Before the Court are two consolidated petitions for prohibition with applications for injunctive relief,
[1] assailing the constitutionalities of the Preferential Buyer's Credit Loan Agreement on The Chico River Pump Irrigation Project
[2] (CRPIP Loan Agreement) and the Preferential Buyer's Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project
[3] (
NCWS Loan Agreement) (
collectively, Loan Agreements). Through a Resolution dated September 3, 2019,
[4] the Court consolidated these petitions considering the similarities of the subject matters, issues raised, reliefs sought, and parties involved.
Factual AntecedentsOn October 20, 2016, the Government of the Republic of the Philippines (
GRP), represented by the Department of Finance (
DOF), and the Chinese government-owned Export-Import Bank of China (
EXIM Bank) entered into a Memorandum of Understanding on Financing Cooperation
[5] (
MOU). As disclosed through Articles 1.1,
[6] 2.3,
[7] 4.1,
[8] and 4.2
[9] thereof, the MOU was intended as a precursor agreement to more binding and detailed loan agreements for GRP-nominated priority infrastructure projects.
Invoking the MOU, the Department of Foreign Affairs (
DFA) transmitted to the Embassy of the People's Republic of China (
PRC Embassy) Note Verbale No. 17-0330
[10] dated January 20, 2017, proposing the process by which the financing arrangement under the MOA would be activated and availed of. Then followed Note Verbale No. 17-1049
[11] dated March 3, 2017, wherein the DFA confirmed its previous proposals. In response, China's Ministry of Commerce (
MOFCOM) sent out Reply Note
[12] dated March 8, 2017 (
Reply Note), agreeing to the following procedure:
First, the DOF will submit a request for preferential/concessional loan financing for priority projects to the Chinese Government, through the PRC Embassy;
second, the Chinese Government would proffer its considerations and provide a list of at least three qualified, legitimate, and reputable Chinese contractors for the project;
third, the relevant implementing agency (
IA) would conduct Limited Competitive Bidding (
LCB) among the recommended Chinese contractors, and finalize the procurement by signing the relevant commercial contract;
fourth, the DOF would submit to EXIM Bank the required documents, prompting the latter to conduct its due diligence; and
finally, the DOF, on behalf of the GRP, and EXIM Bank would sign the loan agreement and, if any, guarantee agreement.
Aspects of the foregoing procedure were further particularized through a mutually agreed
[13] Clarificatory Procedures for the Implementation of the Note Verbale No. 17-1049
[14] (
Clarificatory Procedures). Particularly, the DOF and Chinese Government agreed that the pertinent IA shall adhere to provisions of Republic Act (
R.A.) No. 9184, or the Government Procurement Reform Act (
GPRA); the DOF shall request from the PRC Embassy the financing of priority projects, and a list of at least three qualified, legitimate, and reputable Chinese contractors; upon receipt of such list, the DOF would furnish the same to the IA, which would conduct its own due diligence and vetting, coursing through the DOF to the PRC Embassy whatever concerns it might have with the recommended firms; if found satisfactory, the IA would undertake LCB, incorporating some GPRA procedures; lastly, the IA and winning contractor would sign a contract agreement, stipulating therein that the effectivity thereof is contingent on the effectivity of the loan agreement to finance such project.
The CRPIP, with the National Irrigation Authority (
NIA) as IA, was nominated for such finance assistance. Consequently, the MOFCOM recommended three Chinese contractors,
[15] which the DOF relayed to the NIA for due diligence and vetting.
[16] The NIA proceeded to conduct a background check by inquiring with various government agencies regarding ongoing transactions with these firms.
[17] Then, the NIA's Bids and Awards Committee-A adopted Resolution No. CW-LCB 2018-1,
[18] recording the conduct of the requisite LCB, declaring China CAMC Engineering Co., Ltd. as the bidder with the lower calculated and responsive bid, recommending the approval of such award and issuance of a notice to that effect, and urging the execution of a contract agreement between the NIA and China CAMC.
Meanwhile, the Bangko Sentral ng Pilipinas' (BSP) Monetary Board (
MB) adopted Resolution No. 305
[19] dated Februaiy 22, 2018, Approving-in Principle the proposed loan of up to $70 Million for the CRPIP, conditioned on certain documentary submissions, deposit arrangements, parameters for subsequent negotiations and approvals, and compliance with applicable laws. Thereafter, the CRPIP Loan Agreement was executed on April 10, 2018, by the EXIM Bank as lender, and the GRP, through the DOF, as borrower, which agreement features provisions covering Conditions and Utilization of the Facility, Disbursement of the Facility, Repayment of Principal and Payment of Interest, Representations and Warranties by the Borrower, Special Covenants, Default, Miscellaneous, Effectiveness. Through Resolution No. 813
[20] dated May 17, 2018, the MB gave its Final Approval to the loan amounting to $62,086,837.82.
The NCWS project, to be implemented by the Metropolitan Waterworks and Sewerage System (
MWSS), was also nominated for financing assistance.
[21] As the NCWS project was originally conceived as a public-private partnership scheme, the DOF and the National Economic Development Authority (
NEDA) instructed the MWSS to review and adjust the project's financing strategy, considering the financing cooperation provided by the MOU. The MWSS Board of Trustees endorsed and confirmed the NCWS project's new estimated cost at P10.857 Billion, and tailored the scope and implementation thereof consistent with a financing shift to Official Development Assistance (
ODA), thereby foregoing the then ongoing procurement process pursuant to the Build-Operate-Transfer Law.
[22]The NEDA-Investment Coordinating Committee confirmed such shift in project financing.
[23] Similar to the CRPIP project, the DOF forwarded to the MWSS the shortlist of MOFCOM-endorsed
[24] Chinese contractors,
[25] and urged the MWSS to conduct its due diligence in vetting the candidate firms.
[26] Thereafter, the MWSS concurred in the shortlist of contractors and proceeded to conduct the LCB,
[27] where China Energy Engineering Corporation Limited emerged with the lowest calculated bid.
[28]The MWSS then approved the proposed commercial contract, authorizing its administrator to sign the agreement, and submit the same to the DOF for loan processing.
[29] For project financing, the DOF endorsed the MWSS's proposed loan to the MB for its Approval-in-Principle and willingness to guarantee, subject to certain conditions.
[30] On September 28, 2018, the MB gave its Approval-in-Principle through Resolution No. 1581, imposing conditions necessary for Final Approval. The NCWS Loan Agreement was entered into on November 20, 2018 between the EXIM Bank as lender, and the GRP, through the DOF, as borrower, and features stipulations identical to those of the CRPIP Loan Agreement. Through Resolution No. 854
[31] dated June 6, 2019, the BSP MB gave its Final Approval to the loan amounting to US$211,214,646.54.
IssuesPetitioners in both G.R. Nos. 245981 and 246594 filed the instant petitions for prohibition to assail the validity of the Loan Agreements and seek the disclosure of documents related to such agreements, similarly praying:
(a) Upon the filing of this petition, a TEMPORARY RESTRAINING ORDER (TRO) and/or a WRIT OF PRELIMINARY PROHIBITORY INJUNCTION be immediately issued RESTRAINING and/or ENJOINING the Respondents, and all persons acting under their command, order, and responsibility from further enforcing the Preferential Buyer's Credit Loan Agreement on the Chico River Pump Irrigation Project [Preferential Buyer's Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project][32] between the Export-Import Bank of China and the Government of the Republic of the Philippines;
(b) An Order be issued directing Respondents to produce the following documents:
1. Procurement documents m granting the civil works to the Chinese contractor; and
2. Other relevant documents in connection with this case.
(c) An Order be issued to all concerned agencies of government to produce certified true copies, upon request, of [all] loan agreements [and other related documents,] executed by and between the Government of the Republic of the Philippines and China;
(d) After notice and hearing, a final order be issued declaring the assailed Preferential Buyer's Credit Loan Agreement on the Chico River Pump Irrigation Project [Preferential Buyer's Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project] including the implementation thereof, as UNCONSTITUTIONAL, ILLEGAL, and VOID.[33]
Parsing through the parties' arguments, the Court trims the issues as follows:
I.PROCEDURALLY, WHETHER THE PETITIONS SHOULD BE DISMISSED FOR:
- FAILURE TO ESTABLISH THE REQUISITES OF JUDICIAL REVIEW.
- NON-OBSERVANCE OF THE DOCTRINE OF HIERARCHY OF COURTS.
- UNAVAILABILITY OF THE REMEDY OF PROHIBITION.
II.
WHETHER RESPONDENTS SHOULD RELEASE TO PETITIONERS THE DOCUMENTS SOUGHT ACCESS TO.
III.
WHETHER THE LOAN AGREEMENTS ARE UNCONSTITUTIONAL BECAUSE:
- THESE SUPPOSEDLY LACK PRIOR CONCURRENCE FROM THE BSP MB.
- THE CONDITIONS PRECEDENT TO THE RELEASE OF FUNDS ALLEGEDLY DEFEAT THE CONSTITUTIONAL POLICY TO GIVE PREFERENCE TO QUALIFIED FILIPINOS AND CIRCUMVENT PROCURE1.1ENT LAWS.
- THE ARBITRATION CLAUSES, PARTICULARLY ON THE CHOICE OF LAW AND ARBITRAL TRIBUNAL, ARE PURPORTEDLY SKEWED IN FAVOR OF THE CHINESE LENDER.
- THE WAIVER OF IMMUNITY CLAUSE OFFENDS THE CONSTITUTIONAL PROVISIONS ON THE NATIONAL ECONOMY AND PATRIMONY.
Our RulingI. Procedural considerations.A. | The President of the Philippines should be dropped as respondent. |
Preliminarily, President Rodrigo Duterte must be dropped as a party respondent pursuant to privilege of presidential immunity from suit. As held in
Nepumuceno v. Duterte:
[34]Settled is the rule that the President of the Republic of the Philippines cannot be sued during his/her tenure. This immunity from suit applies to President Rodrigo Duterte (President Duterte) regardless of the nature of the suit filed against him for as long as he sits as the President of the Republic of the Philippines. In the case of De Lima v. President Duterte, Senator Leila De Lima (Senator De Lima) sued President Rodrigo Roa Duterte in a petition for a writ of habeas data seeking to enjoin the latter from committing acts allegedly violative of her right to life, liberty and security. In her petition, Senator De Lima argued that President Duterte is not entitled to immunity from suit, especially from a petition for the issuance of the writ of habeas data, because his actions and statements were unlawful or made outside of his official conduct. The Office of the Solicitor General countered that the immunity of the sitting President is absolute, and it extends to all suits including petitions for the writ of amparo and writ of habeas data and that the present suit is the distraction that the immunity seeks to prevent because it will surely distract the President from discharging his duties as the Chief Executive. In resolving the petition, this Court pronounced that presidential immunity applies regardless of the nature of the suit brought against an incumbent President. The rationale for this rule was explained in this wise:
The concept of presidential immunity is not explicitly spelled out in the 1987 Constitution. However, the Court has affirmed that there is no need to expressly provide for it either in the Constitution or in law. Furthermore, the reason for the omission from the actual text of the 1987 Constitution has been clarified by this exchange on the floor of the 1986 Constitutional Commission:
MR. SUAREZ: Thank you.
The last question is with reference to the Committee's omitting in the draft proposal the immunity suit provision for the President. I agree with Commissioner Nolledo that the Committee did very well in striking out this second sentence, at the very least, of the original provision on immunity from suit under the 1973 Constitution. But would the Committee members not agree to a restoration of at least the first sentence that the President shall be immune from suit during his tenure, considering that if we do not provide him that kind of immunity he might be spending all of his time facing litigations, as the President-in-exile in Hawaii is now facing litigations almost daily?
FR. BERNAS: The reason for the omission is that we consider it understood in present jurisprudence that during his tenure he is immune from suit.
MR. SUAREZ: So, there is no need to express it here.
FR. BERNAS: There is no need. It was that way before. The only im1ovation made by the 1973 Constitution was to make that explicit and do add other things.
MR. SUAREZ: On that understanding, I will not press for any more query, Madam President.
The existence of the immunity under the 1987 Constitution was directly challenged in Rubrico v. Macapagal-Arroyo, but the Court steadfastly held that Presidential immunity from suit remained preserved in our cu1Tent system.
While the concept of immunity from suit originated elsewhere, the ratification of the 1981 constitutional amendments and the 1987 Constitution made our version of presidential immunity unique. Section 15, Article VII of the 1973 Constitution, as amended, provided for immunity at two distinct points in time: the first sentence of the provision related to immunity during the tenure of the President, and the second provided for immunity thereafter. At this juncture, we need only concern ourselves with immunity during the President's tenure, as this case involves the incumbent President. As the framers of our Constitution understood it, which view has been upheld by relevant jurisprudence, the President is immune from suit during his tenure.
Unlike its American counterpart, the concept of presidential immunity under our governmental and constitutional system does not distinguish whether or not the suit pertains to an official act of the President. Neither does immunity hinge on the nature of the suit. The lack of distinctions prevents us from making any distinctions. We should still be guided by our precedents.
Accordingly, the concept is clear and allows no qualifications or restrictions that the President cannot be sued while holding such office.
xxx xxx xxx
Both Sen. De Lima and the OSG disagree on whether or not the statements of the President regarding her have been part of the discharge of the President's official duties, but our declaration herein that immunity applies regardless of the personal or official nature of the acts complained of have rendered their disagreement moot and academic.
Sen. De Lima argues that the rationale for Presidential immunity does not apply in her case because the proceedings for the writ of habeas data do not involve the determination of administrative, civil, or criminal liabilities. Again, we remind that immunity does not hinge on the nature of the suit. In short, presidential immunity is not intended to immunize the President from liability or accountability.
The rationale for the grant of immunity is stated in Soliven v. Makasiar, thus:
The rationale for the grant to the President of the privilege of immunity from suit is to assure the exercise of Presidential duties and functions free from any hindrance of distraction, considering that being the Chief Executive of the Government is a job that, aside from requiring all of the office-holder's time, also demands undivided attention.
The rationale has been expanded in David v. Macapagal-Arroyo:
x x x It will degrade the dignity of the high office of the President, the Head of State, if he can be dragged into court litigations while serving as such. Furthermore, it is important that he be freed from any form of harassment, hindrance or distraction to enable him to fully attend to the performance of his official duties and functions. Unlike the legislative and judicial branch, only one constitutes the executive branch and anything which impairs his usefulness in the discharge of the many great and important duties imposed upon him by the Constitution necessarily impairs the operation of the Government. However, this does not mean that the President is not accountable to anyone. Like any other official, he remains accountable to the people but he may be removed from office only in the mode provided by law and that is by impeachment.
