Posted on Wednesday, May 28, 2003

Inconsistencies in SC decisions

By David L. Llorito, Research Head

Is there a breakdown in the country’s judicial system?

Bantay Kontrata and the Citizens National Network Against Poverty and Corruption (CNN-APC) think so. They say the cases of Jancom and Piatco attest to this. They explain that the highest court of the land declared Piatco’s contract null and void for “financial incapacity” despite the fact that the proponents had already built the Ninoy Aquino International Airport’s Terminal 3.

“If we go by the decision of the Supreme Court on Piatco, then all BOT (build-operate-transfer) contracts are possibly null and void,” claims one member. “Yet the Supreme Court bent all the way back to accommodate Jancom, even to the extent of setting dangerous precedents.”

According to Gideon Javier, head of the local Clean Air Coalition, CNN-APC was formed in 2001 as a movement to fight corruption and promote transparency in government. Bantay Kontrata is one of its first projects.

Javier says its founding members are generally “centrist types,” among them Steve Legasto (formerly with the National Housing Authority, Boy Montelibano, Tracy and Luis Sison (the former press secretary of President Corazon Aquino),  Roberto Pagdanganan (former Bulacan governor and now agrarian reform secretary), Liwayway Vinzons-Chato (former chief of the Bureau of Internal Revenue).

Environment activists like Sonia Mendoza (Mother Earth), Ester Perez de Tagle (Concerned Citizens Against Pollution), Metodio Palaypay (Recycling Movement of the Philippines), Fr. Benigno Beltran (Smokey Mountain Resource Recovery Center) also appear to be associated with the group.

CNN-APC identified seven areas where the Supreme Court has shown to be inconsistent.

1. The court says the Piatco contract is null and void because PairCargo, the predecessor of Piatco, had no financial capability despite the fact that the project was completed on time. Thus, the Piatco contract was supposed to have violated the country’s BOT law.

But Jancom also had no financial capability, did not submit a bid bond, and was declared failed bidding by the PBAC, the group says. The deal was never approved by the Interagency Committee and the National Economic and Development Authority. Neither was it signed by the President. Yet the Supreme Court ruled it valid.

2. The Supreme Court nullified the Piatco contract to avoid the establishment of a monopoly. But CNN-APC says that when the court ruled in favor of Jancom despite its being seriously flaws, it effectively granted the firm monopoly over the Metro Manila’s waste management and disposal.

“…Supreme Court decision effectively granted Jancom monopoly, even beyond the 3,000 tons by preventing MMDA from contracting other parties for the balance of 3,000 to 5,000 tons out of the 6,000 to 8,000 tons of waste generated by Metro Manila per day, thus preventing MMDA from solving Metro Manila’s garbage problem…,” says the CNN-APC in its paper. “[This] violates the Constitution and disregards the public interest, their health and safety, as well as disregards the protection of the environment.”

3. The Supreme Court annulled Piatco’s 1997 concession agreement because of substantial amendments that made it different from the original contract. For instance, while Piatco’s draft concession agreement did not give direct government guarantee, the 1997 agreement provided that if Piatco defaults on its loans they will be assumed by the government.

Yet, according to the CNN-APC, the Supreme Court ruled that the Jancom contract is valid despite the fact that it contained major deviations from the original contract, including:

a. Tipping fee. The amount the government pays for Jancom’s garbage disposal services increased 490 percent from $10 to $59 basic fee, and effective increase by 800 percent because of hidden costs from $59 basic charge to $90 per ton.

b. The project cost increased by 142 percent from $156 million to $377 million.

c. The original government guarantee only included the provision of the site, San Mateo. Yet the Jancom contract required the government to guarantee the delivery of volume required for the incinerator, the payment of the tipping fee and power buy back. The government will even guarantee the moisture content of the waste to 21.98 percent although every one knows that the Philippines is a tropical country where the waste normally has a 50-percent moisture content due to the rains. The government will be charge penalties for failure to deliver the required volume and the right moisture content.

4. The Supreme Court declared that alterations in the Piatco contract, even if it was signed by authorized signatories, make it null and void.

Yet, the Supreme Court decided that changes in the Jancom contract were corrected upon the execution of the contract which “cures its defects.” The signatories were executive committee members of the Presidential Task Force on Solid Waste including Dionisio de la Serna (the chairman of Housing and Urban Development Coordinating Committee), Prospero Oreta (MMDA Chairman), and Victor Ramos (secretary of the Department of Environment and Natural Resources. For the Supreme Court, the contract was perfected because “there was a meeting of the minds” when the two parties (Jancom and MMDA under Oreta) signed the contract.

