REPUBLIC OF THE PHILIPPINES

REGIONAL TRIAL COURT

NATIONAL CAPITAL JUDICIAL REGION
BRANCH _____
PASAY CITY

IN THE MATTER OF THE ESCHEAT

PROCEEDINGS OF THE PROPERTIES OF
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC.

Sp. Proc. No. ____________

_________________________________________,
For And In Behalf Of The REPUBLIC OF
THE PHILIPPINES,
Petitioner.
x ---------------------------------------------------------- x

PETITION FOR ESCHEATMENT

[With Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction]

Petitioner __________________________, for and in behalf of the Republic of

the Philippines (hereinafter referred to as the “Petitioner”), by counsel,

respectfully states:

NATURE OF THE PETITION

1.1. This is a Petition for Escheatment under Rule 91 of the Rules of Court1,

seeking to forfeit in favor of the Republic of the Philippines properties acquired,

alienated and/or enjoyed by respondent Philippine International Air Terminals

Co., Inc. (“PIATCO”) in violation of the Constitution and existing laws.

1.1.1. The instant Petition is within the jurisdiction of the

Honorable Court considering that the properties sought to be

1
Rule 91 of the Rules of Court provides:
“Section 5. Other actions for escheat. Until otherwise provided by law, actions for
reversion or escheat of properties alienated in violation of the Constitution or of any
statute shall be governed by this rule, except that the action shall be instituted in the
province where the land lies in whole or in part.” [Section 5, Rule 91 of the Rules of Court;
emphasis and underscoring supplied]

1
 escheated and/or forfeited, which will be discussed in detail below,

are located within its territorial jurisdiction.

THE PARTIES

2.1. Petitioner ________________ is a taxpayer and a concerned citizen

bringing the instant Petition for and in behalf of the Republic of the Philippines 2.

For purposes of the instant Petition, petitioner may be served with pleadings and

processes of the Honorable Court through the undersigned counsel at the address

indicated below.

2.1.1. No less than the 1987 Constitution allows petitioner to

bring the instant Petition for and in behalf of the Republic of the

Philippines consistent with the fundamental republican nature of

our government.3

2.1.3. Petitioner is likewise the private complainant in the

criminal complaint captioned “___________________ vs. Peter

Henkel, Rita Bonifler, Jefferson G. Chieng, Cheng Yong, Jason g.

Cheng, S. Samim Aydin, Lilioa G. Cheng, Hackiman Yokol, Gil

Camacho, Katherine Agnes M.C. Arnaldo, Jorg Seyffrart, Marife T.

Opulencia, Mary Antonette P. Manalo and John and Jane Does”

pending with the National Bureau of Investigation (“NBI”), Case No.

2
Section 2 and 3, Rule 3 of the Rules of Court provide:
“SEC. 2. Parties in interest. – A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.
Unless otherwise authorized by law, every action must be prosecuted or defended in the
name of the real party in interest.
SEC. 3. Representatives as parties. – Where the action is allowed to be prosecuted or
defended by a representative or someone acting in a fiduciary capacity, the beneficiary
shall be included in the title of the case and shall be deemed to be the real party in interest .
A representative may be a trustee of an express trust, a guardian, an executor or
administrator, or a party authorized by law or these Rules. An agent acting in his own name
and for the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal.”[Emphasis and
3
underscoring supplied]
?
Section 1, Article II of the 1987 Constitution provides:
“Section 1. The Philippines is a democratic and republican State. Sovereignty resides in
the people and all government authority emanates from them.”

2
 _______, for violation of Commonwealth Act No. 108, as amended,

otherwise known as the “Anti-Dummy Law”.

2.1.3. Petitioner thus institutes the instant Petition for and in

behalf and for the benefit of the Republic of the Philippines and the

Filipino people due to the utmost transcendental and paramount

importance of the issues raised herein4.

2.1.4. Moreover, the instant Petition is being instituted due to

the failure and/or inordinate delay of the appropriate Government

office to take immediate action to cause the escheatment of the

properties acquired, alienated and/or enjoyed by respondent

PIATCO in violation of the Constitution and existing laws which is

clearly prejudicial to the interest of the Filipino people and the

petitioner, the latter being entitled to twenty five (25%) percent of the

fine, i.e. property forfeited in favor of the Government, as a result of

the violation of the Anti-Dummy Law5.

2.2. Respondent PIATCO is a corporation organized and existing under

and by virtue of the laws of the Republic of the Philippines, whose primary

purpose, among other things, is to operate domestic or international airport

facilities and infrastructure.6 Respondent PIATCO may be served with pleadings

4
cf. Tatad vs. Garcia, Jr., G.R. No. 114222, 06 April 1995; Secretary of Justice vs. Lantion, G.R. No.
139465, 18 January 2000; Agan, Jr. vs. Philippine International Air Terminals Co., Inc., et al., G.R. No.
155001, 05 May 2003.
5

?
Section 3-A of the Anti-Dummy Law provides:
“SECTION 3-A. Reward to informer. - In case of conviction under the provisions of this
Act, twenty-five per centum of any fine imposed shall accrue to the benefit of the informer
who furnishes to the Government original information leading to said conviction and who
shall be ascertained and named in the judgment of the court. If the informer is a dummy,
who shall voluntarily take the initiative of reporting to the proper authorities any violation of
the provisions of this Act and assist in the prosecution, resulting in the conviction of any
person or corporation profiting thereby or involved therein, he shall be entitled to the reward
hereof in the sum equivalent to twenty-five per centum of the fine actually paid to or received
by the Government, and shall be exempted from the penal liabilities provided for in this Act.”

6
A copy of the Articles of Incorporation of respondent PIATCO is attached herewith and made an
integral part hereof as Annex “__”.

3
and processes of the Honorable Court at the Pair-PAGS Center, Ninoy Aquino

International Airport Compound, Ninoy Aquino Avenue, Pasay City.

