company.
The New York Court of Appeals refused to follow this case, and it stands alone. (The
American Law Institute, Vol. XVIII, p. 184.).
Presumably the decision of the New York Court of Appeals which refused to follow the
ruling in Heller vs. Insurance Co. and to which Prof. Morgan refers, is that rendered in
Same vs. Davidson (1937) 253 App. Div., 123, I NYS (2d), 374, in which it was held that
“in an action for damages arising out of an automobile collision the judgment of the
conviction of the defendant, upon a plea of guilty to a violation of a city ordinance for
driving at more than 25 miles per hour at the time of the accident, was prima facie
evidence of the facts involved. (130 A.L.R.A., p. 700.).
The chief reason for excluding the judgment of a criminal execution from evidence of a
criminal execution from evidence in a civil case is that “the parties to the two
proceedings are different. One who had been damage by some criminal act of another
has claimed for remuneration, independent of the right of the public to proceeds against
the offender, and to inflict the penalty prescribed by law. This right to compensation is
damages ought not to be, and is not, dependent on the success of failure of the
prosecution conducted by the people. If it were, the party most injured would be
prejudiced by a proceeding to whichh he was a party, and which he had no power to
control. A person convicted of any offense is not estopped by the conviction by disputing
the facts on which it is based in a civil action, because his adversary in the civil action
would not have been barred if the prosecution is terminated in an acquittal. While the
difference in parties and lack of mutuality are a logical and sufficient reasons given are
the different rules of evidence and procedure which prevail in civil and criminal cases
and the differing degrees of proof required. But the only real occasion or necessity for
resorting to the latter class of reasons is in those cases where the parties are the same.
(2 Freeman on Judgments, 5th ed., section 654, p. 1379.)
In the United States the criminal action and civil action against the offender are
instituted separately and that practice necessitated the formulation of the said rule. In
this jurisdiction, “When the criminal action is instituted the civil action for recovery of civil
liability arising from the offense charges is impliedly instituted with the criminal action,"
and the court must make the pronouncement in the criminal action on the civil liability of
the defendant (section 1 [a], Rule 107). Therefore the rule above the set forth may be
applied only where offended party has reserved expressly his right to institute, and
institutes separately from the criminal action, the civil action for damages arising out the
of the criminal offense; because the reasons above set forth underlying the rule in the
United States are the same or applicable in this jurisdiction, except in case the judgment
of acquittal of the defendant is based on the ground “that the fact from which the civil
(action) might arise did not exist” in which case it would be a bar to civil action. (Section
1 [d] Rule 108, Rules of Court.).
In Guevarra vs. Almario et al., 56 Phil., 476, which was a civil action instituted by the
offender party against the same defendant or damages arising from libel of which the
latter was convicted, this Supreme Court admitted the judgment of conviction in a
criminal prosecution, not as a conclusive but prima facie evidence of defendant’s
conviction showing that he was the author of the libelous article. The defendant Almario
was condemned to pay the civil indemnity for damages caused to the offended party by
the libel, because, according to the decision, when the case was called for the trial “the
defendants produced to evidence and contended themselves with filling a motion for the
dismissal of the case, which was denied.” The ruling in this case is correct and in
accordance with the modern tendency to relax the above-quoted rule of absolute
inadmissibility of a judgment of conviction of the defendant in a criminal case, and make
it admissible as prima facie evidence of the facts on which it is based in a civil action for
damages against the same defendant; but the cases of the City of Manila vs. Manila
Electric Co., 52 Phil., 586, and Arambulo vs. Manila Electric Co., 55 Phil., 75, 76, therein
cited, were not applicable to the question involved in the same case of Guevarra vs.
Almario; because the former were civil actions instituted by the offended parties against
the manila Electric Co., an employer subsidiary liable for the damages arising from the
felonious act of which the employees of the Manila Electric Co., Inc. were convicted in
criminal cases to which the said Manila Electric was not a party.
