Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
*
G.R. No. 155001. May 5, 2003.
_______________
* EN BANC.
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tion 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.
Same; Same; Same; The rule on hierarchy of courts 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 the Supreme Court’s primary
jurisdiction.—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
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of a remedy within and calling for the exercise of this Court’s primary
jurisdiction. 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.
Actions; Alternative Dispute Resolution; Arbitration; Where petitioners
are not parties to a contract with an arbitration clause, they 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.—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.
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petitive public bidding aims to protect the public interest by giving the
public the best possible advantages through open competition. It has been
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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. 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.
Same; 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.—
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. 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.
Same; The fact that substantial amendments were made on the 1997
Concession Agreement renders the same null and void for being contrary to
public policy.—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
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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.
Same; Build-Operate-and-Transfer (BOT) Projects; Direct government
guarantee is prohibited by the law on BOT projects.—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. These amounts include “all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other
related expenses.” This obligation of the Government to pay PIATCO’s
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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. 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.
Same; Same; If the government would in the end still be at a risk of
paying the debts incurred by the private entity in the BOT project, then the
purpose of the law is subverted.—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, 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. 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.
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conducted the same. 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.” 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.
Same; Same; The Supreme Court has long and consistently adhered to
the legal maxim that those that cannot be done directly cannot be done
indirectly.—This Court has long and consistently adhered to the legal
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maxim that those that cannot be done directly cannot be done indirectly. 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” which are necessary for national growth and development but
which the government, unfortunately, could ill-afford to finance at this point
in time.
Public Utilities; Police Power; Temporary Takeover of Business
Affected with Public Interest; When the government temporarily takes over
a business affected with public interest pursuant to Article XII, Section 17 of
the Constitution, it is not required to compensate the private entity-owner of
the said business as there is no transfer of ownership, whether permanent or
temporary, and 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.—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.” The duration of the emergency itself is the determining factor as to
how long the temporary takeover by the government would last. 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
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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.
Same; Same; Same; 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”;
Clearly, the State in effecting the temporary takeover is exercising its police
power and its exercise therefore must not be unreasonably hampered nor its
exercise be a source of obligation by the government in the absence of dam-
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age due to arbitrariness of its exercise, and requiring the government to pay
reasonable compensation for the reasonable use of the property pursuant to
the operation of the business contravenes the Constitution.—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.” 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.” 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. 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.
Same; Monopolies; Words and Phrases; 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; 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; 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.—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.” 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. 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.
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over petitions for declaratory relief which are cognizable by regional trial
courts.
Same; Same; Separation of Powers; The Supreme Court should not be
thought of as having been tasked with the awesome responsibility of
overseeing the entire bureaucracy—the Court may not at good liberty
intrude, in the guise of sovereign imprimatur, into every affair of
government.—As I have so expressed in Tolentino vs. Secretary of Finance,
reiterated in Santiago vs. Guingona, Jr., the Supreme Court should not be
thought of as having been tasked with the awesome responsibility of
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Courts; Judicial Review; The Court has, in the past, held that questions
relating to gargantuan government contracts ought to be settled without
delay.—The Court has, in the past, held that questions relating to gargantuan
government contracts ought to be settled without delay. 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.
Same; Same; Alternative Dispute Resolution; Arbitration; Public
Utilities; Build-Operate-and-Transfer (BOT) Projects; International Airport
Terminal; The Piatco contracts are void in their entirety—resort to
arbitration is unavailing.—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
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definitively resolve the constitutional and legal questions that have been
raised in the Petitions before us.
Same; Same; Parties; Locus Standi; 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.—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. 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.”
Bids and Bidding; It is unarguably 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.—By virtue of the prequalified status conferred upon the
Paircargo, Undersecretary Cal’s findings in effect relieved the consortium of
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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.
Same; Public Utilities; Build-Operate-and-Transfer (BOT) Projects;
The “propriety 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; 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 propriety information in connection
with unsolicited proposals.—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
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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 existing 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 x x x 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.
Same; Same; Same; Unjust Enrichment; The government should pay
for reasonable expenses incurred in the construction of the NAIA Terminal
III, otherwise it will be unjustly enriching itself at the expense of Piatco
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PUNO, J.:
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_______________
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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:
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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.
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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
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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 in-service 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
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639
_______________
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stated that she will not “honor (PIATCO) contracts which the
Executive Branch’s legal offices have concluded (as) null and
5
void.”
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,
_______________
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)
641
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
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642
643
tions 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
8
through a separate agreement duly entered into with PIATCO.