2.3. Respondent Fraport AG Frankfurt Airport Services Worldwide

(“Fraport”), on the other hand, is a non-resident foreign corporation, organized

and existing under the laws of the Federal Republic of Germany, engaged in the

business of operating and managing international airports. As will be discussed

below, respondent Fraport owns and controls respondent PIATCO in clear

violation of the constitutional restriction on foreign ownership of public utilities.

Respondent Fraport may be served with pleadings and processes of the Honorable

Court at _______________________.

2.4. Respondent Government of the Philippines (“GOP”) is the corporate

governmental entity through which the functions of government are exercised

throughout the Republic of the Philippines. 7 Respondent GOP is being impleaded

for its failure to institute forfeiture proceedings against respondent PIATCO

regarding the properties it alienated, acquired and/or enjoyed in violation of the

Constitution. Respondent GOP is also being impleaded in the instant case for its

unconstitutional, unlawful, arbitrary, whimsical, illegal, null, void, unreasonable

and unjust decision to compensate respondents PIATCO and Fraport for their

alleged investments in the NAIA Terminal III Project.

STATEMENT OF FACTS

3.1. To put things in their proper perspective, it should be noted that the

operation of public utilities is characterized as a nationalized activity, i.e., the

exercise and enjoyment of which are expressly reserved by the Constitution

and/or laws to citizens of the Philippines or to corporations or associations sixty

7
Bacani vs. NACOCO, 100 Phil 468, 471 (1956)

4
percent (60%) of whose capital is owned by such citizens. 8 Specifically, Section 11,

Article XII of 1987 Constitution provides:

“Sec. 11. No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens ; nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of
such corporation or association must be citizens of the
Philippines.” [Emphasis and underscoring supplied]

3.2. In order to assist respondent GOP in providing basic services to the

Filipino people, Republic Act No. 6957 as amended by Republic Act No. 7718,

otherwise known as the “Built-Operate-Transfer Law” allowed contractors to

undertake the construction and financing of infrastructure facilities, including but

not limited to public utilities, and operate and maintain the same for a fixed

period during which the contractor may recover its expenses and investment in

the project plus reasonable rate of return thereon. After the expiration of the

agreed term, the contractor, under the Built-Operate-Transfer Law transfers the

ownership and operation of the project to respondent GOP.

3.2.1. Section 2(a) of the Built-Operate-Transfer Law provides

that the ownership of the structure of an infrastructure facility whose

operation requires a public utility franchise must be in accordance

with the Constitution.

3.2.3. Elaborating on the foregoing provision of the Built-

Operate-Transfer Law, the Supreme Court ruled that the moment for
8
Cf. DOJ’s Primer on the Employment of Aliens under The Anti-Dummy Law.

5
 determining the requisite Filipino nationality is when the entity

applies for a franchise, certificate or any other form of authorization

for that purpose. Emphasis must be made that under the Built-

Operate-Transfer scheme, the owner of the infrastructure facility

must comply with the citizenship requirement of the Constitution on

the operation of a public utility.9

3.3 Sometime in June 1996, respondent GOP caused the publication of

an invitation for competitive or comparative proposals for the development of the

NAIA International Passenger Terminal III (“NAIA Terminal III”) under a build-

operate-and-transfer arrangement pursuant to Built-Operate-Transfer Law.

3.3.1. In Demosthenes P. Agan, Jr., et al, v. Philippine

International Air Terminals Co., Inc., et al, G.R. No. 155001, 05

May 2003, the Supreme Court, citing Department of Justice (“DOJ”)

Opinion No. 78, Series of 1995, held that the NAIA Terminal III is a

public utility.

3.3.2. Hence, the operation of the NAIA Terminal III may

only be undertaken by Filipino citizens or corporations organized

under the laws of the Philippines at least sixty percent (60%) of the

capital of which are owned by such citizens in accordance with

Section 11, Article XII of the Constitution.

3.4. On 09 July 1997, the Department of Transportation and

Communication (“DOTC”) issued to respondent PIATCO the Notice of Award for

the NAIA Terminal III project. 10 Subsequently, on 12 July 1997, respondent GOP

(through then DOTC Secretary Arturo T. Enrile) and respondent PIATCO

9
Tatad vs. Garcia, G.R. No. 114222, 06 April 1995
10
A copy of the Notice of Award issued in favor of respondent PIATCO is attached herewith as Annex
“__”.

6
(through its then President Henty T. Go), signed the “Concession Agreement for the

Build-Operate-and-Transfer Arrangement of the Ninoy Aquino Airport Passenger

Terminal III” (1997 Concession Agreement) which granted respondent PIATCO the

franchise to construct, 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 therein for a period of 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, respondent PIATCO shall transfer the development facility to

the Manila International Airport Authority.11

3.4.1. In applying and acquiring the Notice of Award and the

Concession Agreement for the NAIA Terminal III Project and other

certificates and authorizations for that purpose, respondent PIATCO

represented itself to be a domestic corporation with allegedly sixty

percent (60%) of its outstanding capital stock allegedly being owned

by individuals or corporations considered as Philippine nationals. In

fact, based on its General Information Sheet filed with Securities and

Exchange Commission on 12 August 2003, the alleged current

stockholders of record of PIATCO are the following:

STOCKHOLDER INTEREST CITIZENSHIP

Fraport 30.0% German
PTI 35.0% Filipino
PAGS 10.0% Filipino
PAIRCARGO 3.3% Filipino
SB AIRPORT 10.0% Filipino
NISSHO IWA 10.0% Japanese
CHENG 1.7% Filipino

11
Supra, at p. 13.

7
 3.5. In the exercise and/or as a result of the Notice of Award and

Concession Agreement, respondent PIATCO was able to acquire properties and

construct the NAIA Terminal III in Pasay City, Metro Manila.

3.5.1. The land upon which the NAIA Terminal III was

constructed is owned by the Republic of the Philippines and

registered under the name of the Bases Conversion Development

Authority.12

3.5.2. Clearly therefore, the entry and construction by

respondent PIATCO of the NAIA Terminal III in said government

property was permitted by the Republic of the Philippines only by

virtue of respondent PIATCO being awarded the Notice of Award

for the NAIA Terminal III project and the Concession Agreement

executed as result thereof.

