PNOC vs COA (En Banc)

G.R. No. 244461. September 28, 2021

In our opinion, you may tag this under your 2024 Political Law Bar Syllabus
under:

● V. CONSTITUTIONAL COMMISSIONS > A. Powers, Functions,

and Jurisdiction.

ESSAY QUESTION:
PNOC, a GOCC, engaged Baker Botts, an international law firm. The
COA auditor discovered that PNOC violated a COA Circular by not obtaining
written approval from COA for hiring Baker Botts. Consequently, Notice of
Suspension was issued, suspending the fees to be paid to Baker Botts in the
amount of P40 million. PNOC submitted a belated Letter-Request to COA for
approval of Baker Botts' hiring but was denied. Nevertheless, in its decision,
COA stated that it is still in the early stages of evaluation. PNOC filed a suit
questioning the denial of COA on grounds of grave abuse of discretion. The
Court dismissed and remanded the case to COA because it found that COA had
not made a final decision on whether PNOC needed written approval or not. Is
the Court correct?

Suggested Answer: Yes, the Court is correct.

The Supreme Court has held that “the Court's general policy is to give
due deference to the COA's constitutional prerogatives in the absence of
grave abuse of discretion, not only on the basis of the doctrine of separation of
powers, but also of their presumed expertise in the laws they are entrusted to
enforce.”

Here, COA was still in the early stages of evaluating as to the propriety of
exempting PNOC from the need for written approval. Such determination
entails the evaluation of purely factual and evidentiary matters which properly
pertain to COA. The COA hadn't made a final decision on whether PNOC
needed written approval or not.

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 Thus, the Court is correct.

Note: For practice suggestions, you are free to craft your own answer and
improve the suggested answer provided above.

EXPLANATORY NOTES:

The key question in this case was whether COA was correct in refusing
PNOC's request for written approval after they had already hired Baker Botts.
But, the Supreme Court dismissed the petition and sent it back to COA because
COA hadn't yet decided if PNOC should be exempted from the written approval
requirement. In short, PNOC filed a certiorari without COA’s final
determination.

To provide more context, PNOC hired an international law firm to

represent them in a dispute with Wilson International Trading Private Limited
(Wilson). The disagreement involved Wilson seeking approximately 1.3
millions dollars in demurrage charges and losses from PNOC. Following their
contract terms, Wilson took the matter to arbitration in Singapore.

So, going back with PNOC and COA, PNOC asked for flexibility in
applying the rules for hiring a private lawyer, saying they urgently needed
representation in international arbitration and couldn't get COA's written
approval in time. They also argue that the government benefited from Baker
Botts' services, so keeping the legal fees suspended and possibly disallowed
would be unfair.

The SC then discussed indispensable conditions that must be fulfilled

before a GOCC can hire a private lawyer namely:

1) hiring is only in exceptional cases;

2) the written conformity and acquiescence of the OGCC must first be
secured; and
3) the prior written concurrence of the COA must also be secured;

Hiring private lawyers is allowed in exceptional situations, and there's no

fixed rule for it. The assessment of expenses, as in this international arbitration
case, considers all circumstances, including the contract and existing laws, to

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determine if they were illegal, irregular, excessive, or unreasonable.
Compliance with COA's written approval is not the sole factor in assessing
disallowance of legal fees and imposing liabilities.

COA later released a new circular that allows GOCCs to skip the need for
COA's advance written approval, but they must meet certain conditions stated
therein. If any of these conditions are not met, then COA's written approval is
necessary. It's important to mention that this circular was introduced in 2021,
while COA's decision to deny the request letter happened in 2019.

The Supreme Court could not find specific facts in the new circular that
determine whether PNOC is exempt from needing COA's "written approval."
Basically, the facts are not clear yet because COA is still in the early stages of
reviewing the case, as stated in their initial decision.

The SC said that because of this new development in the procedure, it

makes sense to return the case to COA. COA should decide if PNOC can skip
the written approval requirement. This is needed because it requires looking at
facts and evidence that are not in the current records, and that's something the
petition cannot properly address. COA should determine whether it will exempt
PNOC from the “written approval”.

The SC emphasizes that it's not its role to make certain determinations.In
certiorari proceedings, the Court's main task is to review whether COA's actions
involve grave abuse of discretion. The Court generally respects COA's
constitutional authority unless there's a clear case of abuse of discretion. The
respect is based on the separation of powers and COA's presumed expertise.
The Constitution designates COA as the guardian of public funds with extensive
powers to oversee government expenditures and revenues, define the scope of
audits, establish review techniques, and set accounting and auditing rules and
regulations.

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