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 illumina-
_______________
8 Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and
(e) and 3.02, ARCA.
644
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9
tion of difficult constitutional questions.” 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
10
burdens or penalties by reason of the statute or act complained of.
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.
_______________
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.
645
_______________
646
_______________
19 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633,
652.
647
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22 Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, February 7,
2001, 351 SCRA 373, 382.
648
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.
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
649
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650
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.
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651
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 nonallied
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.
....
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.
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652
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
29
or only 6.08% of the project cost, 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.
_______________
29
653
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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
30
public bidding.
_______________
30 Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July
12, 1991, 199 SCRA 134, 146-147. Emphasis supplied.
654
_______________
31 Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989,
175 SCRA 701, 713. Citations omitted.
655
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
33
invited.
_______________
656
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
35
bidding may alter or amend it without another previous public bidding.
_______________
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657
_______________
658
_______________
659
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40 Emphasis supplied.
660
41
With respect to terminal fees that may be charged by PIATCO, 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
42
events specified in the agreement. However, under the draft
Concession Agreement, terminal fees are not included in the types of
43
fees that may be subject to “Interim Adjustment.”
Finally, under the 1997 Concession Agreement, “Public Utility 44
Revenues,” except terminal fees, are denominated in US Dollars
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.
_______________
(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:
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661
662
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
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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.
663
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664
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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).
665
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the
1997 Concession Agreement provides:
666
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666 SUPREME COURT REPORTS ANNOTATED
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
_______________
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).
667
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
52
incentives, such as minimizing the unstable flow of returns,
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
53
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are strictly prohibited. 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.
_______________
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.
668
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;
....
669
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
_______________
670
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.
671
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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
56
bidding and conducted the same. 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
57
from being treated
and accepted as an unsolicited proposal.” 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 58
that those that cannot be done directly cannot be done indirectly.
_______________
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. L-9920, February 29, 1960; Favis vs. Municipality of Sabañgan, G.R. No. L-
26522, 27 February 1969, 27 SCRA 92; City of Manila vs. Tarlac Development
Corporation, L-24557, L-24469 & L-24481, 31 July 1968, 24 SCRA 466; 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, 31 SCRA 320; Fornilda v. The Branch 164, Regional
672
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Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306, October 5, 1988, 166
SCRA 281; Laurel v. Civil Service Commission, G.R. No. 71562, October 28, 1991,
203 SCRA 195; Davac v. Court of Appeals, G.R. No. 106105, April 21, 1994, 231
SCRA 665.
59 Republic Act No. 7718, Sec. 1.
60 III Record of the Constitutional Commission, pp. 266-267 (1986).
61 Id.
673
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
62
payable by Concessionaire to GRP.
_______________
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.
674
63
Terminal and/or Terminal Complex.” 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
64
of powers.” Its exercise therefore must not be unreasonably
hampered nor its exercise be a source of obligation by the
government
65
in the absence of damage due to arbitrariness of its
exercise. 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
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.
_______________
63 Id.
64 Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good
Government, G.R. No. 75885, May 27, 1987, 150 SCRA 181; citing Freund, The
Police Power (Chicago, 1904).
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65 Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968,
22 SCRA 792.
66 Black’s Law Dictionary, 4th Ed., p. 1158.
675
_______________
676
are subsequent73
to the In-Service Date would cease to be effective on
the said date.
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
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73 Id., at CA, Art. Ill, 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.
677
During the oral arguments on December 10, 2002, the counsel for
the petitioners-in-intervention for G.R. No. 155001 stated that there
are two service providers whose contracts are still existing and
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678
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
79
job, 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 Sup-
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Section 5. Functions, Powers, and Duties.—The Authority shall have the following functions,
powers and duties:
...
(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;
...
679
SEPARATE OPINION
VITUG, J.:
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680
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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
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2 Matuguina Integrated Products, Inc. vs. Court of Appeals, 263 SCRA 490
(1996); Mafinco Trading Corporation vs. Ople, 70 SCRA 139 (1976).
3 Mafinco Trading Corporation vs. Ople, supra.
4 Section 1, Rule 63, Rules of Court.
5 In re: Bermudez, 145 SCRA 160 (1988).
6 235 SCRA 630, 720 (1994).
7 298 SCRA 795 (1998).
681
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.
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SEPARATE OPINION
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:
682
modern 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 build-operate-&-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
1
discretion entrusted to them.