The law applicable in a civil action instituted by the offended party against a person
subsidiarily liable for damages arising out of the offense which an accused was
convicted, is the well established rule that “Agents and principals including, of course
masters and servants, do not, as such, have any mutual and successive relationship to
right of property. They are not in privy with each other. Consequently the principal or
master is not bound in the judgment obtained in an action by or against the agent or
servant, and vice versa, “unless the latter were a party or privy thereto by having
authorized, or actually and openly prosecuted or defended the action, or by having been
notified and given an opportunity to defend under circumstances requiring him to do so.
(1 Freeman on Judgments, section 468, pp. 1027, 1028.) The reason is that “when a
person is responsible over to another, either by operation of law or by express contract,
and notice has been given him of the pendency of the suit, and he has requested to
take upon himself the defense of it, he is no longer regarded as a stranger to the
judgment that may be recovered, because he has the right to appear and defend the
action equally as if he were a party to the record . . . whether he has to appear or not.”
(Davis vs. Smith, 79 Me., 351; 10 Alt., 55.)
It Is an evident that in civil action against the person other than the defendant, the
judgment of conviction is not admissible not only as conclusive, but even a prima facie
evidence of the facts on which it is based, because the reasons in admitting it as prima
facie evidence is that the defendant was a party in criminal action, and though of the
offended was not and the government is the complainant, the defendant had all the
safeguards afforded by law to enable him to make his defense, examine the witnesses
for the prosecution, testify in his owned behalf, and appeal. But the person subsidiarily
liable is not, and can not be a party to a criminal action against the accused or person
primarily liable, and therefore could not defend or protect his rights or interests.
The question involved in this appeal is the admissibility of the judgment of conviction in
a civil action instituted by the offended party, not against the same accused, but against
a third person subsidiary liable for the damage arising out the criminal act committed by
the defendant. It is evident that the judgment in a criminal action not being admissible in
a civil action against the same defendant who was one of the parties in the criminal
action, as conclusive evidence of the facts on which it Is based, it follows a fortiori that it
can not be admitted as such in a civil action for damages against a person subsidiarily
liable therefor who was not a party in a criminal action, as the respondent Barredo in the
present case.
In accordance with the above-quoted general rule of admissibility of the judgment of
conviction in a criminal case as evidence of the fact on which it is based in a civil action
the person subsidiary liable, this Court, in City of Manila vs. Manila Electric Co., 52 Phil.,
586, and Arambulo vs. Manila Electric Co., 55 Phil., 75, 76, held that a judgment of
conviction is not admissible as evidence of the facts on which it is based, but it may be
admitted “to show the collateral or incidental fact of the defendant’s conviction for that
offense, which gave rise to the civil liability of his part, and therefore, as he was
insolvent, the offended party was cause of action against the master or employer to
make him subsidiarily liable; because without proving the conviction of the employee to
pay the civil liability and his insolvency, the employer can not be made subsidiarily liable
even it he proves that the employee has committed the offense through reckless
negligence. For what reason, the plaintiff had to present evidence to show “that the
motorman was negligent and imprudent in running the car belonging to the defendants
Manila Electric Co., and the latter was allowed to proved his defenses, although the
court held that the defense that the employer has “acted with the negligence of a good
father of a family is not applicable to the subsidiary civil liability provides in article 20 of
the Penal Code.
This Court can not consider the judgment of conviction admissible even as a prima facie
evidence of the facts on which it is based, from the simple reason that, as already
shown, the first quoted relaxed rule applies only to civil action for recovery of civil
liability against the same defendant who was a party in the criminal action. Section 44
(b), Rule 39, provides that the judgment is only “conclusive between the parties and
their successors in interest by title subsequent to the commencement of the action.”