With regard to the submission that the President must first invoke the privilege of immunity before the same may be applied by the courts, Sen. De Lima quotes from Soliven where the Court said that "this privilege of immunity from suit, pertains to the President by virtue of the office and may be invoked only by the holder of the office; not by any other person in the President's behalf." But that passage in Soliven was made only to point out that it was the President who had gone to court as the complainant, and the Court still stressed that the accused therein could not raise the presidential privilege as a defense against the President's complaint. At any rate, if this Court were to first require the President to respond to each and every complaint brought against him, and then to avail himself of presidential immunity on a case to case basis, then the rationale for the privilege - protecting the President from harassment, hindrance or distraction in the discharge of his duties - would very well be defeated. It takes little imagination to foresee the possibility of the President being deluged with lawsuits, baseless or otherwise, should the President still need to invoke his inu1rnnity personally before a court may dismiss the case against him.
Apropos, this Court holds, and reminds litigants once again that an incumbent President of the Republic of the Philippines cam1ot be sued in any proceeding. With executive power solely vested in the President of the Philippines,[35] he should be freed from any distraction that would imperil the performance of his duties as mandated by the Constitution. Thus, presidential immunity from suit shields President Duterte from facing any complaint or petition during his tenure. While he remains accountable to the people, the only proceeding for which he may be involved in litigation during his term of office is an impeachment proceeding, which is clearly not the present case. Hence, he is not a proper party to be sued in the instant petition.[36]
B | Except as to the issue concerning the Waiver of Immunity Clauses, the other substantive issues raised by the petitions may be the subject of judicial review. |
The case of
Funa v. Acting Secretary Alberto C. Agra, et al.,[37] enunciates the parameters of the exercise of the power of judicial review, thus:
The power of judicial review is subject to limitations, to wit: (1) there must be an actual case or controversy calling for the exercise of judicial power; (2) the person challenging the act must have the standing to assail the validity of the subject act or issuance, that is, he must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement; (3) the question of constitutionality must be raised at the earliest opportunity; and (4) the issue of constitutionality must be the very lis mota of the case.[38]
On the requisite of
locus standi or legal standing, the Court finds that petitioners have sufficiently proven that they possess the same. As held in
Funa v. The Chairman, Commission on Audit, Reynaldo A. Villar:
[39]x x x. However, the Court has time and again acted liberally on the locus standi requirements and has accorded certain individuals, not otherwise directly injured, or with material interest affected, by a Government act, standing to sue provided a constitutional issue of critical significance is at stake. The rule on locus standi is after all a mere procedural technicality in relation to which the Court, in a catena of cases involving a subject of transcendental import, has waived, or relaxed, thus allowing non-traditional plaintiffs, such as concerned citizens, taxpayers, voters or legislators, to sue in the public interest, albeit they may not have been personally injured by the operation of a law or any other government act.[40]
The assailed Loan Agreements are public contracts covering matters of public concern, considering that "[a] government or public contract has been defined as a contract entered into by state officers acting on behalf of the state, and
in which the entire people of the state are directly interested."
[41] Additionally, stability and predictability are key pillars on which the legal system. must be founded and run to guarantee a business environment conducive to sustainable economic growth.
[42] These petitions assail the validity of the Loan Agreements, touching upon issues of foreign debt and the manner of securing the same, foreign participation in high-end public works projects, and international implications of arbitration clauses-matters which require the Court's immediate attention. With far-reaching legal and economic implications, the Court finds that petitioners possess the personality to bring these petitions.
Except as to the issue concerning the validity of the Waiver of Immunity Clauses, the Court likewise finds there exists an actual case ripe for adjudication. As defined, an actual case or controversy is one that involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial resolution; the case must not be moot or academic or based on extra-legal or other similar considerations not cognizable by a court of justice.
[43] Clearly, the existence of an actual clash between legal rights brought about by the assailed act is required before courts of justice may exercise the power of judicial review.
Here, petitioners allege that the Loan Agreements are invalid for running afoul of various Constitutional directives, particularly for failure to secure the necessary MB concurrence, in bypassing qualified Filipinos in favor of foreign project contractors, and for containing stipulations that defeat the State's pursuit of an independent foreign policy.
These are actionable issues. The very execution of the Loan Agreement already constituted a governmental act subject to the Court's scrutiny, since various Constitutional provisions, laws, and issuances are in place to regulate the manner by which such loans are entered into. What is more, petitioners sufficiently substantiate which of the various Loan Agreements' stipulations appear Constitutionally suspect. These are matters which deserve the Court's attention since, by the mere enactment of the questioned law or the approval of the challenged act, the dispute is said to have ripened into a judicial controversy even without any other overt act. Indeed, even a singular violation of the Constitution and/or the law is enough to awaken judicial duty.
[44]In any other situation, on the ground of mootness, the Court would have refrained from making any pronouncements on the issue regarding the disclosure of loan documents. In
International Service for the Acquisition of Agri-Biotech Applications, Inv. v. Greenpeace Southeast Asia (Philippines),
[45] the mootness of an action was explained in this wise:
An action is considered ''moot" when it no longer presents a justiciable controversy because the issues involved have become academic or dead or when the matter in dispute has already been resolved and hence, one is not entitled to judicial intervention unless the issue is likely to be raised again between the parties. There is nothing for the court to resolve as the determination thereof has been overtaken by subsequent events.[46]
Accordingly, petitioners' prayers for the production of documents pertaining to the "1. Procurement documents in granting the civil works to the Chinese contractor; and 2. Other relevant documents in connection with this case" have been resolved following respondents' filing of their comments and the attachment thereto of petitioners' sought after documents.
[47]Yet, as Senior Associate Justice Marvic M.V.F. Leonen aptly points out,
[48] the petitions raise matters that are capable of repetition but evading review, because, absent guiding principles thereon, the Executive branch could just as easily incorporate the assailed Confidentiality Clauses in future foreign loans, and invoke the same to bar the invocation of the right to information. If only to advise the bench, bar, and public, as well as to abate similar issues, the Court lays some guiding principles on this matter.
Additionally, petitioners sound the alarms over the Loan Agreements' Waiver of Immunity Clause,
[49] arguing that these unconstitutionally bargain away the national economy and patrimony.
[50] Hence, petitioners would have the Court completely strike down the Waiver of Immunity Clause. Respondents dismiss these contentions as speculative, especially since suability and liability are distinct concepts, also considering that no specific national assets have been collateralized, that an arbitral award against the Philippines may be refused recognition if contrary to public policy, and that, at all times, the GRP is solvent to pay its debts.
[51] As these aspects of the Loan Agreement have yet to be of any concern, the Court shall not prematurely delve substantively into such matters.
Article 8.1 of the Loan Agreements similarly provide:
CRPIP Loan Agreement | NCWS Loan Agreement |
8.1 Wiaver of Immunity The Borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8.5 hereof or with the enforcement of any arbitral award thereto. Notwithstanding the foregoing, the Borrower does not waive any immunity of its assets which are; (i) used by a diplomatic or consular mission of the Republic of the Philippines, (ii) of a military character and under control of a military authority or defence agency of the Republic of the Philippines, or (iii) located in the Philippines and dedicated to a public or government use (as distinguished from patrimonial assets and assets dedicated to commercial use).[52] | 8.1 Waiver of Immunity The Borrower hereby irrevocably waives any immunity on the grounds of sovereignty or otherwise for itself or its property m connection with any arbitration proceeding pursuant to Article 8.5 hereof or with the enforcement of any arbitral award pursuant thereto, except any other assets of the Borrower located within the territory of the Philippines to the extent that the Borrower is prohibited by the laws or public policies having force of law in the Republic of the Philippines, applicable and in effect at the signing of this Agreement from waiving such immunity,[53] |
Readily apparent is that these provisions are meant to address the
contingency of default on the Loan Agreements. These provide the mechanisms by which the GRP may be sued, liability could be imposed, and State assets may be subjected to the satisfaction of liability. However, petitioners do not allege, nor has it been shown, that the GRP has defaulted on its loan commitments, much less that the State has been hailed in arbitration proceedings, or that its assets are being seized. Without undertaking to survey the intricacies of the ripeness doctrine, it is fair to say that its basic rationale is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties.
[54]Still, on the hierarchy of courts, petitioners' direct invocation of the Court's jurisdiction, as to the other substantive issues, is permitted as they raise only legal questions relative to the validity of the assailed Loan Agreements. As held in
Gios-Samar, Inc. v. Department of Transportation and Communications:
[55]An examination of the cases wherein this Court used 'transcendental importance' of the constitutional issue raised to excuse violation of the principle of hierarchy of courts would show that resolution of factual issues was not necessary for the resolution of the constitutional issue/s."[56]
Coupled with the emphasis on the herein grave and far-reaching issues, petitioners did not raise any factual matters, limiting their arguments only to the legalities of the Loan Agreements. They appraise the agreements' allegedly contentious stipulations as against various Constitutional directives concerning the concurrence of the BSP MB prior to contracting foreign loans,
[57] preference to Filipinos in transactions involving the national economy and patrimony,
[58] the pursuit of an independent foreign policy,
[59] and the State's waiver of immunity from suit
[60] and ownership over patrimonial assets.
[61]C | Prohibition is a viable remedy under the circumstances. |
The Court takes exception to respondents' claim that the remedy of prohibition is unavailing since the
execution of the Loan Agreements is already
fait accompli, ruling out any government action against which prohibition may be directed.
True, prohibition under Rule 65 of the Rules of Court is a preventive remedy seeking a judgment ordering the defendant to desist from continuing with the commission of an act perceived to be illegal.
[62] Prohibition will not lie to restrain an act already done or one which is a
fait accompli,[63] lest the subject petition be unmade as a mere subject matter of purely theoretical interest.
[64]Yet, as petitioners correctly point out, there consist three stages in the life of a contract, and the Loan Agreements have yet to complete the third stage of
consummation. As summarized in
Insular Life Assurance Company, Ltd. v. Asset Builders Corp.:
[65]Equally important are the three distinct stages of a contract - its "preparation or negotiation, its perfection, and finally, its consummation." Negotiation begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. The perfection or birth of the contract occurs when they agree upon the essential elements thereof. The last stage is its consummation, wherein they "fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof."[66]
Accordingly, the MOU, Note Verbale Nos. 17-0330 and 17-1049, and Clarificatory Procedures were all prefatory agreements that set the parameters for negotiations between the GRP and EXIM Bank. The various international correspondences, as well as the GRP's own internal processes (
e.g., project nomination by the NIA and MWSS, NEDA confirmations, BSP approvals), precipitated the perfection of the Loan Agreements. Ostensibly, the Loan Agreements are now in the consummation stage, especially since some disbursement tranches are subject to certain conditions,
[67] and it does not appear that respondents have repaid any of the principal or paid any interest thereon.
[68] In other words the parties' mutual obligations under the Loan Agreements have yet to be fulfilled, and these petitions were filed precisely to enjoin the performance thereof, making prohibition a timely and viable remedy.
Subsidiarily, absurdity would result from respondents' argument that the remedy of prohibition should have been availed of
prior to the execution of the contract, or during the negotiation stage. As the President is the chief architect of foreign policy, negotiation of foreign loans is an executive prerogative, thus, primarily a political question.
[69] Unless such "mandate is exceeded when acting outside what the Constitution or our laws allow" in a manner that "is so grave, whimsical, arbitrary, or attended by bad faith[,]"
[70] such actions lie beyond the scope of judicial review, and are much less a proper subject of a petition for prohibition.
II. | The Loan Agreements were executed with the necessary BSP MB concurrence. |
Petitioners argue that the Loan Agreements were executed without the Constitutionally-imposed prior concurrence of the BSP MB,
[71] or that the approval, if at all, came after the execution of the loans.
[72] Respondents point out that, in accordance with more nuanced regulations and protocols, the MB had in fact given the necessary concurrence to the foreign loans.
[73]The Court rules in favor of respondents.
Section 20, Article VII of the 1987 Constitution provides:
The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law. x x x
Petitioners insist on a literal interpretation of the words "prior concurrence," such that the MB must have given full approval to the subject loan before its execution (
i.e., signing of the loan agreement). However, the deliberations of the 1986 Constitutional Commission, along with precursor and existing laws and regulations, contemplate more nuanced mechanics to this requirement. ·
The MB's prior concurrence requirement was absent in the counterpart provision of the 1973 Constitution.
[74] As explained by Commissioner Lorenzo Sumulong, this mechanism is a check and balance on the President's prerogative to contract foreign loans, meant to avert the improvidence in foreign borrowings under the rule of former President Ferdinand Marcos:·
In view of the fact that our foreign debt has amounted to $26 billion - it may reach up to $36 billion including interests - we studied this provision in the 1973 Constitution, so that some limitations may be placed upon this power of the President. We consulted representatives of the Central Bank and the National Economic Development Authority on this matter. After studying this matter, we decided to provide in Section 18 that insofar as the power of the President to contract or guarantee foreign loans is concerned, it must receive the prior concurrence of the Monetary Board.
We placed this limitation because, as everyone knows, the Central Bank is the custodian of the foreign reserves of our country, and so, it is in the best position to determine whether an application for foreign loan initiated by the President is within the paying capacity of our country or not. That is the reason we require prior concurrence of the Monetary Board insofar as contracting and guaranteeing of foreign loans are concerned.[75]
More tangibly, Members of the Constitutional Commission understood that Article VII, Section 20, pai1icularly its prior concurrence requirement, would be implemented through more detailed laws and regulations.
[76] Thus, Section 1
[77] of R.A. No. 4860, as amended,
[78] statutorily empowers the President to contract loans with foreign entities. Meanwhile, Section 123 of R.A. No. 7653,
[79] as amended by R.A. No. 11211,
[80] requires that "the Government, through the Secretary of Finance, shall request the opinion, in writing, of the [MB] on the monetary implications of' credit operations abroad. In Section 23 of its
Manual of Regulations on Foreign Exchange Transactions, the BSP requires that "[p]rior [MB] approval shall be obtained for public sector foreign/foreign currency loans/borrowings[.]"
More on the procedure for securing MB concurrence, Letter of Instructions No. 128, Series of 1974, provides:
- All foreign borrowing proposals of the Government, Government Agencies and government financial institutions shall be submitted to the Central Bank for approval in principle by the Monetary Board as to purpose and credit terms among others, before commencement of actual negotiations.
- Actual negotrnt10ns for such foreign credits and/or accommodations shall be conducted by the Secretary of Finance and/or Central Bank Governor or their duly authorized representatives as chief or co-chief negotiators, together with the representatives of the Government, government agencies and government financial institutions or entities concerned.
These were supplemented by Administrative Order No. 99, Series of 1993,
[81] providing that:
All government agencies, instrumentalities, political subdivisions, financial institutions and corporations, as well as local governments, shall submit to the Bangko Sentral ng Pilipinas their request for approval-in principle by the Monetary Board of their foreign borrowings proposals even before issuing a mandate or commitment to foreign funders/arrangers. The request shall include, among others, information on the unde1iaking/project to be financed, magnitude and timing of funding requirements, indicative terms, as well as timetable/target date for entry into the capital markets.
