Agan v.

PIATCO

CASE DIGEST by JEA LACAP

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, Asias 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
AEDCs proposal and the bidders were required to submit three separate envelopes containing the pre-
qualification 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 (Focus more on issues 1, 7, and 8 because those numbers contain the doctrines/principles for the case
and they focus on constitutional law.)

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.

HELD

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
Agan v. PIATCO

CASE DIGEST by JEA LACAP
NAIA IPT III. Therefore, these employees contend that the closing of NAIA terminal I and II as international
passenger terminals will result to their unemployment.

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.

II. 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.
III. 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
Agan v. PIATCO

CASE DIGEST by JEA LACAP
which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose
of its adoption.

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.

VI. 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 PIATCOs 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.