Section 46 of the same Rules say that “when the party is bound by the record [or
judgment] and such party stands in the relation of surety for another, the latter is also
bound from the time he has notice of the action or proceeding, and an opportunity at the
surety’s request to join in the defense.” Section 10, Rule 123, prescribes that “the right
of a party can not be prejudiced by the act declaration or omission of another, and
proceedings against one cannot affect another, except as hereinafter provided for in
section 11, 12, 13 of the same Rule. And according to section 37 of the same Rule 123,
the only case in which the testimony of the witness in a former trial may be given in
evidence in another is where the parties and the matter are the same, and the party
against whom it is to be presented has had an opportunity to cross examine the
witness, and the latter is already dead, out of the Philippines, or unable to testify.
In the present case, the judgment of conviction which sentenced the drivers to pay
besides the fine, the amount of P651 as civil damages, is not therefore admissible as
conclusive or binding upon his employers, the respondents Barredo, because said
judgment was rendered in criminal action in which the latter could not have actually and
openly defended the action, even if they knew or were notified thereof of the pendency,
because, not only they were not required under the circumstances to do so, but
because they had no opportunity to defend their interest in the criminal action. They had
no opportunity because they are not allowed by law to intervene, present the accused
as a witness in his behalf, and appeal from the judgment of the court in the criminal
action. Only offended parties are permitted by law to intervene, besides the Government
and the accused; and therefore whether or not the respondents Barredo were notified or
had knowledge of the pendency of the civil action against their employee, is of no
consequence.
All the foregoing clearly show that the conclusion arrived at by the majority that
“judgment of conviction in the absence of any collusion between the defendant and the
offended party should bind the person subsidiary liable,” is not correct. It is contrary to
the fundamental principle “that no one shall condemned or made answerable without an
opportunity to defend, that in order to bind one by a judgment to which he is not a party,
he should be allowed all means of defense open to him had he been made a party. (1
Freeman on Judgments, 5th ed., section 449, p. 934.).
The premises or arguments on which said conclusion is predicated are without any
foundation. The contention that “the stigma of a criminal conviction surpasses in effect
and implications mere civil liability,” may be true as to the civil liability of the same
employee or servant, but not of the employer or master who was not and could not be a
party to criminal action even if he had wanted to; and the assertion that ”common sense
dictates that a finding of guilt in a criminal cases in which proof beyond a reasonable
doubt is necessary should not be nullified in a subsequent action requiring
preponderance of evidence to support a judgment,” is not true. A decision in civil action
absolving the defendant of the complaint for damages arising out of the offense of which
the same defendant was convicted, or vice versa, does not nullify each other, for the
simple reason that they are of different nature and effect. A defendant may be absolved
in a civil action for damages arising out of the offense instituted before the criminal
action and convicted as guilty of said offense. Although he be sentenced to pay the
damages in civil action he may be acquitted in a criminal of the offense in the criminal
action subsequently instituted against him. And an accused may be acquitted in a
criminal action instituted before the civil action and be sentenced to pay the civil liability
arising out of the offense if the acquittal is not predicted on the fact that he did not
commit the offense from whichh the civil liability might arise. Section 1 (d), Rule 107,
Rules of Court.
If, as contended in the last part of the decision “the employer becomes ipso facto
subsidiary liable upon his driver’s conviction and upon proof of the latter’s insolvency,”
There would no need of filing a separate civil action for damages against the former,
since the judgment being executory may be enforced or executed against him after the
writ of execution has been returned unsatisfied because of the accused’s failure to pay
or perform the judgment. Under the majorities theory, a master or employer would be at
the mercy of an insolvent servant or employee, without necessity of any collusion or
connivance with the offended party, for the former may make, at his will or whim, his
master or employer responsible for damages cause by his wrongful act or
misdemeanor, by confessing guilt of the offense as in the present case, admitting his
tortious act under section 1902 and 1903 of Civil Code, or not properly defending
himself in such cases or the separate action if presented would be a matter of form,
because the judgment being conclusive against the master or employer, the latter can
not present any evidence in support of his defense.