The BSP synthesized the foregoing issuances into the
Foreign Exchange Regulations (
ForEx Regulations), summarizing the three stages of the MB's approval of public sector foreign loans as follows:
(a) Approval-in-Principle, which refers to the approval granted by the MB to the indicative financial terms and purpose of the loan. Prior to commencement of actual negotiations or issuance of a mandate of commitment to foreign funders/arrangers, the borrower is required to secure the BSP approval-in-principle of its proposed foreign loan;
(b) Review of Loan Documents, which involves the negotiation and review, finalization and clearance of loan documents; and
(c) Final Approval, which refers to the approval granted by the MB to a loan previously approved-in-principle after its terms have been finalized, the covering loan agreement signed, and other preconditions for final approval have been complied with. The MB final approval authorizes the borrower to draw on the loan/issue the bonds/notes/securities involved.
Contrary to petitioners' rigid interpretation of "prior concurrence," this requirement is really enabled through a more detailed and elaborate procedure. It is only the Approval-in-Principle which, strictly speaking, entails prior action from the MB, but which nevertheless allows negotiations to proceed with the indicative financial terms and purpose of the loan as starting points. After negotiations, the parties may already finalize the terms of the loan and sign the same, subject to fulfillment of certain conditions imposed by the Approval-in-Principle, before the MB grants its Final Approval.
The foregoing framework addresses Senior Associate Justice Leonen's apprehension, that the Majority unduly deems the Approval-in-Principle, by itself, as already constituting the MB 's prior concurrence.
[82] To the contrary, the Majority only veers away from an absurdly literal interpretation of "prior concurrence", as petitioners insist, and presents instead a more nuanced framework in conjunction with relevant statutes and issuances. The Approval-in-Principle does not spell the end of the MB 's participation since, as elaborated in the ForEx Regulations, the MB must still extend its Final Approval after an approved-in-principle loan's terms have been finalized, signed, and its other preconditions fulfilled. Only then is the borrower authorized to draw on the loan.
As explained in the Constitutional Commission deliberations, the above nuances are intended to strike a balance between prudence and expediency in public sector foreign borrowings:
We were impaled on the horns of a dilemma. If we were to give the President unlimited power to contract foreign loans, then we may have a repeat performance of what we went through. On the other hand, if we were to be very strict with the President so much so that by the time the authorities here or the legislature give their consent that foreign loan sought to be contracted is no longer available. or the purpose which it was intended to subserve is already academic. Instead. we put this as a medium arrangement a middle ground, but with the participation also of the legislature in the sense that any action of the Monetary Board shall periodically be reported quarterly to the legislature. Instead of requiring approval of the Congress which might defeat the purpose for contracting the foreign loan, at least a quarterly report should be submitted within 30 days from the beginning of each quarter to inform the legislature about the foreign loans that it has acted upon or still to be contracted. Then, the legislature now participates either to give its concurrence if it is for a meritorious purpose or to curtail by law the powers of the Monetary Board.[83]
With Section 20 of Article VII clarifying the foregoing deliberations, laws, and issuances, petitioners' contentions must fail. The Loan Agreements had, in fact, undergone the above-described procedure, thereby securing the requisite MB concurrence.
Regarding the CRPIP Loan Agreement, on February 1, 2018, the DOF requested the MB for the issuance of an Approval-in-Principle on the proposed loan, which the MB granted on February 22, 2018 through Resolution No. 305. Negotiations proceeded between the EXIM Bank and various Philippine government agencies, as represented by the DOF, culminating in the signing of the CRPIP Loan Agreement on April 10, 2018. Following the DOF's request for the MB's Final Approval, the same was given on May 17, 2018, through Resolution No. 813.
In accordance with the ForEx Regulations, Resolution No. 305 indicates that the final approval was conditioned upon the submission of certain documents, pending which no disbursements could be made under the CRPIP Loan Agreement, and pursuant to which, negotiations between lender and borrower should ensue.
Consistently, under the CRPIP Loan Agreement's Representations and Warranties by the Borrower, particularly Article 5.2, the GRP warranted compliance with all relevant rules and regulations "except for the final approval of the [MB of the BSP], which shall be secured after the signing of this Agreement[.]" Meanwhile, on Special Covenants under Article 6.4, the GRP undertook to fulfill the conditions necessary for the loan's effectivity, which" shall include the final approval of the [MB of the BSP]."
Contrary to petitioners' claims that these stipulations were meant to circumvent Article VII, Section 20 of the Constitution, like a "sign now, comply later" scheme, these stipulations are very much in accord with the pertinent rules and regulations. The MB's Resolution No. 305 prompted the EXIM Bank and DOF to negotiate the terms of the loan, also imposing certain conditions before Final Approval may be given. The undertakings in Articles 5.2 and 6.4 were precisely in contemplation of the ForEx Regulations, since Final Approval is given only after the terms of the loan have been finalized, the agreement signed, and other preconditions met.
The Court rules similarly on the NCWS Loan Agreement. On September 7, 2018, the DOF endorsed the MWSS's proposed loan to the MB,
[84] for which the MB gave its Approval-in-Principle on September 28, 2018 through Resolution No. 1581. Negotiations ensued and on November 20, 2018, the NCWS Loan Agreement was entered into between the EXIM Bank and the GRP. Through Resoluti n No. 854
[85] dated June 6, 2019, the MB finally approved the loan. As with the CRPIP Loan Agreement, the NCWS Loan Agreement's Representations and Warranties by the Borrower, particularly Article 5.3, as well as the Special Covenants, specifically Article 6.4, indicate undertakings to comply with the conditions attached to the Approval-in-Principle, in order to obtain the Final Approval.
III. | As Worded, the Assailed Confidentiality Clause Unduly Restricts Public Access to Information on Foreign Loans. |
As earlier discussed, the issue regarding the disclosure of the related loan documents has already been mooted since respondents had furnished petitioners with such. Yet, seeing as such issue arose from the Loan Agreements' Confidentiality Clauses, the Court sees fit to make some pronouncements thereon.
Section 21, Article XII of the Constitution provides:
Foreign loans may only be incurred in accordance with law and the regulation of the monetary authority.
Information on foreign loans obtained or guaranteed by the Government shall be made available to the public.[86]This specific directive is further bolstered by its kindred provisions, Section 7 of Article III on the right to information on matters of public concern; and Section 28 of Article II on the State policy of full public disclosure on transactions involving public interest. As held in
Sereno v. Committee on Trade and Related Matters (CTRM) of the National Economic and Development Authority:[87]The constitutional guarantee of the right to information on matters of public concern enunciated in Section 7 of Article III of the 1987 Constitution complements the State's policy of full public disclosure in all transactions involving public interest expressed in Section 28 of Article II of the 1987 Constitution. These provisions are aimed at ensuring transparency in policy-making as well as in the operations of the Government, and at safeguarding the exercise by the people of the freedom of expression. In a democratic society like ours. the free exchange of information is necessary. and can be possible only if the people are provided the proper information on matters that affect them. x x x[88]
The language of the last sentence of Section 21, Article XII indicates proactive language,
i.e., "shall be made available to the public", suggesting that relevant government bodies need not even wait for persons to request information on government-contracted foreign loans before these are made accessible. After all, this stance is consistent with the policy of transparency conveyed by the provision.
[89] It is no coincidence that the framers of the 1987 Constitution saw fit to devote a specific provision directing access to information on foreign loans, notwithstanding the broader guarantees already provided by Section 7 of Article III and Section 28 of Article II. At the time, especially considering the social costs and intergenerational tax burden inflicted by unscrupulous foreign borrowings, the Constitutional Commissioners were considering mechanisms for popular consultations m contracting foreign loans.
[90]The subject Confidentiality Clause reads:
8.8. Confidentiality The Borrower shall keep all the terms, conditions and the standard fee hereunder or in connection with this Agreement strictly confidential. Without the prior written consent of the Lender, the Borrower shall not disclose any information hereunder or in connection with this Agreement to any third party unless required to be disclosed by the Borrower to any courts of competent jurisdiction, relevant regulatory bodies, or any government institution and/or instrumentalities of the Borrower in accordance with any applicable Philippine law.[91]
With the above principles, the foregoing language unduly diminishes the State's obligation to allow public access to information on government contracted foreign loans. The scope of confidentiality is far too sweeping, considering the commitment to "keep
all the terms, conditions x x x
strictly confidential."
[92] Under the assailed clause, access to the information requires the lender's prior consent, whereas the policy of disclosure in Section 21 of Article XII is unqualified. The Confidentiality Clause grants access only to government entities, but the Constitutional provision ensures broader public availability of such information. Withal, the assailed clause makes disclosure the exception rather than the rule, when Section 21 of Article XII clearly mandates otherwise. In any case, such faulty language cannot surmount the Constitutionally-mandated public availability of information on government contracted foreign loans.
Nevertheless, jurisprudence recognizes limited exceptions extending confidentiality,
i.e., national security matters, trade secrets and banking transactions, criminal matters, and other confidential matters such as diplomatic correspondence,
[93] closed-door Cabinet meetings and deliberations of this Court.
[94] Still, that a type of information is recognized as privileged does not, however, necessarily mean that it would be considered privileged in all instances. For in determining the validity of a claim of privilege, the question that must be asked is not only whether the requested information falls within one of the traditional privileges, but also whether that privilege should be honored in a given procedural setting.
[95]While the issue on the disclosure of related loan documents has been rendered moot, the Court counsels that wordings similar to the assailed Confidentiality Clause cannot, for future purposes, withstand Constitutional scrutiny. Concerned government agencies are urged to be more circumspect before agreeing to such stipulations. In any case, such language cannot bar public availability of information on government-contracted foreign loans, as mandated by Section 21, Article XII of the Constitution.
IV. | The Loan Agreements violate neither the Constitutional policy to give preference to qualified Filipinos nor the procurement laws. |
Next, petitioners argue that conditions precedent to the disbursement of the loans, specifically the payments to be made to the chosen Chinese contractors, offend the Constitutional policy giving preference to Filipinos
[96] and circumvent procurement laws.
[97] Respondents counter that the "Filipino First" policy is more nuanced than petitioners make it appear, and that the MOU, Note Verbale Nos. 17-0330 and 17-1049, Clarificatory Procedures, and Loan Agreements are executive agreements beyond the scope of procurement laws, unless mutually agreed to be subject thereto.
[98]The Court sustains respondents' contentions.
Articles 3.1 and 8.12 of the CRPIP Loan Agreement, and Articles 3.1 and 8.13 of the NCWS Loan Agreement, similarly provide:
Article 3.1. The first disbursement is subject to the satisfaction of the conditions precedent set out in Appendix 1 attached hereto (or such conditions precedent have been waived by the Lender in writing).
Article 8,12. [8.13J The appendixes to this Agreement shall be deemed as an integral part of this Agreement and have the same legal effect as this Agreement.
Relatedly, Precedent Nos. (2) and (5) of the CRPIP Loan Agreement's Appendix 1, and Precedent Nos. (3) and (8) of the NCWS Loan Agreement's Appendix 1, correspondingly provide:
CRPIP Loan Agreement | NCWS Loan Agreement |
Upon the Borrower's application to the lender for the making of the first disbursement, the Lender shall not be obliged to make any such disbursement to the Borrower unless the Borrower has fulfilled the following conditions and the Lender has received the following documents to its satisfaction: | Upon the Borrower's application to the lender for the making of the first disbursement, the Lender shall not be obliged to make any such disbursement to the Borrower unless the Borrower has fulfilled the following conditions and the Lender has received the following documents to its satisfaction: |
|
|
x x x x | x x x x |
|
|
(2) Certified true copies of the Commercial Contract and other relevant documents in connection therewith acceptable lo the lender which have been duly signed by all parties thereto and have become effective; | (3) Certified true copies of the Commercial Contract and other relevant documents in connection therewith acceptable to the lender which have been duly signed by all parties thereto and have become effective; |
|
|
x x x x | x x x x |
|
|
(5) Certified true copies of any and all documents evidencing that the End-User has paid to the Chinese Contractor certain of the amount, which is equivalent to 15% of the advance payment under the Commercial Contract minus tax and fees dues payable related to the full amount of the advance payment under the Commercial Contract. | (8) Certified true copies of any and all documents evidencing that the End-User has paid to the Chinese Contractor certain amount, which is equivalent to 15% of the advance payment under the Commercial Contract |
To clarify, the Loan Agreements are not the documents which definitively awarded the CRPIP and NCWS projects to Chinese contractors. Such awards were made following the procedure embodied in Note Verbale Nos. 17-0330 and 17-1049, confirmed by the MOFCOM's Reply Note, and amplified in the Clarificatory Procedures, wherein the MOFCOM would provide a list of at least three qualified, legitimate, and reputable Chinese contractors. These culminated in various resolutions and notices of award issued by the NIA and MWSS as the IAs of the pertinent projects. Petitioners seem to theorize, therefore, that the Conditions Precedent integrated into the Loan Agreements validate, reinforce, and operationalize the award of infrastructure projects to Chinese contractors, thus violating the Filipino First Policy and procurement laws.
This Court does not agree.
The second paragraph of Article XII, Section 10 of the Constitution encapsulates the Filipino First Policy. It ordains:
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.
As opposed to petitioners' overemphasis and one-sided interpretation of the foregoing provision, the Charter actually espouses a balanced ideology on Philippine industry relative to international economic relations.
Tañada, et al. v. Angara, et al.[99] instructs:
All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.[100]
Quite recently, in
Philippine Contractors Accreditation Board v. Manila Water Co. Inc.,[101] the Court struck down a competitively-restrictive contractors' licensing scheme, which imposed more burdensome qualifications on foreign contractors but allowing them narrower industry participation compared to local firms. According to the Court, striking down the restrictions would encourage healthy competition among local and foreign contractors, and open opportunities for development and innovation, so that domestic industries would be globally competitive.
In any case, these constitutional provisions on the State's national patrimony and economy highlight that the common good, public interest, public welfare-the people-are of primary consideration.
[102] Despite not being awarded to Filipino contractors, petitioners have not shown how the award of the projects to foreign firms would defeat the public good, when such an engagement will only usher in investments, facilitate the influx of skills and technology, and spur further economic development. It is not far fetched to consider that the Philippines adopts a liberal approach in allowing foreign investments to enter the country. What the Constitution only restricted from foreign investors were enterprises such as public utilities, mass media, and use of natural resources. These restrictions are necessary to protect the welfare of Filipino citizens by removing the possibility of exploitation by foreign investors, who are not fully within the jurisdiction of Philippine laws.
