Agan v.

PIATCO

FACTS!

• In 1989, DOTC engaged in the services of Aeroport de Paris (ADP) to conduct a study of the Ninoy
Aquino International Airport (NAIA) to determine whether the airport can cope with traffic development
by year 2010.
• In 1993, Asia’s Emerging Dragon Corp (ADEA) was formed by John Gokongwei, Henry Sy, Lucio Tan,
Andrew Gotianun, George Ty, and Alfonso Yuchengco, for the purpose of exploring the possibility of
constructing a new international airport terminal. ADEA then submitted an unsolicited proposal to the
government through the DOTC/MIAA and called the project NAIA International Airport Terminal III
(NAIA ITP III) under the build-operate-and-transfer arrangement pursuant to the BOT Law.
• DOTC/MIAA published in two daily newspapers the invitation for competitive or comparative
proposals on AEDC’s proposal and the bidders were required to submit three separate envelopes
containing the prequalification documents, technical proposal, and financial proposal.
• The government granted Philippine International Airport Terminals Co, Inc. (PIATCO, formerly known
as Pairgo), to operate and maintain NAIA IPT III 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.
• On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession
Agreement (ARCA).
• Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third
Supplement on June 22, 2001 (collectively, Supplements).
• Due to various issues and petitions, former President Arroyo did not honour the PIATCO contract.
ISSUES:
I. Whether or not (WoN) petitioners possessed locus standi.
II. WoN the supreme court had jurisdiction over the case.
III. WoN arbitration is necessary.
IV. WoN PIATCO was a qualified bidder.
V. WoN the 1997 Concession Agreement is valid.
VI. WoN the ‘Direct Government Guarantee’ clause of the concession agreement
is in violation of the BOT Law.
VII. WoN the ‘Temporary Takeover’ clause of the concession agreement clause is
unconstitutional.
VIII. WoN the exclusive right granted to PIATCO to solely operate a commercial
international passenger terminal at the NAIA IPT III is unconstitutional.
RULING:
I. Individual petitioners who had separate contracts with MIAA: Yes, these petitioners have
locus standi because they have a separate and subsisting contract with MIAA and they
alleged that their contracts will be interfered and violated by the concession agreement
between PIATCO and MIAA. Employees of MIAA: Yes, these petitioners have locus standi
because, as stated in the 1997 Concession Agreement and the ARCA, PIATCO will have
exclusive right to solely operate international flights in the new

TEST TO DETERMINE IF A PETITIONER HAS LOCUS STANDI: It has been held

that the interest of a person assailing the constitutionality of a statute must be direct and
personal. He must be able to show, not only that the law or any government act is invalid, but
also that he sustained or is in imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear
that the person complaining has been or is about to be denied some right or privilege to which
he is lawfully entitled or that he is about to be subjected to some burdens or penalties by
reason of the statute or act complained of.

Petitioners as taxpayers, citizens, and members of the House of Representatives: Yes, these people have
locus standi but only because it was granted to them by the court. These petitioners alleged that, in
compliance with the contract with PIATCO, the government will be appropriating unnecessary funds.

REASON FOR GRANTING OF LOCUS STANDI: These petitioners were granted locus standi
because their petition involved public interest. “Standing is a peculiar concept in constitutional law
because in some cases, suits are not brought by parties who have been personally injured by the operation
of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in
the public interest”. Even if the petitioners are not covered by the definition of who has locus standi, it is
still within the wide discretion of the Court to waive the requirement on locus standi in relation to serious
legal questions involved and their impact on public interest.