The ruling laid down by this Court in City of Manila vs. Manila Electric Co. and reiterated
in Arambulo vs. City of Manila above quoted is squarely applicable as a precedent to
this case, and there is absolutely no reason for reversing it adopting the doctrine that
the majority want to lay down, which is unprecedented and contrary to law and reason.
But it is to be observed that the obiter dictum found in the decision in “City of Manila vs.
Manila Electric” supra, to the effect that the defendant corporation might have been
concluded by the judgment had it supplied the lawyer for the accused, would not have
been inserted by the writer of the decision, had the matter been given some
consideration. A person subsidiary liable does not take part in, and much less control,
the criminal proceedings by supplying the lawyer for the accused. For said person
cannot file an answer for himself, cross examine the witness for the prosecution in his
behalf, allege and prove any defenses he may have to the civil liability which the court
may impose upon the defendant, compel the accused to testify as the witness, and
appeal from the judgment as to the civil indemnity. The defense is completely under the
control of the accused; and the attorney supplied by the person who might be subsidiary
liable for the civil indemnity, has to defend the accused, and not any other person who is
not and can not be a party without violating the elementary rules of legal ethics.
In view of all the foregoing, the judgment of the Court of Appeals is affirmed on the
ground above set forth, with cost against the former. So ordered.
The Lawphil Project – Arellano Law Foundation
Title
Martinez vs. Barredo
Case
G.R. No. 49308
Ponente
PARAS, J
Decision Date
May 13, 1948
A collision between a taxicab and a Chevrolet car leads to a judgment of conviction
against the driver, holding the owner of the taxicab subsidiarily liable for damages,
emphasizing the importance of criminal convictions in determining civil liability and the
need for employers to intervene in criminal actions brought against their employees.
Outline
Paragraph
Case Digest (G.R. No. 49308)
Facts:
The case involves a collision between a taxicab and a Chevrolet car in Manila.
Maria Luisa Martinez, the driver of the Chevrolet car, filed a complaint for damages
against Rosendo Digman, the driver of the taxicab, and Fausto Barredo, the owner of
the taxicab.
Digman pleaded guilty in his criminal case and was sentenced to pay a fine and
indemnify Martinez.
Digman failed to pay the indemnity, so Martinez filed an action against Barredo to hold
him subsidiarily liable for the indemnity.
Martinez relied on the judgment of conviction against Digman, the writ of execution, and
other evidence.
The Court of First Instance ruled in favor of Martinez, but the Court of Appeals reversed
the decision, stating that the judgment of conviction was not conclusive against Barredo.
Martinez appealed to the Supreme Court.
Issue:
Whether a judgment of conviction against an employee for damages is binding on the
employer, establishing subsidiary liability, unless there is collusion between the parties.
Ruling:
The judgment of conviction is binding on the employer, establishing subsidiary liability,
unless there is collusion between the parties.
The employer becomes subsidiarily liable upon the employee’s conviction and proof of
insolvency.
The previous view that the judgment is only prima facie evidence is rejected.
The importance of a criminal conviction in determining civil liability is emphasized.
The employer is encouraged to exercise care in selecting employees and intervene in
criminal actions brought against them.
The decision of the Court of Appeals is reversed, and Barredo is sentenced to pay the
indemnity to Martinez.
Ratio:
The Supreme Court held that the judgment of conviction, in the absence of collusion,
should bind the person subsidiarily liable.
A criminal conviction carries more weight and implications than mere civil liability.
It would be illogical to nullify a finding of guilt in a criminal case in a subsequent civil
action requiring a lower standard of proof.
The employer Is not deprived of their day in court because the subsidiary liability is a
proper issue to be tried and decided in a criminal action.
The court emphasized the need for employers to exercise care in selecting employees
and intervene in criminal actions brought against them.