3.6. However, it has recently come to the knowledge of the petitioner

that respondents PIATCO and Fraport, in conspiracy with Philippine Airport and

Ground Services Terminals, Inc. (“PTI”), Philippine Airport and Ground Services,

Inc. (“PAGS”), People’s Air Cargo & Warehousing Co., Inc. (“Paircargo”) and

Philippine Airport and Ground Services Terminals Holdings, Inc. (“PTH”),

fraudulently devised an elaborate scheme precisely calculated to circumvent the

afore-quoted constitutional restriction, thereby unlawfully allowing respondent

Fraport, a foreign corporation, to own, manage and operate a public utility, i.e.

NAIA Terminal III, through respondent PIATCO.

3.6.1. The unlawful scheme of respondent PIATCO is

evident by the fact that Fraport, which already beneficially owns

sixty one and 44/100 percent (61.44%) of the capital stock of

12
Copies of the Transfer of Certificate of Title Nos. 1348142 and 142229 are attached herewith and made
integral parts hereof as Annexes “__” and “__”.

8
 PIATCO13, has also: (i) practically provided all the funding of

PIATCO; (ii) actually manages business and operations of PIATCO;

and (iii) provides for all the technological support for PIATCO.

3.7. Thus, pursuant to his bounden duty as a Filipino citizen to preserve

and defend the Constitution, petitioner filed with the NBI a Complaint-Affidavit

dated ______14 accusing respondents PIATCO and Fraport, together with PTI,

PAGS, PAIRCARGO and PTH, as well as their responsible directors and corporate

officers of violating the Anti-Dummy Law as well as exposing the fraudulent and

unlawful scheme that allowed respondent Fraport to actually own and control

respondent PIATCO, to wit:

“3. On 20 September 1996, the consortium composed of

Paircargo, PAGS and Security Bank Corp. (collectively, Paircargo
Consortium) submitted their competitive proposal to the Pre-
qualification Bids and Awards Committee (‘PBAC’) for the
construction, development and operation of the NAIA
International Passenger Terminal III (“NAIA Terminal III Project”)
under a build-operate-and-transfer arrangement pursuant to
Republic Act No. 6957 as amended by Republic Act No. 7718 (the
‘BOT Law’).

4. On 16 October 1996, the PBAC accepted the price

proposal submitted by the Paircargo Consortium. Thereafter, on 27
February 1997, the Paircargo Consortium incorporated into
PIATCO, whose primary purpose is to among other things, operate
domestic and international airport facilities and infrastructure.

5. Subsequently, on 09 July 1997, the Department of

Transportation and Communication (‘DOTC’) issued to PIATCO
the notice of award for the NAIA Terminal III Project.

6. On 12 July 1997, the Philippine Government (through

then DOTC Secretary Arturo T. Enrile) and PIATCO (through its
then President Henty T. Go) signed the ‘Concession Agreement for the
Build-Operate-and-Transfer Arrangement of the Ninoy Aquino Airport
Passenger Terminal III’ (1997 Concession Agreement) which 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
therein for a period of twenty-five (25) years commencing from the
13

?
A copy of the diagram illustrating the shareholdings interest of Fraport in PIATCO is attached
herewith as Annex “__”.

14
A copy of the Complaint Affidavit dated _____ is attached herewith and made an integral part hereof as
Annex “__”.

9
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 the Manila International Airport Authority
(‘MIAA’).

7. Subsequently thereafter, the Philippine Government

and PIATCO signed an Amended and Restated Concession
Agreement (‘ARCA’) and three (3) Supplements to the ARCA.

8. On 6 July 1999, after the 1997 Concession Agreement

underwent several amendments, Fraport suddenly became a
shareholder of PIATCO, directly acquiring twenty five percent
(25%) of the latter’s outstanding capital stock despite not being a
member of the Paircargo Consortium which submitted the bid for
the construction and operation of the NAIA Terminal III.

8.1. Interestingly, simultaneous with its

acquisition of the twenty five percent (25%) direct
interest in PIATCO, which was later increased to
thirty percent (30%), Fraport likewise acquired a forty
percent (40%) interest in both PTI and PTH,
corporations which owned or subsequently owned,
directly and/or indirectly, shares in PIATCO. All
told, Fraport ended up owning, directly or indirectly,
sixty one and 44/100 percent (61.44%) of PIATCO’s
capital stock.

8.2. Moreover, Fraport, through an elaborate

scheme implemented with the indispensable
participation of respondents PIATCO Officers and the
other directors and corporate officers of PTI, PAGS,
Paircargo and PTH, controlled the management,
funding and technical operations of PIATCO.

9. To put things in their proper perspective, it should be

noted that the NAIA Terminal III is considered a public utility
considering that the operation of an international passenger airport
terminal is imbued with public interest. Being a public utility, the
franchise, certificate or any other form of authorization for the
operation of the NAIA Terminal III Project is limited only to
citizens of the Philippines or corporations organized under
Philippine laws at least sixty percent (60%) of whose capital is
owned by such citizens in accordance with Section 11 ,Article XII of
the Philippine Constitution.

10. However, contrary to the foregoing constitutional

restriction, respondents PIATCO Officers, as well as the other
directors and corporate officers of PTI, PAGS, Paircargo and PTH,
in conspiracy with one another, devised and utilized an elaborate
and fraudulent scheme precisely calculated to circumvent the
afore-mentioned restriction, thereby unlawfully allowing Fraport, a
foreign corporation, to own, manage and operate a public utility
through PIATCO, PTI, PAGS, Paircargo and PTH.

10
 11. The unlawful scheme of respondents PIATCO
Officers is evident by the fact that Fraport, which as mentioned
earlier already beneficially owns 61.44% of the capital stock of
PIATCO, has also: (i) practically provided all the funding of
PIATCO; (ii) actually manages business and operations of PIATCO;
and (iii) provides for all the technological support for PIATCO.