I. Yes, the Supreme Court has jurisdiction over the case. PIATCO contended that, following
the hierarchy of courts, the Supreme Court did both have jurisdiction over the case. The
Supreme Court regards that the current controversy involves significant legal questions the
the Court has jurisdiction over.
II. No. Arbitration is only applicable between those that are party to the contract involved.
The petitioners in this case are not party to the contract between MIAA and PIATCO. IV. No.
 PIATCO was not a qualified bidder. According to the agreement, a bidder must be able to
invest at least 30% of the project cost, which was P2,755,095,000.00. During the bidding
process, PIATCO failed to qualify as a bidder so it negotiated with Security Bank in funding
the project. Based on the General Banking Act, a commercial bank could only invest 15% of
its net worth and Security Bank could only invest P528,525,565.55. PIATCO could only
invest P558,384,871.55, which is only 6.08% of the project cost. Thus the award of the
contract by the PBAC to the PIATCO (Paircargo Consortium), a disqualified bidder, is null
and void. V. No, the 1997 Concession Agreement is not valid. During the bidding process, all
bidders were made known of draft Concession Agreement. After PIATCO was awarded the
contract for the construction of NAIA IPT III, the 1997 Concession Agreement became the
official contract between PIATCO and MIAA. The contract is invalid because the changes
made between the draft agreement and the 1997 agreement were substantial enough to
constitute them as two different contracts.

RATIONALE/PRINCIPLE BEHIND THE DECISION: By its very nature and characteristic,

competitive public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition. It has been held that the three principles in public
bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a basis for the
exact comparison of bids. A regulation of the matter which excludes any of these factors destroys
the distinctive character of the system and thwarts the purpose of its adoption.

III. Paircargo Consortium failed to meet the financial capability required under the BOT
Law and the Bid Documents.
This contention is based on the restriction under R.A. No. 337, as amended or the
General Banking Act that a commercial bank cannot invest in any single enterprise in an
amount more than 15% of its net worth. In the said Memorandum,... Undersecretary Cal
opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In this connection, the Challenger
was found to have... a combined net worth of P3,926,421,242.00 that could support a
project costing approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a
requirement now will be nothing less than unfair.
Principles:
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the bidder "who, having satisfied the minimum financial,
technical, organizational and legal standards" required by the law, has submitted the lowest
bid and most... favorable terms of the project.[24] Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
 IV. 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 draft Concession Agreement. The amendments present new terms and conditions which
provide financial benefit to PIATCO which may have altered the technical and financial
parameters of other bidders had they known that such terms were available.

V. Yes, the ‘Direct Government Guarantee’ clause of the concession agreement is in

violation of the BOT Law. It was stated in the 1997 Concession Agreement that in the event
that PIATCO fails to pay its loan obligations, the first option of the Government is its
obligated to pay remainder of PIATCO’s debt including interests, penalties and other
surcharges. The second option is for the Government to allow the creditors of PIATCO to run
NAIA IPT III. 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. VII. Yes, the ‘Temporary Takeover’
clause of the concession agreement clause is unconstitutional. Article XII, Section 17 of the
1987 Constitution provides: In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public utility or business
affected with public interest. Based on the 1997 Concession Agreement, the government can
temporarily take-over NAIA IPT III in case of national emergency but the government is
obligated to pay for the cost incurred in the use of the terminal during this take-over. This
clause in the concession agreement is in violation of Section 17, Article XII of the
Constitution because government take-over is an exercise of police power.

RATIONALE/PRINCIPLE BEHIND THE DECISION: 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.

VIII. No, the exclusive right granted to PIATCO to solely operate a commercial international
passenger terminal at the NAIA IPT III is not unconstitutional but the government must have strict
regulation towards its operation. Article XII, Section 19 of the 1987 Constitution states: 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. The operation of an international passenger airport terminal is no
doubt an undertaking imbued with public interest. Thus, while PIATCO may be authorized to exclusively
operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the
right and the duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA
IPT III cannot also violate the rights of third parties. PIATCO, by the mere expedient of claiming an
exclusive right to operate, cannot require the Government to break its contractual obligations to the
service providers. As the primary government agency tasked with the 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.

CONCLUSION:

Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium,
predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction,
operation and maintenance of the NAIA IPT III is null and void. Further, considering that the 1997
Concession Agreement contains material and substantial amendments, which amendments had the
effect of converting the 1997 Concession Agreement into an entirely different agreement from the
contract bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary to
public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997
Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a
direct government guarantee expressly prohibited by, among others, the BOT Law and its Implementing
Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA,
are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and
the Supplements thereto are set aside for being null and void.