[103]If only on the basis of Section 10, Article XII of the Constitution, the Court cannot invalidate the Loan Agreements which, while financing infrastructure projects to be undertaken by foreign contractors, are still consistent with the Constitutional policies expounded in the above rulings.
In other words, while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant and independent national economy effectively controlled by Filipino entrepreneurs, it does not impose a policy of Filipino monopoly of the economic environment. The objective is simply to prohibit foreign powers or interests from maneuvering our economic policies and ensure that Filipinos are given preference in all areas of development.
[104]Again, the Loan Agreements themselves are distinct from the mutually adopted bidding procedures through which the infrastructure projects were awarded to foreign contractors. Relative to procurement laws, the award of projects to the foreign contractors and their consequent financing under the Loan Agreements are outside the purview of the GPRA and the 2016 Revised Implementing Rules and Regulations (2016 RIRR) effective at the time the CRPIP and NCWS projects were awarded. Such matter has already been settled in
Abaya v. Ebdane, Jr.[105] (Abaya), Department of Budget and Management Procurement Service v. Kolonwel Trading[106] (Kolonwel), and Land Bank of the Phils. v. Atlanta Industries, Inc.[107] (
Atlanta Industries).
Similar to the instant controversy,
Abaya involved an exchange of notes between the GRP and Government of Japan, concerning loans to be extended by the latter to the former, also embodying the salient terms of such loans. These international instruments specifically provided that the services would be procured in accordance with the guidelines prescribed by the Japanese government-owned bank, to which the GRP acceded. Upholding the validity of the procurement procedure, even while deviating from the GPRA, the Court ruled:
The petitioners' arguments fail to persuade. The Court holds that Loan Agreeme1it No. PH-P204 taken in conjunction with the Exchange of Notes dated December 27, 1999 between the Japanese Government and the Philippine Government is an executive agreement.
To recall, Loan Agreement No. PH-P204 was executed by and between the JBIC and the Philippine Government pursuant to the Exchange of Notes executed by and between Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of Japan to the Philippines, and then Foreign Affairs Secretary Siazon, in behalf of their respective governments. The Exchange of Notes expressed that the two govenm1ents have reached an understanding concerning Japanese loans to be extended to the Philippines and that these loans were aimed at promoting our country's economic stabilization and development efforts.
Loan Agreement No. PH-P204 was subsequently executed and it declared that it was so entered by the parties "[i]n the light of the contents of the Exchange of Notes between the Government of Japan and the Government of the Republic of the Philippines dated December 27, 1999. concerning Japanese loans to be extended with a view to promoting the economic stabilization and development efforts of the Republic of the Philippines." Under the circumstances, the JBIC may well be considered an adjunct of the Japanese Government. Further, Loan Agreement No. PH P204 is indubitably an integral part of the Exchange of Notes. It forms part of the Exchange of Notes such that it cannot be properly taken independent thereof.
x x x x
Under the fundamental principle of international law of pacta sunt servanda, which is, in fact, embodied in Section 4 of RA 9184 as it provides that "[a]ny treaty or international or executive agreement affecting the subject matter of this Act to which the Philippine government is a signatory shall be observed." the DPWH, as the executing agency of the projects financed by Loan Agreement No. PH-P204, rightfully awarded the contract for the implementation of civil works for the CP I project to private respondent China Road & Bridge Corporation. [108]
This doctrine was later applied in
Kolonwel where the Department of Education, pursuant to financing provided by the World Bank and the Asian Development Bank, conducted a bidding conforming to the WB's guidelines concerning International Competitive Bidding, since that was the method prescribed under the loan agreement. As in
Abaya, the Court in
Kolonwel ruled that a foreign loan agreement with international financial institutions partakes of an executive agreement,
[109] further instructing that the borrower "[binds] itself to perform in good faith its duties and obligation" under such kinds of arrangements. In other words, pursuant to the principle of
pacta sunt servanda, the GRP was duty-bound to follow the agreed procurement process, even if it deviated from GPRA-prescribed procedure.
In
Atlanta Industries, the Court went further by pointing out the interconnection between the various international instruments leading up to the execution of the pertinent loan agreement, explaining that these instruments must be upheld and construed as a coherent whole:
As may be palpably observed, the terms and conditions of Loan Agreement No. 4833-PH, being a project-based and government guaranteed loan facility, were incorporated and made part of the SLA that was subsequently entered into by Land Bank with the City Government of Iligan. Consequently, this means that the SLA cannot be treated as an independent and unrelated contract but as a conjunct of. or having a joint and simultaneous occurrence with. Loan Agreement No. 4833-PH. Its nature and consideration, being a mere accessory contract of Loan Agreement No. 4833-PH, are thus the same as that of its principal contract from which it receives life and without which it cannot exist as an independent contract. Indeed, the accessory follows the principal; and, concomitantly, accessory contracts should not be read independently of the main contract. Hence, as Land Bank coITectly puts it, the SLA has attained indivisibility with the Loan Agreement and the Guarantee Agreement through the incorporation of each other's terms and conditions such that the character of one has likewise become the character of the other.
Considering that Loan Agreement No. 4833-PH expressly provides that the procurement of the goods to be financed from the loan proceeds shall be in accordance with the IBRD Guidelines and the provisions of Schedule 4, and that the.accessory SLA contract merely follows its principal's terms and conditions, the procedure for competitive public bidding prescribed under RA 9184 therefore finds no application to the procurement of goods for the Iligan City Water Supply System Development and Expansion Project. The validity of similar stipulations in foreign loan agreements requiring the observance of IBRD Procurement Guidelines in the procurement process has, in fact, been previously upheld by the Court in the case of Department of Budget and Management Procurement Service (DBM-PS) v. Kolonwel Trading[.][110]
The same principles apply to the assailed Loan Agreements. To be sure, the MOU, Note Verbale Nos. 17-0330 and 17-1049, Reply Note, Clarificatory Procedures, and Loan Agreements are coherently appreciated as exchanges of notes which partake of executive agreements, hence, binding on the parties, despite deviation from the GPRA. As discussed m
Mitsubishi Corp.-Manila Branch v. Commissioner of Internal Revenue:
[111]An ''exchange of notes" is a record of a routine agreement that has many similarities with the private law contract. The agreement consists of the exchange of two documents, each of the parties being in the possession of the one signed by the representative of the other. Under the usual procedure, the accepting State repeats the text of the offering State to record its assent. The signatories of the letters may be government Ministers, diplomats or departmental heads. The technique of exchange of notes is frequently resorted to, either because of its speedy procedure, or, sometimes, to avoid the process oflegislative approval.
It is stated that "treaties, agreements, conventions, charters, protocols, declarations, memoranda of understanding, modus vivendi and exchange of notes" all refer to "international instruments binding at international law."
x x x x x x x x x
Significantly, an exchange of notes is considered a form of an executive agreement, which becomes binding through executive action without the need of a vote by the Senate or Congress.[112]
As indicated in Articles 1.1, 2.3, 4.1, and 4.2 therein, the MOU was executed as a prefatory agreement through which more specific financing arrangements would later on be determined:
1.1 For the purpose of promoting financing cooperation between the Parties, as well as contributing to the achievement of economic and social benefits in their respective countries·, subject to the terms and conditions of this MOU. the Bank intends to make available financing to GPH to support projects to be mutually identified and agreed between the two Governments.
2.3 The rights and obligations of the Parties under each individual project shall be stipulated in the individual loan agreement (hereinafter referred to as the "Individual Loan Agreement.") and such other relevant finance documents.
4.1 This MOU is only intended to serve as guidance for further cooperation between the Parties, and is not legally binding or enforceable on either of the Parties under any jurisdiction, except the provision under Article 3, 4, 5, 6 and 7. Nothing in this MOU obligates either of GPH, represented by the Department of Finance, or the Bank to make any commitment or enter into any agreement or transaction.
4.2 The terms and conditions of each Individual Loan Agreement shall be subject to further negotiation between and by the Parties.
Then followed Note Verbale Nos. 17-0330 and 17-1049, the Reply Note, and the Clarificatory Procedures, all prescribing the manner of selecting the project contractors. As set forth in paragraphs 2 and 3 of the Reply Note:
2. The Chinese side shall provide the DOF its consideration to finance the project. For positively considering the project, the Chinese side, through the Embassy of the PRC in the Philippines, shall provide the DOF the list of at least three (3) qualified, legitimate, and in good standing Chinese contractors that can undertake the project upon discussion between the Chinese side and the relevant commercial chamber in China.
3. The Implementing Agency (IA) of the GPH shall commence the procurement process and undertake Limited Competitive Bidding (LCB) among the contractors provided by the Chinese side, following the Philippine Government Procurement Reform Act (GPRA). The IA shall finalize and sign the contract agreement in as timely a manner as possible, following the GPRA.
On the other hand, the Clarificatory Procedures provide that:
The IA shall commence the procurement process and undertake Limited Competitive Bidding (LCB) among said Chinese contractors following applicable procedures and documents under R.A. 9184.
Thus, the NIA as IA of the CRPIP project, and the MWSS as IA of the NCWS project, received the shortlist of Chinese contractors from the MOFCOM, conducted the necessary due diligence, held the LCB, and eventually signed the necessary commercial contracts, for which financing would be provided through the Loan Agreements.
Nevertheless, these instruments did not completely discard the GPRA. As indicated in Paragraph 3 of Note Verbale No. 17-1049, and as confirmed through the MOFCOM's Reply Note, the IAs "shall commence the procurement process and undertake Limited Competitive Bidding (LCB) among the contractors provided by the Chinese side, following the Philippine Government Procurement Reform Act (GPRA)." This was reiterated in the Clarificatory Procedures, subjecting the LCB to "applicable procedures and documents under R.A. 9184."
What the parties agreed upon was really a "hybrid" procurement approach, the steps of which were laid out largely through the Note Verbal es, Reply Note, and Clarificatory Procedures, but which also incorporated features from the GPRA. Such hybrid an-angements are sanctioned by relevant procurement laws and regulations. Section 4.3 of the 2016 RIRR states that "[u]nless the Treaty or International or Executive Agreement expressly provides another or different procurement procedures and guidelines, R.A. 9184 and this IRR shall apply to Foreign-funded Procurement of Goods, Infrastructure Projects, and Consulting Services[.]" On the other hand, Section 4 of R.A. No. 4860, as amended,
[113] governing as it does the contracting of foreign loans, provides that "[i]n the contracting of any loan, credit or indebtedness under this Act, the President of the Philippines may, when necessary, agree to waive or modify the application of any law granting preferences in connection with, or imposing restrictions on, the procurement of goods or services[.]" This provision was substantially reproduced in Section 11-A
[114] of R.A. No. 8182, The Official Development Assistance Act of 1996, as amended,
[115] which applies to ODAs like herein Loan Agreements.
First, the LCB dispensed with the generally-prescribed advertisement requirement, which, in any case, is akin to Limited Source Bidding, which is an alternative procurement modality which foregoes advertisement pursuant to Section 49.3
[116] of the 2016 RlRR.
Second, the participation of Chinese contractors was sanctioned by Section 23.4.2.2 of the 2016 RIRR providing that "[f]oreign bidders may be eligible to participate in the procurement of Infrastructure Projects when provided for under any Treaty or International or Executive Agreement[.]"
Third, the track record requirements, on the other hand, followed those prescribed under the GPRA and 2016 RIRR, particularly requiring the submission of the contractors' Single Largest Completed Contract similar to those being bid,
i.e., the CRPIP and NCWS projects.
Fourth, the parties likewise waived the conditions on the use of Approved Budget for the Contract as ceiling for the bid prices, such waiver being permitted under Section 31.2 of the 2016 RIRR.
Finally, the Certificate as to the Availability of Funds was nevertheless imposed as a requirement.
[117]While the Court cannot rule that the LCB violated the GPRA and its 2016 RIRR, such procedure apparently contravened the Filipino First Policy. Following Senior Associate Justice Leonen's apprehensions,
[118] the Court observes the summary manner by which the DFA and DOF simply acceded to the MOFCOM's proposal to limit the bidders to three Chinese contractors, to the exclusion of qualified Filipino contractors; as well as the pertinent IAs' rote implementation thereof. Indeed, qualified Filipinos must be given preference to bid for infrastructure projects of this scale and significance.
[119] Despite these arrangements being accorded the status of executive agreements,
pacta sunt servanda cannot override Constitutional dictates.
[120] In short, bidding rules for these kinds of projects must give preference, or at least equal opportunity, to qualified Filipinos.
Despite such observations, the Court cannot set aside the LCBs. To begin with, petitioners never prayed for the nullity of the LCBs conducted by the NIA and MWSS, only asking that the Loan Agreements be struck down. As earlier clarified, the Loan Agreements are not themselves the issuances that awarded the projects to foreign contractors, much less sanctioned the conduct of the LCBs. Lest the Court engage in judicial overreach, the courts cannot grant a relief not prayed for in the pleadings or in excess of what is being sought by a party to a case.
[121]While surely lamentable that qualified Filipinos had not participated in the bidding, the nullification of the LCB procedures and resultant awards would only deny to Filipinos the expected yields from the CRPIP and NCWS projects. Given the intricacies of diplomatic and commercial negotiations, the significant transaction costs in delivering such projects, and the massive resources entailed thereby, it is unlikely that these same projects will again be bid out (this time including Filipino contractors) if the awards were nullified at this point. Unfortunately, such move would also diminish the attractiveness of doing business in the Philippines. It need not be emphasized that stability and predictability are the key pillars on which our legal system must be founded and run to guarantee a business environment conducive to the country's sustainable economic growth.
[122]It has also been raised during the deliberations of this case that the LCBs did not violate the Filipino First Policy.
[123] This is because such Constitutional preference is extended only to "
qualified Filipinos"
[124] whereas, to begin with, Filipinos were never qualified to bid for the infrastructure projects as the exchanges of notes limited the bidding to only three Chinese contractors. However, this only begs the issue.
By the time the LCBs were conducted, Filipino bidders were, indeed, disqualified-but only following the agreed procedure, and not by lack of merit. All throughout the exchanges of the Note Verbales and the China MOFCOM's Reply Note, the DFA could have insisted on the participation of Filipino bidders. That the Republic of the Philippines is the borrower of foreign funds does not obligate the government to outrightly accept proposed stipulations, especially if exclusionary to otherwise qualified Filipinos. Economic disparities with other much richer nations should not relegate the Philippine government to a "take it or leave it" stance.
As such, pertinent government bodies always have the leeway to assert the inclusion of qualified Filipinos on preferential opportunities in projects of such significance in future negotiations involving similar transactions. To do otherwise, would lock out qualified Filipinos of big-ticket projects by diplomatic agreement to exclusionary arrangements. Even if the negotiation and contract of foreign loans is largely left to Executive policy, the Constitution still ingrains a policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.