I. Fraport Practically Provided All The Funds Of PIATCO

12. Under the PIATCO Shareholders Agreement, as

amended, the total funds required by PIATCO to construct and
operate the NAIA IPT III is Thirteen Billion Pesos
(P13,000,000,000.00). Of such required funding, Three Billion Nine
Hundred Million Pesos (P3,900,000,000.00), consisting thirty
percent (30%) thereof, will be financed through the equity
investments of the Shareholders and the seventy percent (70%)
balance of the required funding will allegedly be sourced through
loans from third parties and other liabilities to be incurred by
PIATCO such as Advances from Shareholders. Out of the Three
Billion Nine Hundred Million Pesos (P3,900,000,000.00) required
equity investments, only One Billion Five Hundred Million
(P1,500,000,000.00) will be actually paid up.

13. However, contrary to the provisions under the

Shareholders Agreement, an examination of PIATCO’s cash flow
would reveal that the additional funds needed for the construction
and operation of the NAIA Terminal III Project were not provided
by third parties, but by Fraport. As will be shown below, Fraport
has directly and indirectly provided for almost the entire funds
needed to construct and operate the NAIA Terminal III Project in
violation of the Constitution’s nationality restrictions as afore-cited.

a. Fraport’s Direct Funding of PIATCO

14. Under the Shareholder’s Agreement, Fraport invested

the amount of Nine Hundred Seventy Five Million Pesos
(P975,000,000.00) for nine million seven hundred fifty thousand
(9,750,000) shares of PIATCO, which amounts to twenty five
percent (25%) of the latter’s outstanding capital stock. This was
later increased by five percent (5%) when Fraport acquired
additional shares of PIATCO. Thus, at present, Fraport has directly
invested One Billion One Hundred Seventy Million Pesos
(P1,170,000,000.00) in shares of PIATCO, or thirty percent (30%) of
the latter’s outstanding capital stock.

15. Additionally, based on various loan agreements,

Fraport likewise provided and/or committed to provide funding to
PIATCO by extending loans and/or credits in the total amount of
One Hundred Eighteen Million United States Dollars
($118,000,000.00) or approximately Five Billion Nine Hundred
Million Pesos (P5,900,000,000.00) at an exchange rate of $1 to P50.

15.1. In fact, in the Fourth Fraport-PIATCO

Loan Agreement dated 16 January 2001, Fraport
granted a Twenty Eight Million United States Dollar

11
 (US$28,000,000.00) loan, or approximately One Billion
Four Hundred Million Pesos (P1,400,000,000.00), to
PIATCO.

15.2. Moreover, Fraport committed to

provide a subordinated term loan facility to Fraport
in the amount of Seventy Million United States
Dollars ($70,000,000.00) or approximately Three
Billion Five Hundred Million Pesos
(P3,500,000,000.00) by executing the Term Sheet of
US$70M Subordinated Loan.

17.3. Finally, Fraport likewise extended a

Letter of Credit in favor PIATCO for the amount of
Twenty Million United States Dollars ($20,000,000.00)
or approximately One Billion Pesos
(P1,000,000,000.00) to PIATCO.

16. As a result of the foregoing, Fraport has directly

provided or committed to provide funds in the total amount of
Seven Billion Seventy Million Pesos (P7,070,000,000.00) to PIATCO,
i.e. approximately fifty four and 38/100 percent (54.38%) of the total
funding requirements of PIATCO.

b. Fraport’s Indirect Funding of PIATCO

17. Moreover, Fraport has indirectly provided financing

to PIATCO by either providing funds to purported alleged Filipino
corporations that invested in PIATCO or by providing security or
collateral to the loans extended to PIATCO.

18. In a Loan Agreement dated 06 July 1999, Fraport

extended PAGS a loan in the amount of Six Million Six Hundred
Thousand United States Dollars ($6,600,000.00) or approximately
Three Hundred Thirty Million Pesos (P330,000,000.00).

18.1. Based on its Comparative Financial

Statement as of 31 December 1999, PAGS had an
outstanding loans payable of Seventy Eight Million
Five Hundred Sixty Five Thousand Pesos
(P78,565,000.00) representing a loan from a
stockholder, the proceeds of which was used to
acquire shares in PTH.

18.2. Based on Fraport’s own admission, PTH

owns 60% of the outstanding capital stock of PTI,
which in turn, owns 35% of PIATCO.

19.3. The interest-free loan extended by

Fraport to PAGS is payable through the application of
the dividends which PAGS would receive from PTH.

18.4. Evidently, the afore-mentioned loan

extended by Fraport to PAGS is yet but another
fraudulent means for Fraport to acquire additional

12
 interest in PIATCO in order to circumvent the
maximum foreign ownership allowed by the
Constitution for public utilities.

19. Fraport has likewise made possible the grant of

several loans to PIATCO needed by the latter for its construction
and operation of the NAIA Terminal III by acting as guarantee.

19.1. In the PIATCO Terms of Short-Term

Bridge Loan, Fraport acted as guarantor/insurer of
the One Hundred Twenty Six Million United States
Dollar ($126,000,000.00) liability of PIATCO. The said
loan guaranteed by Fraport is to partially finance the
NAIA Terminal III Project.

19.2. In the Terms of Agreement dated 23

February 2001, Fraport acted as PIATCO’s
unconditional and irrevocable guarantor of PIATCO
for the latter’s One Hundred Twenty Six Million
United States Dollar ($126,000,000.00) liability.

19.3. In the Agreement dated 21 February

2001 Fraport agreed to act as guarantor to the
liabilities of PIATCO to its offshore suppliers.

19.4. In the Agreement between PIATCO,

Tahenaka and Fraport, the latter agreed to guaranty
the liabilities of PIATCO to its Onshore Contractors.

20. Based on the foregoing, Fraport has approximately

indirectly caused the funding of Two Hundred Fifty Eight Million
Six Hundred Thousand United States Dollars (US$258,600,000.00)
to PIATCO or approximately fifty one and 72/100 percent (51.72%)
of the latter’s funding requirements.