Case Digest: G.R. No. 49308 – Martinez vs. Barredo
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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14183
November 28, 1959
BENEDICTO DINGLASAN, petitioner,
Vs.
NATIONAL LABOR UNION, respondent.
Rafael Dinglasan for petitioner.
Eulogio R. Lerum for respondent.
BARRERA, J.:
This is a petition to review the decision of the Court of Industrial Relations of February
27, 1958 (in Case No. 3—ULP), finding the petitioner guilty of unfair labor practice
under the Industrial Peace Act.1
On June 30, 1953, the respondent union filed with the above-mentioned court a
complaint for alleged unfair labor practice committed by the petitioner, in that he locked
out from employment 46 drivers, members of the respondent union, on June 27, 1953.
Before filing his answer, the petitioner asked for the dismissal of the complaint on the
grounds that the court had no jurisdiction over the person of the petitioner and the
subject matter of the action, and the respondent union was not the real party in interest.
The petitioner claimed that there existed no employer-employee relationship between
the petitioner and the drivers, members of the respondent union, the relationship being
one of lessor and lessee only, as the jeeps being used by the said drivers were rented
out by the petitioner under the so-called “boundary system”. The motion was denied by
the court in its order of February 16, 1954, but on petitioner’s motion for reconsideration,
the court, en banc, in its resolution of June 23, 1954, unanimously reconsidered its first
order and finally declared that there was no employer-employee relationship between
the parties.
The respondent union appealed to this Court, and on March 23, 1956, we rendered a
decision (in G. R. No. L-7945) * reversing the said resolution and holding that an
employer-employee relationship existed between the parties. The said decision became
final on May 29, 1956.
In view of the decision of this Court, the petitioner, on June 4, 1957, filed in the court a
quo his answer to the complaint of June 30, 1953, denying (1) the legitimacy of the
respondent union, and (2) the charge unfair labor practice, claiming that he acted in
good faith based on his honest belief that he was not an employer of the drivers,
members of the respondent union, but only a lessor of his jeepneys.
Thereafter, the case was heard, and on February 27, 1958, the court rendered a
decision, as follows:
It would appear that the main question at issue is whether the respondent has
committed the charges alleged in the complaint.
According to the complaint, the respondent had knowledge of the formation of a union
on June 26, 1953 and respondent upon learning the same decided on dismissing all the
driver members because he did not want to have a union within his company. This
Particular union, it turned out, was a chapter or affiliate of the complainant union which
was organized sometime on June 24, 1953. On June 27, 1953, the respondent
dismissed the drivers appearing in the complaint by refusing them the use of the
jeepneys regularly assigned to them.
On the other hand, respondent claims otherwise. The respondent, it is alleged fearing
that a strike might be called by the drivers decided on not renting out the jeepneys on
said date, June 27, 1953.
Based on the versions submitted in evidence by the parties, it is clear that the
respondent engaged in the unfair labor practice charged in the complaint, amounting to
a virtual lockout of his employee drivers, hence constituting discrimination under
Republic Act No. 875. As the records of this case disclose, the act of locking out
committed by respondent was made without the required notice and no collective
bargaining negotiation were ever made. The mere suspicion by respondent, that a strike
might be called by the union, is no justification for such an act.
We hold therefore, the respondent guilty of the unfair labor practices in the complaint.
However, there are certain aspects of this case which merit consideration. It has been
contended by respondent, since the beginning of this case, that he is not the employer
of the drivers listed in the complaint and had honestly acted under the such belief. This
very Court itself, unanimously were of the same opinion that there was no employeremployee relationship. In the application of the affirmative reliefs granted by the law, this
good faith the respondent must be taken into consideration in those portions where the
law allows this Court to use it sound discretion and judgment. And the particular portion
we have in mind in Section 5 of Republic Act No. 875.
Furthermore, it appears that some of the drivers listed in the complaint have neither to
returned to work or are already working elsewhere and there is a need for further
proceedings in this respect.