[125]In any case, the Loan Agreements cannot be invalidated for giving effect to and financing the CRPIP and NCWS projects, even if awarded to foreign contractors.
V. | The Constitutional policy on the pursuit of independent foreign relations cannot be used to nullify the Loan Agreements' arbitration clauses. |
On to their final contention, petitioners argue that the choices of arbitral tribunal and applicable law are skewed in favor of the Chinese lender,
[126] especially considering the purported partiality of the chosen tribunal,
[127] thus defeating the State's pursuit of an independent foreign policy.
[128] While respondents insist on the principle of party autonomy in contracts, particularly choice of applicable law and forum,
[129] petitioners still point out that the Philippines is contending with a global superpower, thus upsetting any parity in bargaining power.
[130]The Court rules in favor of respondents.
Articles 8.4 to 8.6 of the Loan Agreements provide:
8.4 Governing Law This Agreement as well as the rights and obligations of the Parties hereunder shall be governed by and construed in accordance with the laws of China.
8.5 Any dispute arising out of or in connection with this Agreement shall be resolved through friendly consultation. If no settlement can be reached through such consultation, each party shall have the right to submit such dispute to the China International Economic and Trade Arbitration Commission (CIETAC) [Hong Kong International Arbitration Centre (HKIAC)] for arbitration. The arbitration shall be conducted in accordance with the CIETAC's [HKJAC] arbitration rules in effect at the time of applying for arbitration. The arbitral award shall be final and binding upon both parties. The arbitration shall take place in Beijing. [The seat of arbitration shall be in Hong Kong. The arbitration shall be conducted in English. The Arbitral Tribunal shall consist of three (3) Arbitrators which shall be appointed pursuant to the arbitration rules of HKIAC.]
8.6 The arbitral award obtained in accordance with this Article against the Borrower will be recognized and be enforceable in the Republic of the Philippines provided that: (a) the arbitral tribunal had jurisdiction over the subject matter of the action in accordance with the jurisdictional rules; (b) the Republic of the Philippines had notice [Borrower had prompt notice] of the proceedings; (c) the arbitral award was not obtained through collusion or fraud, and such award was not based on a clear mistake of fact or law; and (d) the arbitral award is not contrary to public policy in the Republic of the Philippines.
Meanwhile, Section 7, Article II of the Constitution provides:
The State shall pursue an independent foreign policy. In its relations with other states the p amount consideration shall be national sovereignty, Territorial integrity, national interest, and the right to self-determination.
Article 1306 of the Civil Code, on the other hand, provides that "[t]he contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." Short of running afoul of the foregoing tenets, parties have the freedom to contract
[131] and may freely stipulate whatever contractual terms they deem convenient.
[132]Respondents aptly point out that the assailed provisions embody the Loan Agreements' arbitration clause, which is a product of the fundamental arbitration principle of party autonomy. As expounded in
Koppel, Inc. v. Makati Rotary Club foundation, Inc.:[133]A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a product of party autonomy or the freedom of the parties to "make their own arrangements to resolve their own disputes." Arbitration agreements manifest not only the desire of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more so, the parties' mutual aspiration to achieve such resolution outside of judicial auspices, in a more informal and less antagonistic environment under the terms of their choosing. Needless to state, this critical feature can never be satisfied in an ejectment case no matter how summary it may be.[134] (Citation omitted; italics in the original)
Given that these commercial relationships are contractual in nature, arbitration thereon is understood as a purely private system of adjudication facilitated by private citizens, which has been consistently recognized as valid, binding, and enforceable.
[135] Given such fundamental principles, courts should liberally construe arbitration clauses, adopting the interpretation that would render such clauses effective.
[136]Particularly, in contracts with a foreign element, the courts have generally respected the contracting parties' stipulated choice of law. In
Philippine Export and Foreign Loan Guarantee Corp. v. VP Eusebio Construction Inc.,[137] the Court ruled that:
No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex contractus or "proper law of the contract." This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci intentionis). The law selected may be implied from such factors as substantial connection with the transaction, or the nationality or domicile of the parties. Philippine courts would do well to adopt the first and most basic rule in most legal systems, namely, to allow the parties to select the law applicable to their contract, subject to the limitation that it is not against the law, morals, or public policy of the forum and that the chosen law must bear a substantive relationship to the transaction.[138]
Indeed, in several contract disputes involving foreign elements, the Court has given primacy to the principle of
lex loci intentionis, or the law intended by the parties. 139 In much the same way, even while the Loan Agreements stipulate the application of Chinese law and appoint the CIETAC and HKIAC as arbitral tribunals, absent any showing that the assailed stipulations offend the law, morals, or public policy, the same must be sustained.
At any rate, petitioners' contentions--that the choice of applicable law and forum are heavily skewed in favor of the lender EXIM Bank and will prove greatly disadvantageous to the Philippines in case a dispute arises-deserve no consideration. As Associate Justice Amy C. Lazaro-Javier pointed out,
[140] petitioners' contentions are speculative at best, there being no indications that the arbitration clause has been or is being enforced. Also, the Court cannot sustain such apprehensions as petitioners have failed to prove as fact the allegedly inequitable foreign laws, of which the courts do not take judicial notice.
[141] Well established in our jurisdiction is that foreign laws must be alleged and proven like any other material fact.
In view of the foregoing disquisitions, petitioners have failed to present any compelling issue to warrant the nullification of the CRPIP and NCWS Loan Agreements, or any of its clauses. Save for the apprehensive language of the Confidentiality Clauses-which issue is nevertheless already moot the Loan Agreements have sufficiently complied with the applicable procurement laws and conform with the pertinent provisions of the Constitution .
WHEREFORE, the consolidated petitions for prohibition in G.R. Nos. 245981 and 246594 are
DENIED. The Court declares VALID and
NOT UNCONSTITUTIONAL the Preferential Buyer's Credit Loan Agreement on The Chico River Pump Irrigation Project and the Preferential Buyer's Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project.
SO ORDERED.Gesmundo, C.J., Hernando, Inting, Zalameda, Rosario, Dimaampao, Marquez, Kho, Jr., and
Singh, JJ., concur.
Leonen, SAJ., I dissent. See separate opinion.
Caguio, J., see separate concurring.
Lazaro-Javier, J., see concurrence.
Lopez, M.,* J., on official leave but left vote.
Gaerlan, J., With Separate Concurring Opinion.
* On official leave but left vote per Letter dated August 8, 2022.
[1] Captioned as a Petition for Prohibition (With Urgent Prayer for the Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction),
rollo (G.R. No. 245981), Vol. 1, pp. 3-155; and a Petition for Prohibition (With Urgent Prayer for the Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction);
rollo (G.R. No. 246594), pp. 3-54.
[2] Rollo (G.R. No. 245981), vol. I, pp. 93-115.
[3] Rollo (G.R. No. 246594), pp. 77-104.
[4] Id. at 150-A to 150-B.
[5] Rollo (G.R. No. 245981), vol. I, pp. 312-316.
[6] 1.1
For the purpose of promoting financing cooperation between the Parties, as well as contributing to the achievement of economic and social benefits in their respective countries, subject to the terms and conditions of this MOU,
the Bank intends to make available financing to GPH to support projects to be mutually identified and agreed between the two Governments. Id. at 313. (Underscoring supplied).
[7] 2.3 The rights and obligations of the Parties under each individual project shall be stipulated in the individual loan agreement (hereinafter referred to as the "Individual Loan Agreement") and such other relevant finance documents;
id. at 314.
[8] 4.1 This MOU is only intended to serve as guidance for further cooperation between the Parties, and is not legally binding or enforceable on either of the Parties under any jurisdiction, except the provision under Article 3, 4, 5, 6 and 7. Nothing in this MOU obligates either of GPH, represented by the Department of Finance, or the Bank to make any commitment or enter into any agreement or transaction; id. at 314-3 15.
[9] 4.2 The terms and conditions of each Individual Loan Agreement shall be subject to further negotiation between and by the Parties; id. at 315.
[10] Id. at 317-318.
[11] Id. at 319-321.
[12] Id. at 322-323.
[13] Letter dated June 29, 2017;
id. at 326.
[14] Id. at 327.
[15] China CAMC Engineering Co., Ltd, China Geo-Engineering Corporation, and Qingdao Municipal Construction Group Co., Ltd.
[16] Letter dated September 7, 2017;
rollo (G.R. No. 245981), vol. 1, pp. 335-336.
[17] Id. at 337-346.
[18] Id. at 354-360.
[19] Letter dated February 28, 2018·
id. at 362-363.
[20] Id. at 372-373.
[21] Letter dated September 15, 2016. from the MWSS to the DOF, recommending the NCWS project for potential funding by the Chinese government;
rollo (G.R. No. 246594), pp. 329-330; Letter dated January 26, 2017, from the DOF to the MWSS, endorsing the NCWS project for Chinese funding; id. at 337.
[22] Resolution No. 2017-040-CO;
id. at 40-341.
[23] Letter dated April 13, 2017;
id. at 338; July 11, 2017 Letter;
id. at 342.
[24] Letter dated September 6, 2017;
id. at 343.
[25] China Energy Engineering Company Limited, PowerChina Limited, and Consortium of Guangdong Foreign Construction Company Limited and Guangdong Yuantian Engineering Company Limited.
[26] Resolution No.2017-162-CO;
rollo (G.R. No. 246594), pp. 353.
[27] Resolution No. 2017-162-CO;
id. at 354.
[28] Resolution No. 2018-132-CO;
id. at 375.
[29] Resolution No. 2018-140-CO;
id. at 376-377.
[30] Letter dated September 7, 2018:
id. cit 380.
[31] Id. at 382-383.
[32] Bracketed quotations pertain to dissimilar phrasings found in the NCWS Loan Agreement, otherwise identical with the CRPIP Loan Agreement language.
[33] Id. at 52-53.
[34] UDK No. 16838, May 11, 2021.
[35] CONSTITUTION, Article Vil, Sec. I.
[36] Supra note 33. (Citations omitted).
[37] 704 Phil. 205 (2013).
[38] Id. at 217.
[39] 686 Phil. 571 (2012).
[40] Id. at 585. (Underscoring supplied).
[41] Sargasso Construction & Development Corp. v. Philippine Ports Authority, 637 Phil. 259, 274-275 (2010). (Underscoring supplied).
[42] Heirs of Gamboa v. Teves, 696 Phil. 276, 478 (2012).
Velasco, J., dissenting states "Indeed, stability and predictability are the key pillars on which our legal system must be founded and run to guarantee a business environment conducive to the country's sustainable economic growth."
[43] Garcia v. The Executive Secretary, 602 Phil. 64, 73 (2009).
[44] Didipio Earth-Savers' Multi-Purpose Association, Inc. v. Gozun, 520 Phil. 457, 472 (2006), citing
Pimentel, Jr. v. Hon. Aguirre, 391 Phil. 84, 107 (2000).
[45] 791 Phil. 243 (2016).
[46] Id. at 259.
[47] Particularly, but not limited to:
- Memorandum of Understanding on Financing Cooperation Between The Export- Import Bank of China and The Government of the Republic of the Philippines, Represented by the Department of Finance dated October 20, 2016;
- Note Verbale No. 17-0330 dated January 20, 2017;
- Note Verbale No. 17-1049 dated March 3, 2017;
- China MOFCOM transmittal dated March 8, 2017;
- Letter dated June 29, 2017 from DOF Sec. Dominguez to the Chinese Embassy on the proposed Clarificatory Procedures concerning the financing negotiations;
- Clarificatory Procedures for the Implementation of the Note Verbale No. 17-1049;
- Letter dated September 7, 2017 from DOF Sec. Dominguez to NIA Administrator Visaya, regarding the shortlist of Chinese contractors;
- Letter dated September 8, 2017 from DOF Sec. Dominguez to DPWH Sec. Villar seeking a background check on the proposed contractors;
- Letter dated September 8, 2017 from DOF Sec. Dominguez to DOTr Sec. Tugade seeking a background check on the proposed contractors;
- Letter dated October 3, 2017 from DBM Sec. Diokno to DOF Sec. Dominguez, providing comments on the proposed financing cooperation agreement;
- NIA BAC-A Resolution No. CW-LCB-2018-1, awarding the CRPJP contract to China CAMC Engineering Co., Ltd.;
- Letter dated September 15, 2016 from the MWSS Deputy Administrator to DOF Usec. Tan recommending pipeline projects that may require participation and funding by the Chinese government;
- Letter dated. January 17, 2016 from the MWSS OIC and Senior Deputy Administrator to the NEDA Deputy Director-General discussing the NCWS project, estimating project cost, and identifying sources of funding;
- Letter dated February 8, 2017 from the MWSS Sr. Deputy Administrator to DOF Usec. Tan regarding submission of documents;
- Letter dated January 26, 2017 from DOF Usec. Tan to the MWSS Deputy Administrator re: endorsement of the project for Chinese funding;
- Letter dated April 3, 2017 from NEDA to MWSS stating that the Investment Coordination Committee-Cabinet Committee confirmed the proposed change in financing from PPP to ODA;
- Letter dated April 6, 2017 from MWSS to NEDA saying the MWSS Board endorsed and confirmed the new estimated project cost and implementation arrangement;
- Letter dated July 11, 2017 from NEDA to MWSS saying the NEDA Board confirmed the ICC's approval of the shift in financing from PPP to ODA, and change in total project cost;
- Letter dated September 6, 2017 from the MOFCOM to the DOF recommending Chinese contractors;
- Letter dated September 7, 2017 from DOF to MWSS, forwarding the MOFCOM recommendations;
- MWSS Resolution endorsing the three contractors;
- MWSS Board Resolution specifying the bid documents;
- MWSS Board Resolution declaring CEEC as bidder with the lowest calculated bid and lowest calculated responsive bid;
- MWSS Board Resolution approving in principle the detailed engineering design and construction of the NCWS-KDP;
- Letter dated September 7, 2018 from DOF to MWSS, saying that the DOF has endorsed to the BSP MB its Approval-in-Principle and Willingness to Guarantee;
- Letter dated June 7, 20 I 9 from the BSP International Operations Department regarding final approval to the MWSS loan from the EXIM Bank;
- MWSS Board Resolution regarding final draft of the loan agreement and authority to sign.
[48] Dissenting Opinion, pp. 6-7.
[49] Article 8.1 of the Loan Agreements.
[50] Rollo (G.R. No. 245981), Vol. 1, pp. 58-68;
rollo (G.R. No. 246594), pp. 46-51.
[51] Rollo (G.R. No. 245981), Vol. 1, pp. 271-290;
rollo (G.R. No. 246594), pp. 295-315.
[52] Rollo (G.R. No. 245981 ), p. 110.
[53] Rollo (G.R. No. 246594), pp. 98-99.
