Dissenting opinion of Cremades in the 2007 Opinion

1. Cremades did not agree with the characterization of the investment.

First he did not agree that the words “accepted”, “admitted”, or “allowed”, meant that the
investor should not carry out illegalities. While investor illegality is serious, there are
other ways to address it, such as criminal prosecution, which actually happened in this
case. The Philippines actually filed cases against PIATCO only to be dismissed by the
State prosecutor –he found that since there was no grant of public franchise to PIATCO,
hence it could not violate the constitution, which mandates that holders of public
franchise be Filipinos.
It was not in accord to the ordinary meaning in accordance with purpose of the BIT
which is to encourage foreign investment.

2. Even the illegality of the investment stood on flimsy ground.

1. Fraport withstood the control test, its investment in PIATCO is actually 60% of
its common or voting stock must be Filipino. The Philippines, however, did not
use the control test, they used the grandfather rule. Which required considering
the “cascading” of interests in PIATCO.
2. Fraport allegedly violated the anti-dummy law. When we look at the anti-
dummy law, it punishes the “dummy” Filipino for allowing himself or herself to
be used and the Foreigner for aiding and abetting the violation of the ADL. But
the respondent Philippines has not proven that PIATCO was a dummy, so how
could Fraport be liable in aiding and abetting?

That said let us go to the points of analysis the group would want to emphasize.

1. Shift to the modern view of IL becomes more apparent

We know that the state has occupied a unilateral role in international law and this is
reflected in the traditional view of IL. But there has been a shift from this centralized
view of the State being a subject to a decentralized view of IL, which is reflected in the
modern view of IL. We see this in the Fraport Case, the subject of which was not only
States but also corporations being involved. In mammoth projects such as this, States are
not the only ones involved.

2.Consent is the heart of arbitration

Arbitration is a creature of consent. When states agree to submit to arbitration, they
waive immunity – they could no longer invoke the act of state doctrine. Whether the
parties submit or not to arbitration is governed by consent. It is part of a contract or part
of the negotiation stages of the contract. It may be a major consideration of why parties
would give their consent to the contract. That being said, we could say that submitting to
arbitration is part of the contractual obligations of the contracting parties. Yet in the
Fraport case, was the obligation of the Philippines, having objected to the jurisdiction of
the ICSID tribunal, fulfilled? Did the Philippines breach its obligation to submit to
arbitration? When we say consent is the heart of arbitration, can we not say that part of
that is submitting to the jurisdiction of the tribunal?
But then again, let’s look at the other side of the coin. Since arbitration goes to consent,
Fraport consented to its investment being governed by the laws of the Philippines. In
fact, it had even asked local law partnership QT its legal advise and financial advise of
KPMG advise on how to set up the investment. QT advised it on the limitations on its
investment, taking into consideration the relevant laws in the Philippines.

Mr. Cremades in dissenting opinion stated that BIT art. 1 – defining an investment to be
one that should be acceptable in the host country’s laws is common to bilateral
investment treaties. It is not a shield against arbitration and should not avoid the parties
submitting to arbitration. Because while the parties agree to domestic laws governing the
validity of the investment, it has been a long experience in these field that states abuse
their own laws. As what we saw in the Fraport decision, and that is exactly why parties
choose to submit to arbitration- to have a neutral tribunal decide on their issues.
In the end, he said that the tribunal should have proceeded to the merits of the case where
parties could have presented their case because the legality of the asset is best determined
in the merits of the case.

3. Outcome of the case

The ultimate outcome paints a picture of unfairness and injustice. The Philippines,
instead of paying the contract price, paid a measly sum, based on its own appointed
committee’s valuation, which it deposited in escrow to be released to Fraport under its
own terms. In fact, in the second arbitral case, Fraport claimed to have received only
$29M which is not even half of the contract price which was $300M. It is also worthy to
mention the involvement of numerous innocent third parties to the case such as the
Japanese contractor, Takenaka and Fraport shareholders. The injustice of the situation is
overwhelming. Surely, one that the arbitration clause and the BIT between Germany and
the Philippines never intended.

4. What now? With the outcome of this case, do you think Foreign investors will
bring their money to the Philippines?

5. Fun fact