Whether or not Ramos, de la Serna, and Oreta were authorized to sign the contract with Jancom is another big question. Memorandum Order No. 202 signed by President Fidel V. Ramos creating the executive committee only authorized it to “recommend” and “oversee the project’s implementation.”

5. The Supreme Court ruled the Piatco contract null and void despite having been approved by Interagency Committee led by the National Economic and Development Authority (Neda).

Yet, the court upheld the validity of the Jancom contract despite the fact that it was not approved either by the ICC-Neda or the President. The signatories themselves–de la Serna, Oreta, and Victor Ramos—were not even authorized to sign as per memorandum order 202.

Despite the lack of ICC-Neda approval, the three executive committee members insisted that Jancom’s project be approved by President Ramos. On May 25, 1998, executive secretary Alexander Aguirre rejected the executive committee members’ request for presidential approval.

“… [A] conditional approval will be open to question and will only bring embarrassment to the Ramos Administration,” said Aguirre in his memorandum to President Ramos.

6. The CNN-APC says that the Supreme Court entertained other parties questioning the validity of the contract even though it nullified it before arbitration proceedings were completed. In the case of Jancom, the group says that the court skipped due process by not entertaining motions for intervention from several environmental groups and affected parties.

7. The group claims that the Supreme Court voided the Piatco contract because of “violations in the BOT law, deviations from the original contract, and was contrary to public interest.”

Yet at the same time, the court said the Jancom contract is “valid but ineffective unless signed by the President” despite the fact that it violated the BOT law, had major deviations from the original terms; and was “grossly disadvantageous to government and to public interest,” according to CNN-APC.

The group stresses that one major flaw in the Jancom contract that could have been considered by court was the fact that the bidding was rigged by de la Serna.

In his confidential letter to the then President Ramos on July 27, 1995, de la Serna admitted that he arranged with qualified proponents to allow only Jancom to bid for the incinerator project.

“To fast-track the project …, we arranged with the pre-qualified proponents to allow only Jancom to bid for the San Mateo site, which is the much bigger of the two sites. The other pre-qualified bidders would bid only for the Carmona site… This arrangement will be formalized by next week through letters … from the three bidders indicating their intention to bid only for their particular sites,” said de la Serna in his July 27, 1995 memo to Ramos.

Dangerous implications

The CNN-APC is deeply bothered by the possibility that the Supreme Court may have unwittingly set “dangerous precedents” in court decisions.

For instance, the Supreme Court decision on Jancom says that “… [a]dmittedly, the notice of award [to Jancom] has not complied with these requirements [particularly Neda-ICC approval]. However, the defect was cured by the subsequent execution of the contract entered into by authorized representatives of the parties … ”

The implication of this ruling is that (a) even if the signatories were not authorized to bind the parties; (b) the object is not permitted by law (incineration being banned by the Clean Air Act and the Ecological Solid Waste Management Act); (c) the manner by which it reached was illegal; (d) despite violations particularly of the BOT law, a contract can now be signed and the act of signing can “cure” its defects.

“[Does] the contract now become superior or automatically amend[ed] the laws it violates?,” CNN-APC asked in its paper.

The group says the ruling could also raise the following questions:

1. Is the Jancom BOT contract illegal but a valid, perfected contract?

2. Does it mean that government contracts no longer need performance bonds prior to signing?

3. Can a project as big as Jancom’s be exempt from ICC-Neda clearance or approval?

4. Does it mean that presidential approval has become a ministerial function even if the cost is in the billions and there is a government guarantee?

5. Can a contract now deviate from the original terms of the project without being approved by ICC-Neda?

On May 10, 1996, then chief justice Andres Narvasa issued Administrative Circular Number 12-94-A stating that Supreme Court members should inhibit from handling cases brought to the court or handled by their former law firms or their relatives, and raffle the cases to the court’s other two divisions.

CNN-APC says that Jancom’s case fits this prohibition. The group stresses that Justice Antonio T. Carpio had admitted to being the former counsel of Vivendi, Jancom’s international partner. He was also the chief presidential legal counsel for the government during the negotiations with Jancom/Vivendi. Yet the Jancom case was not reassigned to a different Supreme Court division.

For potential investors, the following questions regarding BOT may emerge: Which jurisprudence now applies to BOT contracts? The one applied to Jancom or Piatco?