21. All told, almost Four Hundred Twenty One Million

Six Hundred Thousand United States Dollars (US$421,600,000.00)
of the Five Hundred Million United States Dollars
(US$500,000,000.00) total required funding by PIATCO for the
construction and operation of the NAIA IPT III Project, or eighty
four and 32/100 percent (84.32%), was provided for, directly or
indirectly, by Fraport.

II. Fraport’s Management And Control Of PIATCO

22. A close scrutiny of the structure created by

respondent Fraport will reveal that respondent Fraport, while it is
schemingly made to appear a minority shareholder of PIATCO, did
in fact manage, or actually direct the management of PIATCO.

22.1. As contained in the Comments on the

Participation in the Consortium for the Building and
Operation of Terminal 3 in Manila, Philippines prepared
Werner Schmidt, which is primarily an assessment of
the risks involved in Fraport’s participation on airport

13
businesses outside Europe, it is apparent that even at
the outset, respondent Fraport had every intention to
gain control of PIATCO, to wit:

xxx xxx xxx

22.2. In fact, respondent Fraport’s intention to

control the management of PIATCO becomes even
more evident in the discussions held during the
Supervisory Board Meeting of Fraport on 12 March
1999, wherein Fraport’s opportunity to assume
leadership in PIATCO was extensively discussed.

22.3. The intention of Fraport to obtain

management control in PIATCO is also reflected in
the Status Report PIATCO Long Term Financing and
Alternatives of Action for the Over Project dated 29
September 2000 which reads:

xxx xxx xxx

22.4. Further, in an Opinion dated 29

February 2000 on the Loan Agreement dated 06 July
1999 between Fraport and PAGS, PAGS was already
warned of the possible ‘dummy indicators’ that may
be raised against it, thus:

22.5. In its attempt to consolidate control over

PIATCO, even when it had already been warned of
the provisions of the Anti-Dummy Law, respondent
Fraport acquired the shares of GlobeGround in PAGS
which in turn owned ten percent (10%) of PIATCO. In
its letter of intent dated 23 March 2001, respondent
Fraport set forth its conditions in acquiring
GlobeGround’s shares:

xxx xxx xxx

22.6. Indeed, the said conditions have been

implemented as certain officers and directors of PAGS
occupy significant positions in PIATCO.

22.7. In fact, the aforementioned

consolidation was validated by the Minutes of the
Meeting of the Supervisory Board Internal
Participations Committee held last 02 April 2001
(Status Report regarding the possibility to increase
the existing equity interest in the Manila, Philippines
Project and to strengthen the influence on
Management), to wit:

xxx xxx xxx

22.8. Notably, PTI, wherein Fraport owns

forty percent (40%) interest, was designated by

14
 PIATCO as the contractor-operator of the
International Passenger Terminal Ninoy Aquino
International Airport (‘IPT-NAIA 3’) through the
Memorandum of Understanding (‘MOU’) dated 06
July 1999. Thus, by virtue of this appointment, PTI is
responsible for all areas of operation and maintenance
of IPT-NAIA 3. However, to enable PTI to perform its
duties under the Operation and Management
Agreement, the said MOU contains a provision
wherein Fraport guarantees to provide PTI with
technical and management support.

22.9. Not contented with the extent of its

control over the technical operation of PIATCO,
respondent Fraport even sought control, rather
successfully, over the financial management of
PIATCO. In the Addendum to the PIATCO
Shareholders Agreement dated 14 July 1997, it was
provided:

xxx xxx xxx

22.10. The foregoing clearly shows how

Fraport, which purportedly is a minority shareholder
of PIATCO, has in fact managed and directed the
management of PIATCO’s affairs, in blatant violation
of the Anti-Dummy Law.

III. Fraport Provides For All The Technical Services

Requirement Of PIATCO

23. Similar to the complete control it exercised over the

funding and management of PIATCO, Fraport has likewise
practically provided all the technical support for the construction
and operation of NAIA Terminal III.

24. It must be pointed out that the technical services and

support rendered by PTI for the construction and operation of the
NAIA Terminal III was actually rendered by Fraport under a
Memorandum of Understanding dated 06 July 1999.

24.1. Under the Memorandum of

Understanding dated 06 July 1999, PIATCO
appointed PTI as contractor-operator of the NAIA
Terminal III Project. PTI bound itself, among others,
to all matters concerning commercial concessionaires
including the enforcement of the rules and the
maintenance of the building and all equipment, and
the provision of utilities security in connection with
the construction and operation of the NAIA Terminal
III Project. However, Fraport indirectly owns thirty
percent (30%) of respondent PTI. By virtue of this,
respondent Fraport effectively was the one rendering

15
 the technical and service operations in the NAIA
Terminal III Project.

25. Also, Fraport, through the execution of an Advisory

Service Agreement in favor of respondent PTI, provided the
technical expertise to construct and operate the NAIA Terminal III
project. Under the said Advisory Service Agreement, respondent
Fraport made available to respondent PTI a number of its
personnel or agents who possess sufficient expertise and
experience in connection with the construction and operation of the
NAIA Terminal Project III.

26. All told, the technical support and services being

rendered by respondent PTI in connection with the construction
and operation of the NAIA Terminal III Project directly and
indirectly came from only one entity, respondent Fraport.

26.1. It is worth recalling that respondent PTI,

wherein respondent Fraport owns forty percent (40%)
interest, was designated by respondent PIATCO as
the contractor-operator of the NAIA Terminal III
Project under the Memorandum of Understanding
(‘MOU’) dated 06 July 1999. Being the contractor-
operator, respondent PTI is responsible for all areas of
operation and maintenance of IPT-NAIA 3.

26.2. Respondent Fraport, by taking

advantage of such circumstance and its control of
respondent PTI, funneled the necessary technical and
management support required by respondent PTI in
connection with the construction and operation of the
NAIA Terminal III Project. Thus, under the Operation
and Management Agreement, respondent Fraport
guaranteed to provide respondent PTI with technical
and management support.