IN VIEW OF THE FOREGOING, this Court hereby orders the respondent:
(1) To cease and desist from further committing the unfair labor practices
complained of;
(2) To reinstate the drivers listed in the complaint, except those who have been
already reinstated;
(3) To pay back wages to all drivers listed in the complaint, but in the exercise of the
Court’s discretion said back wages shall commence only from May 29. 1956,
based on the minimum daily wage of P4.00, deducting therefrom and from said
date the period when said drivers have found substantially equivalent and regular
employment for themselves, for which reason further hearings shall be had for
the sole purpose of determining the respective amount of back wages due each
driver up to the time they are actually re-employed by respondent.
SO ORDERED.
On March 8, 1958, petitioner filed a motion for reconsidering which was denied by the
court in its resolution en banc, of July 30, 1958. Hence, this petition for review.
It is the contention of responding union that petitioner, upon learning that his drivers had
formed a labor union among themselves, refused on June 27, 1953, to let the muse and
operate the jeepneys regularly assigned to them, which act, it is alleged, constitutes an
unlawful lockout and an unfair labor practice. The petitioner, on the other hand, claims
that he did not lock out his drivers, members of the respondent union, on June 27, 1953,
as contended by them. Believing honestly that no employer-employee relationship
existed between him and them, and fearing that the drivers were intending to declare a
strike and might abandon his jeepneys in the streets of the city, he decided, as a
precautionary measure to protect his interest, to suspend their operation temporarily
and consult his attorney. Upon obtaining his counsel's advice, he immediately
announced to the drivers the following morning, June 28, that they could then take out
his jeepneys. While some four or five of them needed petitioner’s request, the others
refused to return to operate. Those who took advantage of petitioner’s offer had,
however, to come back after a few hours because some of the drivers on strike had
admonished them to return the jeepneys and join the strike. For some days this
situation continued until on October 8, 1953, when the case was first submitted for
decision, thirty-four (34) of the forty six (46) drivers had already returned to work under
the same conditions as before June 27, 1953.
We have examined the record and we are satisfied that what occurred on June 26,
1953, and the days following was substantially as testified to by petitioner Benedicto
Dinglasan and his witnesses, three of whom are among the drivers of his Jeepneys, two
(Julio Ongpin and Francisco Leaño) are completely disinterested persons, two are
patrolmen, and the remaining two are his employees, as against the sole testimony of
Juanito Cruz, President of the local group of the respondent labor union, and the
essentially hear say declaration of Zosimo Yjares who claims to be the secretary of the
drivers’ association.
While we agree with the lower court that the act of the petitioner in suspending the
operation of his jeepneys on June 27, is legally and technically not in consonance with
the industrial Peace Act (the court a quo termed it “a virtual lockout”) so as to entitle the
drivers to be reinstated nevertheless, as the trial court correctly stated in its decision,.
There are certain aspects of this case which merit consideration. It has been contended
by respondent, since the beginning of his case, that he is not the employer of the drivers
listed in the complaint and has honestly noted under such belief. This very Court itself,
unanimously were of the same opinion that there was no employer-employee
relationship. In the application of the affirmative reliefs granted by law, this good faith of
the respondent must be taken into consideration in those portions where the law allows
this court or use its sound discretion and judgment. The particular portion we have in
mind is Section 5 of Republic Act No. 875.
In the exercise of this discretion, that is, whether the reinstatement will be with or
without back pay, aside from the fact that there was no willful violation of the Industrial
Peace Act, there is an additional circumstance that may be considered in favor of herein
petitioner. As already mentioned above, petitioner, the day following his suspension of
the operation of the jeepneys, urged the drivers to return and resume the work,
notwithstanding which, the latter not only refused, but even compelled those who did, to
joint the strike. It is clear therefrom that the cassation or stoppage of the operation after
June 27, was not the direct consequence of petitioner’s locking them up or of any willful
unfair or discriminatory act of the former, but the result of their (the drivers) voluntary
and deliberate refusal to return to work. Taking into account the foregoing
circumstances and considering their similarity to those in the case of Philippines marine
Radio Officers’ Association vs. Court of Industrial Relation et al., 102 Phil., 373, wherein
it was held that there is no reason for granting backpay if there is not been any willful
unfair labor practice or refusal of the respondent companies to admit their laborers back
to work, while the drivers members of respondent union may, in this case, be entitled to
reinstatement, we find no justification for their receiving back wage for the period that
they themselves refused to return to work.