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Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan
2
government contracts ought to be settled without delay. 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
_______________
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 Commission on Elections v. Quijano-Padilla, G.R. No. 151992, September 18,
2002, 389 SCRA 353.
683
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
3
of prohibition is thus justified.
Contrary to Piatco’s argument that the resolution of the issues 4
raised in the Petitions will require delving into factual questions, I5
submit that their disposition ultimately turns on questions of law.
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 6cites Chavez v. Presidential Commission on Good
Government: “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
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3 Vide: ABS-CBS Broadcasting Corp. v. Commission on Elections, 323 SCRA 811,
January 28, 2000; likewise, Commission on Elections 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.
684
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 locus7
standi to bring the Petition in GR No. 155547. In Albano v. Reyes,
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
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685
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686
8
gona, Jr. that “in cases of transcendental importance, the Court
may relax the standing requirements and allow a suit to prosper
even when there 9is no direct injury to the party claiming the right of
judicial review.”
_______________
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.
687
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 11
third envelopes of pre-disqualified proponents will be
returned.”
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688
Since the
12
minimum amount of equity for the project was set at 30
percent 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 net13 worth of the Paircargo
consortium stood at only P558,384,871.55. This amount was only
_______________
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
689
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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
_______________
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.
690
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691
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692
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
693
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694
“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.
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“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.”
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695
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696
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697
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698
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.
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699
“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
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700
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701
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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.
702
39
tion of all Public Utility Revenues. 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
40
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40
to be created in favor of Piatco’s Senior Lenders. No such
obligation existed previously.
12. DOTC/MIAA’s right of intervention in instances where
Piatco’s Non-Public Utility Revenues
41
become exorbitant or
excessive has been removed.
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
42
Piatco to terminate the ARCA.
14. Amounts due from and payable by government under the
contract were made payable on demand—net of taxes,
levies, imposts, duties,
43
charges or fees of any kind except as
required by law.
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, checkin
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
44
for
government’s acceptance of the terminal facility.
_______________
703
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704
(a) Working for the removal of the general aviation traffic from
48
the NAIA airport complex
(b) Providing through MIAA the land required by49 Piatco for
the taxilane and one taxiway at no cost to Piatco
(c) Implementing
50
the government’s existing storm drainage
master plan
(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., Tramo51 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
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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.
705
_______________
706
_______________
707
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708
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709
(v) x x x the Senior Lenders may after written notification to GRP, transfer
the Concessionaire’s rights and obligations to a transferee x x x;
(vi) if the Senior Lenders x x x are unable to x x x effect a transfer x x x,
then GRP and the Senior Lenders shall endeavor x x x to enter into any
other arrangement relating to the Development Facility x x x. 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. x x x.”
710
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61 Page 37.
711
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712
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713
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:
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
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714
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 x x x will x
x x 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
715
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
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only while there remains unpaid and outstanding amounts owed to the
Senior Lenders.” (Italics supplied)
716
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63 Namely, the airports at the Subic Bay Freeport Special Economic Zone, the
Clark Special Economic Zone, and Laoag City.
717
718
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719
a) x x x x x x x x x
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
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“(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
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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.”
721
_______________
“(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.
“(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.”
722
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723
74
wholly-owned subsidiary of Friendship75
Holdings, Inc., which is in
turn owned 80 percent by PAGS. PAGS 76
is a service provider
owned 60 percent by the Cheng Family; it is a stockholder of 35
77
percent of Piatco and78is the latter’s designated contractor-operator
for NAIA Terminal III.
Such entry into and domination of the airport-related services
sector appear to be very much in line with the following provisions
contained in 79
the First Addendum to the Piatco Shareholders
Agreement, executed on July 6, 1999, which appear to constitute a
sort of master plan to create a monopoly and combinations in
restraint of trade:
a. x x x x x x 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 groundhandling, catering and fueling services within
the Terminal Complex.
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724
83
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83
power exists to raise prices or exclude competition when desired.”
(Emphasis supplied)
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725
“(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.”
726
_______________
727
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728
90
all contracts, 91 and/or the right to make a contract in relation to
one’s business.
_______________
729
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VOL. 402, MAY 5, 2003 729
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
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
93
as a priori requisites to the validity of the proposed
contract.”
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:
_______________
730
731
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732
“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.
_______________
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95 Memorandum of Agreement between the Manila International Airport Authority
and the Department of Public Works and Highways, p. 2.
733
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: 96
What do
we do with the Piatco Contracts and Terminal III? (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?)
_______________
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.
734
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
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735
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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.
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736
——o0o——
737
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