28. The foregoing facts which clearly set forth the

elaborate and fraudulent scheme devised by respondents PIATCO
Officers and the other responsible directors and corporate officers
of Fraport, PTI, PAGS, Paircargo and PTH, circumvent and violate
the constitutional restriction on foreign ownership of public utilities
and thus constitute a violation of the Anti-Dummy Law: x x x.”

3.8. However, despite the clear circumvention of the constitutional

restriction on foreign ownership of public utilities committed by respondents

PIATCO and Fraport, which in fact was admitted by respondent Fraport in its

Request for Arbitration dated 17 September 2003 filed with the International Centre

for Settlement of Investment Disputes of the World Bank 15, respondent GOP has

15
Cf. Request for Arbitration dated 17 September 2003, pages __ to __, a copy of which is attached
herewith as Annex “__”.

16
not commenced any legal action to forfeit the properties and assets which

respondent PIATCO acquired, alienated and/or enjoyed through the franchise,

certificate and/or other forms of authorization issued over the NAIA Terminal III

Project awarded in the latter’s favor pursuant to the Built-Operate-Transfer Law.

3.9. Worse, respondent GOP has, on several occasions, assured

respondents PIATCO and Fraport that investments made in relation to the NAIA

Terminal III Project will be compensated. In fact, an Oversight Committee headed

by the Secretary of Department of Trade and Industry was created and tasked to

determine the compensation which respondent GOP would be paying despite the

clear violation of respondent PIATCO and Fraport on the Constitutional restriction

on foreign ownership of public utilities.

3.10. Hence, the instant Petition.

GROUNDS

RESPONDENT PIATCO IS ACTUALLY OWNED AND

CONTROLLED BY RESPONDENT FRAPORT, A FOREIGN

CORPORATION, IN CLEAR VIOLATION OF THE

CONSTITUTIONAL RESTRICTION ON FOREIGN

OWNERSHIP OF PUBLIC UTILITIES; HENCE, ALL ASSETS

AND PROPERTIES ACQUIRED, ALIENATED AND/OR

ENJOYED BY RESPONDENT PIATCO IN VIOLATION OF THE

CONSTITUTION AND EXISTING LAWS SHOULD BE

17
 FORFEITED IN FAVOR OF THE REPUBLIC OF THE

PHILIPPINES.

II

CONSIDERING THAT THE ASSETS AND PROPERTIES OF

RESPONDENT PIATCO WERE ACQUIRED, ALIENATED

AND/OR ENJOYED IN VIOLATION OF THE CONSTITUTION

AND EXISTING LAWS, RESPONDENT GOP SHOULD BE

ENJOINED FROM COMPENSATING RESPONDENT PIATCO

FROM THE LATTER’S ALLEGED INVESTMENTS IN THE

NAIA TERMINAL III PROJECT.

DISCUSSION

I. Respondent Fraport, A Foreign

Corporation, Owns And Controls
Respondent PIATCO In Clear
Violation Of Section 11, Article XII Of
The Constitution; Hence, All
Properties Acquired, Alienated And/Or
Enjoyed By Respondent PIATCO In
Violation Of Said Constitutional
Provision Should Be Forfeited In Favor
The Republic Of The Philippines.

4.1. Evidently, respondents PIATCO and Fraport devised an elaborate

and fraudulent scheme precisely calculated to circumvent the restriction imposed

under Section 11, Article XII of the Constitution, thereby unlawfully allowing

respondent Fraport, a foreign corporation, to be the recipient of a franchise,

certificate and other forms of authorization, involving the construction,

18
ownership, management and operation of the NAIA Terminal III, a public utility,

through respondent PIATCO.

4.1.1. As mentioned earlier, the unlawful scheme of

respondents PIATCO and Fraport is evident by the fact that

respondent Fraport, which already beneficially owns sixty one and

44/100 percent (61.44%) of the capital stock of respondent PIATCO,

has also: (i) practically provided all the funding of PIATCO; (ii)

actually manages business and operations of PIATCO; and (iii)

provides for all the technological support for PIATCO.

4.2. Verily, the holding of property by a corporation in violation of

constitutional or statutory provisions is a ground for the escheat of all such

property.16 Thus:

“The holding of property by a corporation in violation of

constitutional or statutory provisions, as in the case of property
held in excess of corporate needs, or beyond a specified quantity, or
longer than a prescribed time, constitutes a ground for escheat.”
[Ricardo Francisco, The Revised Rules of Court in the Philippines
(Vol. V-B), p. 385; emphasis supplied]

4.3. Thus, the instant Petition encompasses the escheat and forfeiture of

all properties of respondent PIATCO in connection with the NAIA Terminal III

project which it acquired, constructed, alienated and/or enjoyed in violation of

Section 11, Article XII of the Constitution and the Built-Operate-Transfer Law.17

4.3.1. Our laws point to an all-encompassing scope of

properties subject of escheat proceedings, which entitles the Republic

of the Philippines to forfeit all properties of the respondents. The

Rules of Court clearly provide that an escheat proceeding is readily

16
In Rellosa vs. Gaw Chee Hun, 93 Phil. 827 (1953), the Supreme Court ruled that escheat proceedings
may be instituted as a consequence of a violation of the Constitution.
17
36 Am Jur 2d Forfeitures and Penalties § 25.

19
 available when properties are alienated, acquired and/or enjoyed in

violation of the Constitution.18

4.3.2. In the instant case, it bears emphasis to state that

respondent PIATCO was only able to construct, albeit in bad faith as

it knew it did not comply with the constitutional restriction on

foreign ownership, the NAIA Terminal III in a government property

as a consequence of the franchise, certificate and other forms of

authorization, involving the construction, ownership, management

and operation of the NAIA Terminal III given by respondent GOP.