[54] De Borja v. Pinalakas na Ugnayan ng Maliliit na Mangingisda ng Luzon, Mindanao at Visayas, 809 Phil. 65, 85 (2017).
[55] 896 SCRA 213.
[56] Id. at 281.
DISSENTING OPINIONLEONEN, J.:Philippine history tells us that an unbridled discretion on the part of the government to enter into a foreign loan and contracting agreements have often led to the imposition of more burden on the Filipinos, which we carry to this day. To protect against these dangers, the 1987 Constitution has placed several safeguards that will ensure transparency and accountability in the government. These also guarantee that all undertakings of the government will always be in the best interest of the Filipino people.
Petitioners assail the constitutionality of the Preferential Buyer's Credit Loan Agreements on the Chico River Pump Irrigation Project (Chico River Pump Loan Agreement), and the New Centennial Water Source Kaliwa Dam Project (New Centennial Loan Agreement) (collectively, the Loan Agreements) entered into by the Philippine government and the Chinese-government owned Export-Import Bank of China (EXIM Bank). They argue that the Loan Agreements violate several provisions of the 1987 Constitution, such as the provisions on prior concurrence from the Monetary Board and the Filipino First policy.
[1]The majority has chosen to uphold the loan agreements' constitutionality by ruling that the process involved in finalizing these contracts complied with the prevailing measures set by the Constitution and procurement laws. However, a reading of the Loan Agreements shows that these contain glaring defects that transgress the very safeguards placed by the Constitution to protect against disadvantageous transactions for the Filipino people.
On this account and with respect to my colleagues, I disagree with the majority's position. The execution of the Loan Agreements failed to comply not only with the Constitution, but applicable laws as well. It must be stricken down as unconstitutional.
IArticle VIII, Section 1 of the 1987 Constitution provides the definition and scope of this Court's power of judicial review. It states:
Section I. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.
Francisco, Jr. v. House of Representatives,[2] citing Justice Jose P. Laurel, characterized judicial review as the "moderating power" to "determine the proper allocation of powers of the different branches of government[.]"
[3] It includes the duty of this Court to determine whether the acts of the "two coordinate branches have adhered to the mandate of the fundamental law."
[4]In
Angara v. Electoral Commission,[5] this Court clarified that in exercising its power of judicial review, the judiciary is not asserting superiority over the other branches of the government but merely ensures that the allocated constitutional boundaries are followed. Its checks and balance mechanism guarantees that no department exceeds its constitutionally allocated power, thus:
But in the main, the Constitution has blocked out with deft strokes and in bold lines, allotment of power to the executive, the legislative and the judicial departments of the government. The overlapping and interlacing of functions and duties between the several departments, however, sometimes makes it hard to say just where the one leaves off and the other begins. In times of social disquietude or political excitement, the great landmarks of the Constitution are apt to be forgotten or marred, if not entirely obliterated. fn cases of conflict, the judicial department is the only constitutional organ which can be called upon to determine the proper allocation of powers between the several departments and among the integral or constituent units thereof.
As any human production, our Constitution is of course lacking perfection and perfectibility, but as much as it was within the power of our people, acting through their delegates to so provide, that instrument which is the expression of their sovereignty however limited, has established a republican government intended to operate and function as a harmonious whole, under a system of checks and balances, and subject to specific limitations and restrictions provided in the said instrument. The Constitution sets forth in no uncertain language the restrictions and limitations upon governmental powers and agencies. If these restrictions and limitations are transcended it would be inconceivable if the Constitution had not provided for a mechanism by which to direct the course of government along constitutional channels, for then the distribution of powers would be mere verbiage, the bill of rights mere expressions of sentiment, and the principles of good government mere political apothegms. Certainly, the limitations and restrictions embodied in our Constitution are real as they should be in any living constitution. In the United States where no express constitutional grant is found in their constitution, the possession of this moderating power of the comts, not to speak of its historical origin and development there, has been set at rest by popular acquiescence for a period of more than one and a half centuries. In our case, this moderating power is granted, if not expressly, by clear implication from section 2 of article VIII of our Constitution.
The Constitution is a definition of the powers of government. Who is to determine the nature, scope and extent of such powers? The Constitution itself has provided for the instrumentality of the judiciary as the rational way. And when the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over the other departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims of authority under the Constitution and to establish for the parties in an actual controversy the rights which that instrument secures and guarantees to them. This is in truth all that is involved in what is termed "judicial supremacy" which properly is the power of judicial review under the Constitution. Even then, this power of judicial review is limited to actual cases and controversies to be exercised after full opportunity of argument by the parties, and limited further to the constitutional question raised or the very lis mota presented. Any attempt at abstraction could only lead to dialectics and barren legal questions and to sterile conclusions of wisdom, justice or expediency of legislation. More than that, courts accord the presumption of constitutionality to legislative enactments, not only because the legislature is presumed to abide by the Constitution but also because the judiciary in the determination of actual cases and controversies must reflect the wisdom and justice of the people as expressed through their representatives in the executive and legislative departments of the government.[6]
Under the present constitution, judicial review is no longer limited to the authority to settle actual controversies. It now includes the power "to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." The incorporation of this new power was meant to narrow the reach of the political question doctrine and "[to] broaden the scope of judicial inguiry[.]"
[7] Saguisag v. Ochoa, Jr.,[8] teaches:
The power of judicial review has since been strengthened in the 1987 Constitution. The scope of that power has been extended to the determination of whether in matters traditionally considered to be within the sphere of appreciation of another branch of government, an exercise of discretion has been attended with grave abuse. The expansion of this power has made the political question doctrine "no longer the insurmountable obstacle to the exercise of judicial power or the impenetrable shield that protects executive and legislative actions from judicial inquiry or review."[9] (Citations omitted)
Nonetheless, this Court's power of judicial review is not without limitations. Redress from this Court may be had only upon a showing of the existence of the following requisites:
Like almost all powers conferred by the Constitution, the power of judicial review is subject to limitations, to wit: ( l) there must be an actual case or controversy calling for the exercise of judicial power; (2) the person challenging the act must have the standing to question the validity of the subject act or issuance; otherwise stated, he must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement; (3) the question of constitutionality must be raised at the earliest opportunity; and (4) the issue of constitutionality must be the very lis mota of the case.[10] (Citations omitted)
Among these requisites, the existence of an actual case or controversy is the most crucial and a requirement demanded by the Constitution itself.
Jurisprudence dictates an actual case or controversy arises when the proceedings present "a conflict of legal rights, an assertion of opposite legal claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute."
[11] The requirement was explained in
Guingona, Jr. v. Court of Appeals:[12]An actual case or controversy exists when there is a conflict of legal rights or an assertion of opposite legal claims, which can be resolved on the basis of existing law and jurisprudence. A justiciable controversy is distinguished from a hypothetical or abstract difference or dispute, in that the former involves a definite and concrete dispute touching on the legal relations of parties having adverse legal interests. A justiciable controversy admits of specific relief through a decree that is conclusive in character, whereas an opinion only advises what the law would be upon a hypothetical state of facts.[13] (Citations omitted)
The requirement of an actual case demands that the issues presented must not be conjectural or speculative. Nor must it have been rendered moot by the occurrence of supervening events making the resolution of the case of no practical value.
Reyes v. Insular Life Assurance Co., Ltd.[14] teaches:
The existence of an actual case or controversy is a condition precedent for the court's exercise of its power of adjudication. An actual case or controversy exists when there is a conflict of legal rights or an assertion of opposite legal claims between the parties that is susceptible or ripe for judicial resolution. In negative terms, a justiciable controversy must neither be conjectural nor moot and academic. There must be a definite and concrete dispute touching on the legal relations of the parties who have adverse legal interests. The reason is that the issue ceases to be justiciable when a controversy becomes moot and academic; otherwise, the court would engage in rendering an advisory opinion on what the law would be upon a hypothetical state of facts. The disposition of the case would not have any practical use or value as there is no actual substantial relief to which the applicant would be entitled to and which would be negated by the dismissal or denial of the petition.[15] (Citations omitted)
The danger in deciding a case that has been rendered moot is that the ruling would be a mere "academic disquisition on a hypothetical problem."
[16] Further, "[t]he judgment will not serve any useful purpose or have any practical legal effect because, in the nature of things, it cannot be enforced."
[17]Apart from avoiding the rendition of advisory opinions, the need for an actual case or controversy is based on the respect for the principle of separation of powers
[18] which "ordains that each of the three great branches of government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere."
[19]For these reasons, courts generally decline to assume jurisdiction over cases that do not present judicial controversy and are deemed moot. However, the rule admits exceptions. In
Republic v. Moldex Realty, Inc., [20] we held:
It is true that this court does not always refuse to assume jurisdiction over a case that has been rendered moot and academic by supervening events. Courts assume jurisdiction over cases otherwise rendered moot and academic when any of the following instances are present:
(1) Grave constitutional violations;
(2) Exceptional character of the case;
(3) Paramount public interest;
(4) The case presents an opportunity to guide the bench, the bar, and the public; or
(5) The case is capable of repetition yet evading review.[21] (Citations omitted)
In this case, I agree with the majority that petitioners' plea for producing relevant documents relating to the loan agreements has been rendered moot
[22] since respondents gave them copies of the requested documents, and the loan agreements are now available online.
[23]I further agree that the exceptional character of the case and the paramount public interest involved warranting the resolution of the issue regarding petitioners' right to access and production of the requested documents.
[24] The loan agreements involve significant amounts of public funds, which will be used to finance the construction of an irrigation project and the development of a new source of water.
[25]Additionally, it must be stressed that the Loan Agreements subject of this case were executed pursuant to the Memorandum of Understanding on Financing Cooperation (Memorandum of Understanding) between the Republic of the Philippines and EXIM Bank. The majority pointed out the Memorandum of Understanding between is a "precursor agreement" to more detailed loan agreements involving Philippine infrastructure projects.
[26] As there is a possibility that new loan agreements will be executed pursuant to the Memorandum of Understanding, this case presents an opportunity for this Court to "formulate controlling principles relative to the issues raised herein to guide the bench, the bar, and the public[.]"
[27] The need to craft guiding principles will aid the government in resolving the issue concerning access to new loan agreements executed under the Memorandum of Understanding.
Accordingly, while the issue is rendered moot, it is appropriate to discuss the alleged violation of petitioners' right to information.
III agree with the majority that the Confidentiality Clauses contained in the Loan Agreements violate the right to information. Article III, Section 7 of the 1987 Constitution provides for the right of the people to information. It states:
ARTICLE IIISection 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law.
This provision is complemented by Article II, Section 28 which expresses the State's "policy of public disclosure" of all the transactions of the Government:
[28]ARTICLE IISection 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving following public interest.
According to petitioners, these constitutional provisions are violated by the Confidentiality Clauses found in the Loan Agreements.
Respondents counter that the provisions pertaining to the right to information are not immediately operational and cannot be invoked directly by petitioners to dispute the constitutionality of the Confidentiality Clause absent an enabling law.
The language of the contentious clauses of the Loan Agreement state:
The Borrower shall keep all the terms, conditions and the standard fees hereunder or in connection with this Agreement, strictly confidential. Without the prior written consent of the Lender, the Borrower shall not disclose any information hereunder or in connection with this Agreement / to any third party unless required to be disclosed by the Borrower to any courts of competent jurisdiction, relevant regulatory bodies, or any government institution and/or instrumentalities of the Borrower in accordance with any applicable Philippine law.[29]
In my dissenting opinion in
De-Leon v. Duterte,[30] I highlighted the significant purpose of the constitutional guarantee to information on matters relating to public concern:
The freedom of information is the instrument that empowers the people. The right to information is so central to a representative government such as ours that it was integrated as an enforceable constitutional right. It was enunciated in Legaspi v. Civil Service Commission:
The incorporation in the Constitution of a guarantee of access to information of public concern is a recognition of the essentiality of the free flow of ideas and information in a democracy[.] In the same way that free discussion enables members of society to cope with the exigencies of their time[,] access to information of general interest aids the people in democratic decision-making. . . by giving them a better perspective of the vital issues confronting the nation.
It is the access to information that apprises the people of their leader's actions and gives the citizens an opportunity to shape the landscape they live in by making informed decisions. It makes them capable of exercising their rights and protecting the same against actions of the state. The access of a citizen to information is a basic requirement for the functioning of a democratic society.[31] (Citations omitted)
Transparency in government dealings, such as contracting foreign loans, is pivotal in implementing the public policy of "full public disclosure"
[32] and ensuring that the Filipino people remain knowledgeable and involved in the transactions entered into by the government.
The scope of this constitutional guarantee to the right to information covers matters of public concern. In
Legaspi v. Civil Service Commission,[33] this Court explained what matters may be the subject of this provision:
In determining whether or not a particular information is of public concern there is no rigid test which can be applied. 'Public concern' like 'public interest' is a term that eludes exact definition. Both terms embrace a broad spectrum of subjects which the public may want to know, either because these directly affect their lives, or simply because such matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for the courts to determine on a case by case basis wltetlter tlte matter at issue is of interest or importance, as it relates to or affects tlte public.[34] (Emphasis supplied)
Though the scope of matters covering public concern may be broad,
Chavez v. Presidential Commission on Good Governance[35] identifies certain topics that may not be divulged to the public, namely: national security matters, trade secrets, banking transactions, criminal matters, and other confidential matters such as diplomatic correspondence,
[36] closed-door Cabinet meetings, and Supreme Court deliberations.
[37]As these present Petitions deal with foreign loans, it cannot be denied that these are matters of public concern as it will directly affect the lives of the Filipinos who are effectively carrying the responsibility to repay these debts. Foreign loans are not within those identified in jurisprudence as a limitation to the right to information. No less than the Constitution requires that information regarding foreign loans should be made accessible to the public:
ARTICLE XIISection 21. Foreign loans may only be incurred in accordance with law and the regulation of the monetary authority. Information on foreign loans obtained or guaranteed by tlte government shall be made available to the public.[38] (Emphasis supplied)
It must be stressed that contrary to respondents' position, there is no need for an enabling law to invoke the aforementioned constitutional provision. The language of the Constitution is clear and without any ambiguity. Copies of the documents pertaining to foreign loan transactions that the government ought to incur should always remain accessible to the public. It is the public's, as taxpayers, hard-earned money that is at stake. As the public is a crucial participant in meeting the obligations involved in foreign loans, they are entitled, under the Constitution, to know the process involved in contracting these loans.
IIIPetitioners next allege that the public respondents failed to secure the prior concunence of the Monetary Board in undertaking the Loan Agreements. They pointed out that there appears to be a circumvention in the stipulations in the Loan Agreements where the parties may belatedly obtain the approval of the Monetary Board, thus negating the requirement of prior concurrence under the 1987 Constitution.