Wherefore, the decision appealed from is accordingly modified in the sense that the
reinstatement will be without back pay. In all other respects, the same is affirmed,
without costs. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Endencia and
Gutierrez David, JJ., concur.
Footnotes
1 Republic Act No. 875.

National Labor Union vs. Dinglasan, 98 Phil., 694;5 2 Off. Gaz. 94), 1933.
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LABREL DIGEST – Finals [Assigned] GR NO L-14183 │November 28, 1959
DINGLASAN, Benedicto [P] Vs. NATIONAL LABOR UNION, [
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LABREL DIGEST – Finals [Assigned]
GR NO L-14183 │November 28, 1959 DINGLASAN, Benedicto [P] Vs. NATIONAL
LABOR UNION, [R] FACTS: • June 30, 1953 – Respondent union filed a complaint for
alleged unfair labor practice committed by P [er] because locked out from employment
46 drivers, members of the R union [June 27, 1953] • P [er] asked for the dismissal of
the complaints on the following grounds: 1. Court has no jurisdiction a. over the person
of the P b. over the subject matter 2. R union was not the real party in interest • P [er]
claimed that there existed no employer-employee relationship [only lessor-lessee only]
as the jeeps being used by the drivers were rented out by the P [er] under the so called
“boundary system” Court en banc – no empoloyer-employee relationship between the
parties On appeal – ER-EE existed Court – R [er] engaged in the ULP charged in the
complaint, amounting to virtual lockout of his employee drivers [constitutes
discrimination] The act of locking out committed by R [er] was made without notice and
no collective bargaining negotiation were ever made Mere suspicion by R [er], that a
strike might be called by the union, is no justification for such an act R [er] guilty of ULP;
no ER-EE relationship existed
• Contention of R union – P [er] refused to let them use and operate the jeepneys upon
learning that the drivers formed a labor union among themselves, which constitutes an
unlawful lockout and ULP • Contention of P [er] – He did not lock out his drivers; he
decided to suspend their operation temporarily and consult his attorney, believing
honestly that: 1. No ER-EE existed between them & 2. He feared that the drivers might
declare a strike and abandon his jeepneys in the streets But, the following morning, he
immediately announced to the drivers that they could take out his jeepneys. ISSUE 1:
W/N P [ER] COMMITTED ULP BY VIRTUAL LOCKOUT → NO RULING: • While the act
of the P [er] in suspending the operation is illegal and technically not in consonance with
the Industrial Peace Act, there are certain aspects which merit consideration, which was
the belief in good faith of P [er] that there is no ER-EE relationship between them • Also,
the day following the drivers’ suspension, P [er] urged the drivers to return and resume
the work, but the latter refused • It is clear that the stoppage of the operation was not
the direct consequence of P’s [er] locking them up or any wilful unfair or discriminatory
act of the P [er], but the result of the drivers’ voluntary and deliberate refusal to return to
work ISSUE 2: W/N THE REINSTATEMENT WAS WITH BACK PAY → NO RULING: •
There is no reason in granting back pay if there is no: 1. Any willful unfair labor practice
or 2. Refusal of the R to admit their laborers back to work (Philippine’s Marine Radio
Officers’ Association vs. CIR) • In this case, while the drivers-members of R union may
be entitled to reinstatement, there’s no justification for their receiving back wage for the
period that they refused to return to work.
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