Otherwise stated, the properties of respondent PIATCO consisting

of, among other things, the NAIA Terminal III was acquired,

constructed and enjoyed as a result of respondent PIATCO’s

violation of the Constitution and the Built-Operate-Transfer Law, i.e.

being the recipient of a franchise, certificate and other forms of

authorization, involving the construction, ownership, management

and operation of the NAIA III, a public utility, even if respondent

PIATCO is actually owned and controlled by a foreign corporation.

4.4. Based on the foregoing, considering that respondent PIATCO was

used by respondent Fraport to violate the constitutional restriction on foreign

ownership, all properties of respondent PIATCO, real or personal, tangible or

intangible, acquired, alienated or enjoyed as a result of said violation must be

forfeited in favor of the Republic of the Philippines.

18

?
Cf. Philippine Banking Corporation vs. Lui She, 21 SCRA 52 (1967). To reiterate, Section 5, Rule 91 of
the Rules of Court thus provides:
“SEC. 5. Other actions for escheat – Until provided by law, actions for reversions or
escheat of properties alienated in violation of the Constitution or of any statute shall be
governed by this rule, except that the action shall be instituted in the province where the land
lies in whole or in part.” [Emphasis supplied]

20
 4.5. A fortiori, it should be noted that the instant Petition is totally

independent and distinct from any criminal prosecution against the responsible

directors and corporate officers of respondents PIATCO and Fraport for violation

of the Anti-Dummy Law. Although “forfeiture” under the Anti-Dummy Law is

imposed as an accessory penalty by being “in addition to the penalty imposed” 19

under the law, this does not detract from the real nature of an escheat proceeding

which is civil20 in character, although being imposed in the form of a penal21

sanction against the erring corporation. Verily, the liability for escheatment is

distinct and totally separate from criminal liability under the Anti-Dummy Law

and its accessory penalty22 Simply stated, the instant Petition is a civil action based,

not on the acts or omissions charged as a felony in the criminal case for violation

of the Anti-Dummy Law, but one based on an obligation from the violation of the

Constitution.23

II. Considering That The Assets And

Properties Of Respondent PIATCO
Were Acquired, Alienated And/Or
Enjoyed In Violation Of The
Constitution And Existing Laws,
Respondent GOP Should Be
Enjoined From Compensating
Respondent PIATCO From The
Latter’s Alleged Investments In The
NAIA Terminal III Project.

4.6. The impending payment by respondent GOP to respondents

PIATCO and Fraport as alleged compensation for their alleged investment in the

19
Section 2-A of the Anti-Dummy Law provides:
“x x x That any person, corporation or association shall, in addition to the penalty
imposed herein, forfeit such right, franchise and privilege, and the property or business
enjoyed or acquired in violation of the provisions of this Act;
x x x” [Emphasis supplied]
20
Herrera, supra; citing People vs. Shoichi Nakamura, 13 P. 2d 805, 125 Cal. App. 269; 30 CJS 1175.
21

?
Cf. 27 Am Jur 2d Escheat § 1.
22

?
In this regard, the Civil Code thus provides:
“Article 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the
23
criminal proceedings and regardless of the results of the latter.” (Underscoring supplied)
?
Cf. Tayag v. Alcantara, 98 SCRA 723, 727 (1980)

21
NAIA Terminal III is clearly unconstitutional, violative of the Built-Operate-

Transfer Law, arbitrary, whimsical, illegal, null, void, unreasonable and unjust.

4.7. The Constitution states than in the absence of an appropriation made

by law before, no public funds shall be disbursed. Thus, legislature has to enact an

appropriation law before respondent GOP can spend any funds out of the national

coffers.24

4.7.1. As held in Republic vs. Villasor, 54 SCRA 83 (1973),

and reiterated in Philippine Rock Industries, Inc. vs. Board of

Liquidators, 180 SCRA 171 (1989), every disbursement of public

funds must be covered by a corresponding appropriation passed by

the Legislature.25

4.8. Clearly therefore, the decision of respondent GOP to compensate

respondent PIATCO and Fraport for their alleged investment in the NAIA

Terminal III Project from public funds without the corresponding appropriation

law for said purpose is unconstitutional.

4.9. At any rate, even assuming arguendo that respondent GOP may use

public funds to pay respondents PIATCO and Fraport their alleged investments in

24

?
Section 29, Article VI of the Constitution pertinently provides:
(1) No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.
(2) No public money or property shall be appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or support of any sect, church, denomination,
sectarian institution, or system of religion, or of any priest, preacher, minister, other religious
teacher, or dignitary as such, except when such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal institution, or government orphanage or
leprosarium.
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government.” [Underscoring supplied]
25
Disbursements of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by
law.”

22
the NAIA Terminal III Project, the said decision of respondent GOP is still

unlawful for being violative of the very essence of the Built-Operate-Transfer Law.

4.9.1. Under the Built-Operate-Transfer Law, any obligation

on the part of respondent GOP to pay the contractor of the NAIA

Terminal III accrues only after the twenty fifth (25th) year. Clearly,

at present, respondent GOP has no obligation to pay respondents

PIATCO and Fraport their alleged investments in the NAIA

Terminal III Project.

4.10. Moreover, the decision of respondent GOP to pay respondents

PIATCO and Fraport for ltheir alleged invesetments in the NAIA TErminal III is

clearly arbitrary, whimsical, unreasonable and unjust that would cause great

damage, prejudice and hardship on the petitioner and the other Filipino people as

millions of United States Dollars will be unlawfully used to pay for an unsafe and

structurally infirmed airport terminal that was constructed below acceptable

standards, contrary to the terms of the bid documents submitted by respondent

PIATCO.

4.10.1. In the document entitled “Respondent’s Request for

Interim Measures and Production of Documents” dated 27 May 2004

filed before the International Chamber of Commerce, International

Court of Arbitration, respondent GOP itself admitted that

respondent PIATCO significantly changed the design specifications

of the NAIA Terminal III Project to permit it to construct a cheaper

terminal of lower quality.26

4.10.2. The Report dated 16 December 2002 of Japan Air

Consultants, on the other hand, identified forty two (42) specific

26
A copy of the document entitled “Respondent’s Request for Interim Measures and Production of
Documents” dated 27 May 2004 is attached herewith and made an integral part hereof as Annex “__”.

