Business climate and the Supreme Court

Maintaining a hospitable climate for business is often thought to be mainly the responsibility of the President of the Republic. To a great extent, it is. But if you listen to complaints expressed by executives and investors these days, their darkest concerns have to do with the judicial branch of government. Somehow, the courts always end up the most unpredictable risk in any business transaction.

We all know about the market for temporary injunctions retailed by some judges in the lower courts and even the appeals court. That’s an ordinary risk that is irritating and disruptive of time schedules that are so important in business transactions. But with good enough lawyers with the right connections to higher courts, that can be remedied fairly quickly.

The risk that really turns things upside down are rulings from the Supreme Court that dramatically change the rules as they have been understood by the participants to the transaction. The Manila Hotel ruling as well as the one on the petrochemical industry comes to mind. Foreign and local investors who have negotiated in good faith with the executive branch of government find themselves holding an empty bag on account of the court ruling.

Recently, the court ruling on land in the public domain, as triggered by the controversy over the deal entered into by the Public Estates Authority (PEA) with Thai conglomerate Amari, had repercussions beyond the questioned deal. For months now, I keep on hearing bankers complain that they had been hit badly by the ruling. The worse part of the Supreme Court ruling is that it affects parties beyond PEA and Amari, retroactively.

The ruling in brief, invalidates sales of public domain land, such as reclaimed land to corporations in the manner by which PEA committed to dispose of land reclaimed and still to be reclaimed by Amari from Manila Bay. Land in the public domain, according to the ruling, can only be sold to individual Filipino citizens and only up to 12 hectares per. Corporations can only lease.

The ruling thus prescribed the proper manner by which land in the public domain could be disposed of by government. It effectively rendered past transactions that failed to follow the prescribed process described in the decision as null and void from the start.

Bankers complained that they just woke up one day to the reality that they extended billions of pesos of loans to developers on the mistaken assumption that they acquired their property from government legally. This includes deals with developers like Filinvest which bought the 200-hectare Alabang Stock Farm, Metro Pacific and developers in reclamation sites in Cebu, Roxas Boulevard, Cultural Center and elsewhere. According to the court decision, these developers did not acquire these public domain lands properly and therefore, do not really own them.

One estimate I have heard is that the exposure of some banks to these type of affected transactions could be as high as 50 percent of total bank portfolio with total value for the industry of as much as P1.5 trillion. Given that the local banking industry is not that healthy to begin with, such a pressure could be significant.

The court ruling could force banks as well as the developers into bankruptcy. Unfortunately for the banks, they also cannot be compensated by foreclosing the assets used as collateral. That is because the land is inalienable, according to the Supreme Court decision.

It is like the banks who provided credit to Filinvest with Alabang Stock Farm land as collateral, ended up actually giving Filinvest a clean accommodation. This means, banks must provide additional reserves required of clean loans. That’s a strain most banks can’t afford now.

Actually, the implications of the Supreme Court ruling can be frightening. Following the Supreme Court ruling, the sale of Fort Bonifacio to a corporate entity, Metro Pacific is void ab initio or not valid from the start. Metro Pacific can now go back to government and ask for its money back plus costs they have incurred.

That would enable the cash-strapped firm to correct an erroneous business judgment on the value of their bid, thanks to the Supreme Court decision on PEA-Amari. But what happens now to the developers who bought land from Metro Pacific thinking that Metro Pacific’s acquisition of the title to Fort Bonifacio from government was legal? This is a royal mess.

The Supreme Court may correct or clarify its decision but in the meantime, the business community is in a sort of legal limbo. Big decisions involving large amounts of money will be delayed. Economic progress at this time of worldwide economic crisis is held hostage.

Of course legal scholars, specially those in the Supreme Court may just shrug their shoulders and say that the law is tough but it is the law. But can you imagine the economic repercussions on a impoverished nation in the meantime? I am not sure the law can be interpreted in such isolation.

This is why next time the Court comes across a case (and there are a few important ones pending) where a decision has similar far-reaching implications, they have to think twice before engaging in legal bravado. This is particularly true if the decision effectively has retroactive implication, as in the PEA-Amari case.

It will be interesting to see how they untangle this one.

Tourism

"Darryl", a Pinoy living in Australia, e-mail this comment to our column last Wednesday.

I am a Pinoy living here in Sydney, Australia. It is a fact that almost all Australians will travel outside their country more than once in their lifetime. In fact they want to do it every year. Even the people in the lowest income brackets save for travel and never mind if they cannot buy a car or their own home.

But even before the Bali incident, the Philippines was not even an option as a tourist destination. They either go to Bangkok or Bali. Some go to Malaysia. But to our Philippines? Never!

One day my curiosity got the better of me and I revealed I am a Filipino and asked why they do not consider visiting our country.

Their primary reason is SECURITY. They believe danger awaits them right after landing in the airport. Australians are not cowards. They are among the bravest in the world. So what more about the nervous Europeans and Americans?

And to think I believe our country is so beautiful (exclude Metro Manila).

Pinoy joke

Reader Marilyn Mana-ay Robles forwarded this Pinoy joke.

A young childless housewife was asking her circle of international friends how she can conceive a child. Their advice is as follows:

Yank: Keep trying!

Briton: Change your doctor!

Aussie: Follow a special diet.

Indian: Practice Yoga!

Pinoy: LET ME TRY! (Boo Chanco’s e-mail address is [email protected])