Respondents countered these arguments by contending that they followed the process of obtaining the approval of the Monetary Board as outlined in the relevant regulations.
I have to strongly disagree with the position of the majority that "[i]t is only the Approval-in-Principle, which strictly speaking, entails prior action from the "[Monetary Board]."
[39] This statement makes it appear that the participation of the Monetary Board is only confined during the Approval-in-Principle stage, where only indicative financial terms have been discussed. I fear this interpretation will greatly undermine the Final Approval stage, where the parties' actual agreements and source of obligation exist.
Prior to the 1987 Constitution, the only limitations placed on the power of the President to contract foreign loans on behalf of the Philippines were those provided by law.
[40] At that time, the prevailing regulations on contracting foreign loans were Republic Act No. 4860
[41] and Letter of Instructions No. 158, series of 1974. The salient provisions of Republic Act No. 4860 state:
SECTION 1. The President of the Philippines is hereby authorized in behalf of the Republic of the Philippines to contract such loans, credits and indebtedness with foreign governments, agencies or instrumentalities of such foreign governments, foreign financial institutions, or other international organizations, with whom, or belonging to countries with which, the Philippines has diplomatic relations, as may be necessary and upon such terms and conditions as may be agreed upon, to enable the Government of the Republic of the Philippines to finance, either directly or through any government office, agency or instrumentality or any government-owned or controlled corporation, industrial, agricultural or other economic development purposes or projects authorized by law: Provided, That at least seventy-five per cent shall be spent for purposes or projects which are revenue-producing and self-liquidating, such as electrification, irrigation, river control and drainage, telecommunication, housing, construction and improvement of highways and bridges, airports, ports and harbors, school buildings, waterworks and artesian wells, air navigation facilities, development of fishing industry, and others: Provided, That such foreign loans shall be used to meet the foreign exchange requirements or liabilities incurred in connection with said development projects to cover the cost of equipment, related technical services and supplies, where the same are not obtainable within the Philippines at competitive prices as well as part of the pesos costs, other than working capital and operational expenses not exceeding twenty per cent of the loan: Provided, further, That in the case of roads, bridges, irrigation, portworks, river control, airports, and power, the amount shall not exceed seventy per cent of the loan.
The authority of the President of the Philippines as herein provided shall include the power to issue, for the purposes hereinbefore stated, bonds for sale in the international markets the income from which shall be fully tax exempt in the Philippines.
SECTION 2. The total amount of loans, credit and indebtedness, excluding interests, which the President of the Philippines is authorized to incur under this Act shall not exceed one billion United States dollars or its equivalent in other foreign currencies at the exchange rate prevailing at the time the loans, credits and indebtedness are incurred: Provided, however, That the total loans, credits and indebtedness incurred under this Act shall not exceed two hundred fifty million in the fiscal year of the approval of this Act, and two hundred fifty million every fiscal year thereafter, all in United States dollars or its equivalent in other currencies.
All loans, credits and indebtedness under the preceding section shall be incurred only for particular projects in accordance with the approved economic program of the Government and after the plans of such projects shall have been prepared by the offices or agencies concerned, recommended by the National Economic Council and the Monetary Board of the Central Bank of the Philippines, and approved by the President of the Philippines.
Meanwhile, Letter of Instructions No. 158, series of 1974, provides:
- All foreign borrowing proposals of the Government, Government Agencies and government financial institutions shall be submitted to the Central Bank for approval in principle by the Monetary Board as to purpose and credit terms among others, before commencement of actual negotiations.
- Actual negotiations for such foreign credits and/or accommodations shall be conducted by the Secretary of Finance and/or Central Bank Governor of their duly authorized representatives of the Government, government agencies and government financial institutions or entities concerned.
A reading of these policies would show that the participation of the Monetary Board in contracting foreign loans was already sought in relation to the other conditions prescribed by law even before the President may / contract foreign loans. However, these restrictions proved futile as the country became largely indebted to various foreign banks. This resulted from the massive loans incurred by then President Ferdinand Marcos with little or no oversight, even with the involvement of the Monetary Board.
[42]To protect the country from being gravely indebted once again, the 1987 Constitution placed safeguards that would ensure accountability on the part of the President and transparency regarding the status of the foreign loans.
Article VII, Section 20 of the Constitution provides:
Section 20. The President may contract or guarantee foreign loans in behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board and subject to such limitations as may be provided under law. The Monetary Board shall, within thirty days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decisions on applications for loans to be contracted or guaranteed by the government or government-owned and controlled corporations which would have the effect of increasing the foreign debt, and containing other matters as may be provided by law. (Emphasis supplied)
Article XII, Section 21 of the Constitution states:
Section 21. Foreign loans may only be incurred iu accordance with law and the regulation of the monetary authority. Information on foreign loans obtained or guaranteed by the Government shall be made available to the public. (Emphasis supplied)
By codifying the role of the Monetary Board in contracting foreign loans, the 1987 Constitution recognized the responsibility of the Monetary Board to ensure the capacity of the country to meet its obligations and to alleviate the burden of the Filipino public in paying back the loans that the government has incurred. Thus, the Monetary Board is also bound by the measures established by law before it provides its prior concmTence.
The majority enumerates the various regulations in implementing the authority of the Monetary Board to provide its prior concurrence to a foreign loan.
[43] Republic Act No. 7653,
[44] as amended by Republic Act No. 11211,
[45] requires that before a foreign loan may be contracted, the Monetary Board shall release an opinion, upon the request of the government through the Secretary of Finance, regarding "the probable effects of the proposed operation on monetary aggregates, the price level, and the balance of payments"
[46] which shall be based on "on the gold and foreign exchange resources and obligations of the nation and on the effects of the proposed operation on the balance of payments and on monetary aggregates."
[47]In relation, the Monetary Board shall also comply with the procedure established under the Bangko Sentral ng Pilipinas (Bangko Sentral) Rules on Foreign Exchange Transactions
[48] (Foreign Exchange Regulations),
[49] which outlines the three stages involved in the approval of public sector foreign loans, namely:
a. Approval-In-Principle - which refers to the approval granted by the Monetary Board (MB) to the indicative financial terms and purpose of the loan. Prior to commencement of actual negotiations or issuance of a mandate of commitment to foreign funders/arrangers, the borrower is required to secure the BSP approval-in-principle of its proposed foreign loan;
b. Finalization and clearance of loan documents; and
c. Final Approval - which refers to the approval granted by the [Monetary Board] to a loan previously approved-in-principle after its terms have been finalized and found consistent with the terms approved in-principle, the covering loan agreement signed, and other preconditions for final approval have been complied with. The MB final approval authorizes the borrower to draw on the loan/issue the bonds/notes/securities involved.[50]
The majority states that among the stages in approving foreign loans, It IS "only the Approval-in-Principle, which strictly speaking, entails prior action from the [Monetary Board.]"
[51] However, to my mind, this may have diminished the crucial role imposed by the 1987 Constitution on the Monetary Board in providing prior concurrence.
Although the 1973 Constitution does not explicitly mention the involvement of the Monetary Board in contracting foreign loans, its approval was still sought under Letter of Instructions No. 158, series of 1974. In particular, the regulation directed that "[a]ll foreign borrowing proposals of the Government, Government Agencies and government financial institutions shall be submitted to the Central Bank for approval in principle by the Monetary Board as to purpose and credit terms, among others, before the commencement of actual negotiations."
[52]It is worthy to note that the phrase "approval in principle" already appeared in the language of the Letter of Instmction No. 158, series of 1974, in that the Monetary Board has been providing these even prior to the 1987 Constitution. However, as previously discussed, the volume of foreign loans incurred was not controlled despite the Monetary Board's approval in principle. The amounts of indebtedness ballooned to the point that the obligation of the Filipino people to repay these loans persists to this day. As such, the 1987 Constitution rectified this by imposing that the prior concurrence of the Monetary Board shall be first secured before the government enters into a foreign loan agreement.
If it is indeed only the "approval in principle" that would suffice in the process of securing the prior concurrence of the Monetary Board, then the 1987 Constitution would not have placed great emphasis on the role of the Monetary Board in the process of contracting public sector foreign loans.
The regulations enacted after the promulgation of the 1987 Constitution prove the Monetary Board's increased role in obtaining foreign loans that would not only be confined to approving the foreign loan proposals. Under Republic Act No. 7653, as amended by Republic Act No. 11211, the Monetary Board is required to study the terms of the proposal and provide an opinion. The Foreign Exchange Regulations also directed the Monetary Board to provide a Final Approval to complete the process of giving its prior concurrence.
These are in line with the mandate of the Bangko Sentral to "(1) maintain price stability and financial stability; and (2) promote and maintain monetary stability and convertibility of the peso."
[53] Thus, the Monetary Board of the Bangko Sentral is responsible in monitoring the country's repayment capacity. It carefully reviews and analyzes the foreign loan proposals and their implications for the economy.
[54]It would then be difficult to state that the crucial role of the Monetary Board is only required at the first stage or when it gives it Approval-in Principle. At this point, only the "indicative financial terms and purpose of the loan" are available. In applying for the Approval-in-Principle, the government agency in charge is tasked to submit forms prescribed by the Bangko Sentral, which only require minimal details regarding the proposed loan.
[55] No actual negotiations of the actual terms of the loan contract have been conducted. The Approval-in-Principle only allows the implementing agency of the government, as the borrower, to commence the negotiations with the lending institution.
A reading of Resolution Nos. 305 and 1581, which embody the Approval-in-Principle of the Monetary Board for the Chico River Pump Loan Agreement and New Centennial Loan Agreement, respectively, show that only bare information of the loan proposals was provided, such as (1) the identity of the borrower and creditor; (2) loan amount; (3) brief description of the project; (4) maturity; and (5) interest rate. Actual payment terms and other obligations of the Philippines, as the borrower, were not yet provided.
Thus, the third stage - Final Approval - is the most critical in obtaining the prior concurrence of the Monetary Board under the 1987 Constitution. At this point, the actual loan contract exists where the terms are established and the obligations of the Philippines, as the borrower, are determined.56 This is where the Monetary Board conducts its full review of the loan contract to be unde11aken by the Philippine government. Without a contract, the Monetary Board cannot be considered to have given its prior concurrence as contemplated under the 1987 Constitution.
The danger in pronouncing that it is only the Approval-in-Principle that is necessary to comply with the requirement under the 1987 Constitution is that it weakens the importance of the Final Approval stage and the presence of an actual contract before the Monetary Board provide its prior concurrence. The Final Approval may be mistakenly understood as an automatic action or even an after-thought on the part of the Monetary Board when there are still numerous factors to be analyzed at this stage, such as the compliance of the terms of the final loan contract with the preconditions provided by the Monetary Board, among others.
In addition, there is nothing in the relevant laws and regulations that would suggest that it is only at the Approval-in-Principle stage where prior action from the Monetary Board is needed.
The inclusion in the 1987 Constitution of the requirement regarding the prior concunence of the Monetary Board in contracting foreign loans must be viewed as an important protection against the possibility that the country may be gravely indebted again. Therefore, the Monetary Board must be considered a significant actor in every stage of the negotiation and approval process, and not only at the Approval-in-Principle stage where no actual contract yet exists.
IVFinally, I am likewise unable to join the majority in its ruling that the Loan Agreements do not violate the constitutional policy of giving preference to qualified Filipinos. The preference given to Chinese contractors contravenes the Filipino First Policy enshrined m our fundamental law.
Article XII, Section 10 of the 1987 Constitution expresses the policy of our State to ensure that qualified Filipinos are given preference in granting rights and privileges, among others. It states:
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.
Dubbed the Filipino First Policy, this Constitutional provision is not merely a guiding principle,
[57] but a positive command addressed to all branches of the government. It is a directive that must be brought into play not only in legislative acts, but in every unde1iaking of the State.
[58]This Constitutional policy results from our nationalism, a concept inherent in our democratic and republican forms of government. It is a notion that instills the attitude of ensuring that our country's development and the Filipino's welfare are the primordial considerations.
[59] The policy was discussed in
Manila Prince Hotel v. Government Service Insurance System:
[60]The Filipino First Policy is a product of Philippine nationalism. It is embodied in the 1987 Constitution not merely to be used as a guideline for future legislation but primarily to be enforced; so must to be enforced. This Court as the ultimate guardian of the Constitution will never shun, under any reasonable circumstance, the duty of upholding the majesty ql the Constitution which it is tasked to de.fend. It is worth emphasizing that it is not the intention of this Court to impede and diminish, much less undermine, the in.flux qf foreign investments. Far Fom it, the Court encourages and welcomes more business opportunities but avowedly sanctions the preference for Filipinos whenever such preference is ordained by the Constitution. The position of the Court on this matter could have not been more appropriately articulated by Chief Justice Narvasa [.]
Privatization of a business asset for purposes of enhancing its business viability and preventing further losses, regardless of the character of the asset, should not take precedence over non-material values. A commercial, nay even a budgetary, objective should not be pursued at the expense of national pride and dignity. For the Constitution enshrines higher and nobler non-material values. Indeed, the Court will always defer to the Constitution in the proper governance of a free society; after all, there is nothing so sacrosanct in any economic policy as to draw itself beyond judicial review when the Constitution is involved.
Nationalism is inherent in the very concept of the Philippines being a democratic and republican state, with sovereignty residing in the Filipino people and from whom all government authority emanates. In nationalism, the happiness and welfare of the people must be the goal. The nation-state can have no higher purpose. Any interpretation of any constitutional provision must adhere to such basic concept. Protection of foreign investments, while laudable, is merely a policy. It cannot override the demands of nationalism.[61] (Emphasis supplied and citations omitted.)
It must, however, be clarified that "[n]ationalism is not a mindless ideal." The constitutional mandate of giving preference to qualified Filipinos does not constitute a prohibition on the entry of foreign investment in the Philippines.
[62] Tañada v. Angara[63] teaches:
All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair. (Citations omitted)
Likewise, m
National Federation of Hog Farmers, Inc. v. Board of Investments:[64]Nationalism is not a mindless ideal. It should not unreasonably exclude people of a different citizenship from participating in our economy. If it were so, nationalism will not foster social justice; rather, it will sponsor a kind of racism quite like what our ancestors had suffered from in our colonial past.[65]
That our fundamental law does not foster an isolationist policy 1s further reinforced by the following constitutional provisions:
ARTICLE II
STATE POLICIESSection 7. The State shall pursue an independent foreign policy. In its relations with other states, the paramount consideration shall be national sovereignty, territorial integrity, national interest, and the right to self determination.
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONYSection 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full ernployment based on sound agricultural development and agrarian reform, through industries that make full of efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.
Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.
These constitutional provisions tacitly recognize the need for foreign investment as a means to achieve our goal of economic development. These provisions demonstrate that "the Philippines adopts a liberal approach in allowing foreign investments to enter the country."