23
 work items that respondent PIATCO failed to complete, including

major safety systems, such as the terminal’s fire-alarm, security, and

emergency lighting systems.27

4.10.3. Finally, the document entitled “Declaration of Richard

Francis Klenk, in Support of the Respondent’s Request for Interim

Measures” dated 23 April 2004 filed before the International

Chamber of Commerce, International Court of Arbitration, also

identified general problem areas which pose life safety issues,

specifically (1) structural soundness and integrity of Terminal; (2) no

or an inadequate fire safety system; (3) the safety of the water

system; (4) lack of training of personnel; (5) operability of the

emergency lighting system of Terminal; (5) safety of the Carbon

Dioxide and Inergen gas systems; (7) safety and operability of the

underground fuel distribution system; and (8) operability and

adequacy of the security system of Terminal.28

4.11. Consequently, petitioner, in behalf of the Republic of the Philippines

and as taxpayer and informant in the Anti-Dummy case pending with the NBI, is

clearly entitled to the relief demanded and part of such relief consists in

immediately enjoining respondent GOP from paying through public funds

respondents PIATCO and Fraport for their alleged invesetments in the NAIA

Terminal III Project.

4.12. If not immediately enjoined and restrained, the acts of respondent

GOP in unduly and unlawfully paying through public funds respondents

PIATCO and Fraport for their alleged investments in the NAIA Terminal III

27
A copy of the Report dated 16 December 2002 of Japan Air Consultants is attached herewith and made
an integral part hereof as Annex “__”.
28
“Declaration of Richard Francis Klenk, in Support of the Respondent’s Request for Interim Measures”
dated 23 April 2004 is attached herewith and made an integral part hereof as Annex “__”.

24
Project will work injustice and cause grave and irreparable damage considering

that hundreds of millions of United States Dollars will be wasted for the

acquisition of an unsafe and structurally infirm airport terminal.

4.13. The unconstitutional, unlawful, arbitrary, whimsical, illegal, null,

void, unreasonable and unjust decision of respondent GOP to pay through public

funds respondents PIATCO and Fraport for their alleged investments in the NAIA

Terminal III Project is a gross violation of petitioner’s rights which tends to render

the judgment herein ineffectual.

4.14. Petitioner is ready, willing and able to post a bond in such

reasonable amount as the Honorable Court may require, conditioned upon the

payment of damages that may be sustained by reason of the issuance of the

temporary restraining order and/or writ of preliminary injunction should the

Honorable Court finally decide that respondent GOP may lawfully pay through

public funds respondents PIATCO and Fraport for their alleged investments in the

NAIA Terminal III Project.

PRAYER

WHEREFORE, it is respectfully prayed that:

1. After due notice, publication and hearing, judgment be rendered

ordering the escheat and/or forfeiture or confiscation of all properties of

respondent PIATCO in favor of the Republic of the Philippines, including but not

limited to the following:

a. The entire NAIA International Passenger Terminal III;

25
 b. All other properties of respondents, real or personal,

tangible or intangible, used, acquired, alienated and/or enjoyed,

directly or indirectly, in obtaining permission or concession to

acquire and operate a public utility in violation the Philippine

Constitution.

2. Immediately upon the filing hereof, a Temporary Restraining Order

be issued restraining respondent GOP, its agents, or any one acting for or in its

behalf, from paying respondents PIATCO and Fraport for their alleged

investments in the NAIA Terminal III Project.

3. After due notice and hearing, a writ of preliminary injunction be

issued, on such bond as the Honorable Court may require, enjoining respondent

GOP, its agents, or any one acting for or in its behalf, from paying respondents

PIATCO and Fraport for their alleged investments in the NAIA Terminal III

Project.

4. After trial, judgment be rendered in favor of the petitioner making

the writ of preliminary injunction permanent.

Other reliefs just and equitable are likewise prayed for.

Makati City for Pasay City, Metro Manila, ____ July 2004.

_________________________________
For and in behalf of the
REPUBLIC OF THE PHILIPPINES

Copy furnished:

26
 OFFICE OF THE SOLICITOR GENERAL
_____________________________________
_____________________________________
_____________________________________

VERIFICATION AND CERTIFICATION

I, ___________________________ for and in behalf of the REPUBLIC OF

THE PHILIPPINES, after having been duly sworn in accordance with law, hereby
depose and state:

1. I am the Petitioner in the captioned case;

2. I caused the preparation of the foregoing Petition;

3. I have read the contents of the foregoing Petition and the

allegations therein are true and correct of our own knowledge
or based on authentic records; and

4. No other action or proceeding involving the same issues has

been commenced in the Supreme Court, the Court of Appeals,
or in any other tribunal or agency; and that, except for the
pending criminal investigation entitled,
“___________________ vs. Peter Henkel, Rita Bonifler,
Jefferson G. Chieng, Cheng Yong, Jason g. Cheng, S. Samim
Aydin, Lilioa G. Cheng, Hackiman Yokol, Gil Camacho,
Katherine Agnes M.C. Arnaldo, Jorg Seyffrart, Marife T.
Opulencia, Mary Antonette P. Manalo and John and Jane
Does” and pending before the National Bureau of
Investigation, Department of Justice, to the best of my
knowledge or based on authentic records, no such action or
proceeding is pending in the Supreme Court, the Court of
Appeals, or in any other tribunal or agency. If I should learn
that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or
in any other tribunal or agency, I shall notify or cause to be
notified the Honorable Court thereof within five (5) days from
such notice.

____________________

27
 Affiant

SUBSCRIBED AND SWORN to before me this ___ day of July 2004 in

Makati City, Metro Manila, affiant exhibiting to me his Community Tax
Certificates No. __________, issued on ___________ 2004 at ___________, Metro
Manila.

Doc. No. ______;

Page No. ______;
Book No. ______;
Series of 2004.

28