[66] Accordingly, I agree with the majority that the mere awarding of the projects to foreign investors does not constitute a violation of the Filipino First Policy.
[67] To reiterate, while the Constitution mandates that preference be given to qualified Filipinos, it "recognizes the need for business exchange with the rest of the world[.]"
[68]This notwithstanding, it is my opinion that limiting the projects to Chinese contractors without giving qualified Filipinos an equal opportunity to participate constitutes a violation of the Filipino First Policy under Article XII, Section 10.
To my mind, this constitutional mandate of g1vmg preference to qualified Filipinos will be rendered nugatory if in the field of public bidding involving projects of wide magnitude and primordial concern to our country, qualified Filipinos will not be pennitted to at least be given the same prerogative of participating. In any case, individuals or corporations who wish to participate in the bidding process will be required to comply with certain requirements to ascertain their capability.
Manila Prince Hotel expounded on the importance of this constitutional provision.
[69] The case involved the sale of 51% of the shares of the Manila Hotel Corporation through close bidding participated by petitioner and Renong Berhad (Berhad), a Malaysian firm. During the bidding conducted by Government Service Insurance System, the price per share tendered by Berhad was considered higher than that offered by petitioner.
[70]Subsequently, petitioner wrote to Government Service Insurance System offering to match the tendered bid price of Berhad. When Government Service Insurance System refused to accept, petitioner filed before this Court.a petition for prohibition and mandamus, seeking, among others, to enjoin respondent Government Service Insurance System from perfecting and consummating the sale of the shares to Berhad.
[71]In ruling for petitioner, this Court decreed that Article XII, Section 10 of the Constitution is deemed a sufficient reason not to award the shares to the foreign bidder notwithstanding its submission of the highest price, thus:
It should be stressed that while the Malaysian firm offered the higher bid it is not yet the winning bidder. The bidding rules expressly provide that the highest bidder shall only be declared the winning bidder after it has negotiated and executed the necessary contracts, and secured the requisite approvals. Since the Filipino First Policy provision of the Constitution bestows preference on qualified Filipinos the mere tending of the highest bid is not an assurance that the highest bidder will be declared the winning bidder. Resultantly, respondents are not bound to make the award yet, nor are they under obligation to enter into one with the highest bidder. For in choosing the awardee respondents are mandated to abide by the dictates of the 1987 Constitution the provisions of which are presumed to be known to all the bidders and other interested parties.
Adhering to the doctrine of constitutional supremacy, the subject constitutional provision is, as it should be, impliedly written in the bidding rules issued by respondent GSIS, lest the bidding rules be nullified for being violative of the Constitution. It is a basic principle in constitutional law that all laws and contracts must conform with the fundamental law of the land. Those which violate the Constitution lose their reason for being.
Paragraph V. J. 1 of the bidding rules provides that [i]f for any reason the Highest Bidder cannot be awarded the Block of Shares, GSIS may offer this to other Qualified Bidders that have validly submitted bids provided that these Qualified Bidders are willing to match the highest bid in terms of price per share. Certainly, the constitutional mandate itself is reason enough not to award the block of shares immediately to the foreign bidder notwithstanding its submission of a higher, or even the highest, bid. In fact, we cannot conceive of a stronger reason than the constitutional injunction itself.
In the instant case, where a foreign firm submits the highest bid in a public bidding concerning the grant of rights, privileges and concessions covering the national economy and patrimony, thereby exceeding the bid of a Filipino, there is no question that the Filipino will have to be allowed to match the bid of the foreign entity. And if the Filipino matches the bid of a foreign firm the award should go to the Filipino. It must be so if we are to give life and meaning to the Filipino First Policy provision of the 1987 Constitution. For, while this may neither be expressly stated nor contemplated in the bidding rules, the constitutional fiat is omnipresent to be simply disregarded. To ignore it would be to sanction a perilous skirting of the basic law.
This Court does not discount the apprehension that this policy may discourage foreign investors. But the Constitution and laws of the Philippines are understood to be always open to public scrutiny. These are given factors which investors must consider when venturing into business in a foreign jurisdiction. Any person therefore desiring to do business in the Philippines or with any of its agencies or instrumentalities is presumed to know his rights and obligations under the Constitution and the laws of the forum.[72] (Emphasis in the original and citations omitted)
Notably, in resolving the issue in
Manila Prince Hotel, this Court applied the doctrine of constitutional supremacy, which dictates that the Constitution is the fundamental law of the land that establishes not only our governmental framework, the duties and responsibilities of each depa1iment but likewise, the "principles on which [our] government is founded."
[73] Being the paramount and supreme law of the nation, its provisions are "deemed written in every statute and contract." All laws, rules, and contracts, regardless if "promulgated by the legislative or by the executive branch or entered into by private persons for private purposes,"
[74] must be in confonnity with the Constitution. Otherwise, they shall be deemed "void and without any force and effect."
[75]The doctrine of constitutional supremacy likewise applies to treaties and other agreements entered into by the executive branch of the government. In
Pangilinan v. Cayetano,[76] this Court discussed:
The Constitution is the fundamental law of the land. It mandates the president to "ensure that the laws be faithfully executed." Both in negotiating and enforcing treaties, the president must ensure that all actions are in keeping with the Constitution and statutes. Accordingly, during negotiations, the president can insist on terms that are consistent with the Constitution and statutes, or refuse to pursue negotiations if those negotiations' direction is such that the treaty will turn out to be repugnant to the Constitution and our statutes. Moreover, the president should not be bound to abide by a treaty previously entered into should it be established that such treaty runs afoul of the Constitution and our statutes.[77] (Citations omitted)
In this regard, while I agree with the majority that Republic Act No. 9184 or the Goverm11ent Procurement Reform Act and its implementing rules and regulations recognize that a different procurement procedure may be applied if agreed upon through a treaty or executive agreement, the wordings of the treaty or executive agreements must be in accordance with the provisions of the Constitution.
[78] The alternative procedure adopted must conform with the constitutional mandate, particularly that which gives preference to qualified Filipinos.
Considering that no Filipino was given an opportunity to participate in the procurement process and only Chinese contractors were allowed to take part in the project, it is my opinion that the alternative mode of bidding procedure adopted by the parties is unconstitutional for being violative of the Filipino First Policy.
Let it not be forgotten that Filipino nationalism has always been a moving force within the annals of our history. It has evolved from being a rudimentary call for independence against external forces to being a disposition of ensuring that the welfare and development of the Philippines, and its citizens, be the State's primary objectives. Filipino nationalism has shaped our social, economic, and political identity. It ties every citizen into a mutual affinity, regardless of place and time.
Accordingly, I vote to
GRANT the petitions.
[1] Ponencia, p. 1.
[2] 460 Phil. 830 (2003) [Per J. Carpio-Morales, En Banc].
[3] Id. at 880.
[4] J. Fernando, Dissenting and Concurring Opinion in
In re Aquino, Jr. v. Enrile, 158-A Phil. 1 (1974) [Per C.J. Makalintal, En Banc].
[5] 63 Phil. 139 ( 1936) [Per J. Laurel. En Banc].
[6] Id. at 157.
[7] Marcos v. Manglapus, 258 Phil. 479,506 (1989) [Per J. Cortes, En Banc].
[8] 777 Phil. 280 (2016) [Per C.J. Sereno, En Banc].
[9] Id. at 347-348. I
[10] Biraogo v. The Philippine Truth Commission of 2010, 651 Phil. 374, 438 (2010) [Per J. Mendoza, En Banc].
[11] Province of North Cotabato v. Government of the Republic of the Philippines Peace Panel on Ancestral Domain, 589 Phil. 387,481(2008) [Per J. Carpio-Morales, En Banc].
[12] 354 Phil. 415 (1998) [Per J. Panganiban, First Division].
[13] Id. at 481.
[14] 731 Phil. 155 (2014) [Per J. Brion, Second Division].
[15] Id. at 160.
[16] Guingona, Jr. v. Court of Appeals, 354 Phil. 415, 420 (1998) [Per J. Panganiban, First Division].
[17] Philippine Savings Bank v. Senate Impeachment Court, 699 Phil. 34, 36(2012) [Per J. Perlas-Bernabe, En Banc].
[18] J. Leonen, Separate Opinion in
Council of Teachers and Staff of Colleges and Universities of the Philippines v. Secretary of Education, G.R. Nos. 216930, 217451. 217752, 218045, 218098, 218123, & 218465, October 9, 2018,
[Per J. Caguioa, En Banc]. See also J. Leonen, Separate Opinion in Private Hospitals Association of the Philippines, Inc. v. Medialdea, G.R. No. 234448, November 6, 2018, [Per J. Tijam, En Banc].
[19] Abakada Guro Party list v. Ermita, 506 Phil. I, 107 (2005) [Per J. Austria-Martinez, En Banc].
[20] 780 Phil. 553 (2016) [Per J. Leonen, Second Division].
[21] Id. at 561.
[22] Ponencia, pp. 13-14.
[23] Id. at 23.
[24] Id. at 14.
[25] New Centennial Water Source - Kaliwa Dam Project (last accessed, July 8, 2022)
[26] Ponencia, p. 3.
[27] Belgica v. Ochoa, 721 Phil. 416, 524 (2013) [Per J. Perlas-Bernabe, En Banc].
[28] Bantay Republic Act or BA-RA 7941 v. Commission on Elections, 551 Phil. 1,12 (2007) [Per J. Garcia, En Banc].
[29] The wording of the Confidentiality Clause for both the Credit Loan Agreements on the Chico River Pump Irrigation Project and the New Centennial Water Source-Kaliwa Dam Project Loan Agreement are identical.
[30] G.R. No. 252118, May 8, 2020 [En Banc].
[31] J. Leonen, Dissenting Opinion in De Leon v. Duterte, G.R. No. 252118, May 8, 2020 < https://sc.judiciary.gov.ph/12172/> [En Banc].
[32] CONST., art. III sec. 7.
[33] 234 Phil. 521 (1987) [ Per J. Cortes, En Banc].
[34] Id. at 535
[35] 360 Phil. 133 (1998) [Per J. Panganiban, First Division].
[36] Id. at 160.
[37] Id. at 162.
[38] CONST., at1. XII, sec. 12.
[39] Ponencia, p. 20.
[40] CONST. (1973) art. VII, sec. 12.
[41] An Act Authorizing the President of the Philippines to Obtain Such Foreign Loans And Credits, or to Incur Such Foreign Indebtedness, As May Be Necessary To Finance Approved Economic Development Purposes Or Projects. And To Guarantee, In Behalf of the Republic Of The Philippines, Foreign Loans Obtained Or Bonds Issued By Corporations Owned or Controlled by the Government of the Philippines For Economic Development Purposes Including Those Incurred For Purposes Of ReLending To The Private Sector, Appropriating The Necessary Funds Therefor, And For Other Purposes
[42] JOAQUIN G. BERNAS, S.J. THE 1987 CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES 934 (2009 ED.)
[43] Ponencia, pp. 20-21.
[44] The New Central Bank Act.
[45] An Act Amending Republic Act Number 7653, Otherwise Known as "The New Central Bank Act", and for Other Purposes.
[46] Republic Act No. 7653, as amended by Republic Act No. 11211, Section 123.
[47] Republic Act No. 7653, as amended by Republic Act No. 11211, Section 123.
[48] Bangko Sentral ng Pilipinas Rules on Foreign Exchange Transactions, part V(B), 23 available al https://www.bsp.gov.ph/Media_and_Research/Primers%20Faqs/faqfxreg.pdf (last accessed August 19, 2022).
[49] Bangko Sentral ng Pilipinas Rules on Foreign Exchange Transactions, part V(B), 23 available at https://www.bsp.gov.ph/Media_and_Research/Primers%20Faqs/faqfxreg.pdf (last accessed August 19, 2022).
[50] Bangko Sentral ng Pilipinas Rules on Foreign Exchange Transactions, part V(B), 23 available at https://www.bsp.gov.ph/Media_and_Research/Primers%20Faqs/faqfxreg.pdf (last accessed August 19, 2022).
[51] Ponencia, p. 20.
[52] Letter of Instructions No. 158, I (1984).
[53] Bangko Sentral ng Pilipinas, International Operations Department, Primer on Foreign/Foreign Currency Loans/Borrowings, available at https://www.bsp.gov.ph/Lists/Download%20Section/Attachments/104/fxloan_primer.pdf (last accessed August 19, 2022)
[54] Bangko Sentral ng Pilipinas, International Operations Department. Primer on Foreign/Foreign Currency Loans/Borrowings, available at https://www.bsp.gov.ph/Lists/Download%20Section/Attachments/104/fxloan_primer.pdf (last accessed August 19, 2022)
[55] Bangko Sentral ng Pilipinas, Manual on Foreign Exchange Transactions, Section 23.3, available at https://www.bsp.gov.ph/Regulations/MORFXT/MORFXTpdf (last accessed August 19, 2022).
[56] Bangko Sentral ng Pilipinas Rules on Foreign Exchange Transactions, part V(B), 23 available at https://www.bsp.gov.ph/Media_and_Research/Primers%20Faqs/faqfxreg.pdf (last accessed July 7, 2022).
[57] J. Puno, Dissenting Opinion in Manila Prince Hotel v. Government Service Insurance System, 335 Phil. 82, 141 ( 1997) [Per J. Bellosillo, En Banc].
[58] Id. at 141-142.
[59] J. Padilla, Separate Opinion in Manila Prince Hotel v. Government Service Insurance System, 335 Phil. 82, 120 (1997) [Per J. Bellosilio, En Banc].
[60] 335 Phil. 82 (1997) (Per J. Bellosillo, En Banc].
[61] Id. at 116-118.
[62] National Federation of Hog Farmers, Inc. v. Board of Investments, G.R. No. 205835, June 23, 2020 [Per J. Leonen, En Banc).
[63] 338 Phil. 546, 585 (1997) [Per J. Panganiban, En Banc].
[64] G.R. No. 205835, June 23, 2020 [Per J. Leonen, En Banc].
[65] Id.
[66] G.R. No. 205835, June 23, 2020 [Per J. Leonen, En Banc].
[67] Ponencia, p. 26.
[68] Tañada v. Angara, 338 Phil. 546, 584 ( 1997) [Per J. Panganiban, En Banc].
[69] Manila Prince Hotel v. Government Service Insurance System, 335 Phil. 82 (1997) [Per J. Bellosillo, En Banc].
[70] Id. at 99.
[71] Id. at 98.
[72] Id. at 114-115.
[73] Id. at 101.
[74] Id.
[75] Id.
[76] G.R. Nos. 238875, 239483, & 240954, March 16, 2021, [Per J. Leon en, En Banc].
[77] Id.
[78] Ponencia, pp. 27-32.