Pyrrhic victory

The recent decision of the arbitration tribunal for the rescission of the memorandum of agreement between the Bases Conversion and Development Authority (BCDA) and Camp John Hay Development Corp. of the Sobrepena group should be a sad day for our government.

After all, it is a setback to President Aquino’s flagship program, the public-private partnership (PPP) program.

The 274-page final decision of the three-man arbitration tribunal, headed by Mario Valderrama, ordered the rescission of the 1999 MOA between lessor BCDA and the lessee, that the lessee return Camp John Hay Special Economic Zone (CJHSEZ) to the lessor, including all improvements made by Sobrepena’s group worth around P5 billion, and that the BCDA pay in full P1.42-billion representing damages based on rental payments since 1996.

And due to BCDA’s breach of contract involving failure to comply with its obligations under the MOA and the several revisions to the original MOA, the arbitration tribunal denied BCDA’s claim for P3.3 billion in back rentals from CJHDevCo.

According to CJHDevCo, it will abide by the arbitral award and will cooperate with BCDA for a peaceful transition, provided that the award is confirmed by the Baguio Regional Trial Court, and that the P1.42 billion has been received in full by the private developer.

BCDA chief Arnel Paciano Casanova, on the other hand, was quick to trumpet government’s victory in the legal battle, and seemed oblivious to the fact that this is not a “victory” but a “loss.”

Despite the fact that there is no writ of execution yet from the Baguio RTC and that BCDA has not paid the P1.42-billion arbitral award in full, Casanova quickly ordered its private partner to vacate CJHSEZ and for the zone’s locators to ignore CJHSEZ and to transact business only with the BCDA.

For a government official under an administration that trumpets its recognition of the rule of law, and a lawyer at that, Casanova seems to have forgotten about due process and the need to wait until the court issues a writ of execution before any court decision or arbitral award for that matter can be implemented. 

There are so many losers in this ruling by the arbitration tribunal that it leaves a bad taste in the mouth the way Casanova has been acting.

For instance, Baguio City is at a loss as to how to collect its overdue 25 percent share of all JHSEZ rentals paid to government.

Another loser would be the Armed Forces of the Philippines, because after all, part of the proceeds of privatization of the former American military bases and facilities should go to the AFP’s modernization program.

Then, of course, there is the setback to the PPP program. Had the BCDA, under Casanova’s watch, been more investor-friendly, then none of this would have happened.

 CJHDevCo chairman Robert John Sobrepeña said they feel vindicated by the arbitration tribunal when the latter upheld the company’s position that CJHDevCo does not owe P3.3 billion in back rentals to the BCDA. Instead, it was the finding of the tribunal that it is BCDA which now owes P1.42 billion as reimbursement for rental payments since 1996. 

Sobrepeña, at the same time, assured CJHDevCo’s locators of continued protection as they have acquired CJH sub-leases in good faith, even as the expressed the hope that the BCDA would sustain CJHDevCo’s vision for the JHSEZ to become the “leading eco-tourism destination in Northern Luzon” and continue nurturing the almost half-million pine trees that CJHDevCo has taken good care of in the course of its almost two-decade stewardship.

CJHDevCo EVP/COO Alfredo Yñiguez III traced his firm’s major rift with its lessor to the latter’s breaches in the 2008 RMOA, specifically the non-establishment of the One-Stop Action Center (OSAC), which eventually undermined the developer’s capability to generate revenues from its CJH operations. 

The sole condition in the 2008 RMOA, he said, was the establishment of the OSAC to facilitate the 30-day release of permits.

 But this did not happen, he added, so without permits, there was no development, which meant there was “no revenue.”

Although financial losses from the OSAC non-compliance could not be quantified, Yñiguez said the amount is higher than the 2008 estimate of P250 million. 

There are 15 existing projects, including the CJH Suites, requiring various permits that the promised OSAC was supposed to process in a month’s time but which remains pending till now, he added. 

As of 2012, CJHDevco already completed 90 construction projects and was finishing another nine projects in its leased area. These 90 completed projects include the Camp John Manor Hotel, Golf Clubhouse, CAP Convention Center, luxury log homes and forest cabins, a new main gate, a filling station of the Eco-Village, and two buildings of the Ayala Technohub. 

CJHDevCo filed its arbitration complaint before the PDRCI as a last resort after Casanova and the BCDA had ignored the lessee’s request for its lessor to convene the joint BCDA-CJHDevCo committee that is supposed to tackle and settle disputes over MOA/RMOA provisions. 

This developer had sought PDRCI’s confirmation of the validity of CJHDevCo’s January 9, 2012 decision to rescind its 2008 RMOA with the BCDA arising from the lessor’s “failures and breaches,” including non-compliance with its revised MOA obligation to immediately establish the OSAC. 

CJHDevCo, in its submission said that if reformation is impossible, Original Lease Agreement should be deemed rescinded, and that respondent (BCDA) pay claimant actual damages.

In its Feb. 11 decision, the PDRCI arbitral tribunal said: “It is undeniable that the One-Stop Action Center (OSAC), which the BCDA claims to have established in compliance with the 2008 restructured memorandum of agreement (RMOA), was unable to perform its warranties. For one, the OSAC was manifestly not fully authorized to process and issue developmental permits, such as tree-cutting, earth balling, and tree-pruning permits.”

This panel further said that the BCDA had failed to issue business permits even after the signing of this RMOA in 2008.

CJHDevCo has found an ally in Baguio City Mayor Mauricio Domogan who was quoted last week as saying that the lessee cannot be booted out yet without a court confirmation of the PDRCI ruling. After all, CJHDevCO still had legal options.

Even the BCDA does not consider this controversy a closed case because its lawyers are still looking at the option of contesting the PDRCI panel’s order for the lessor to return CJHDevCo’s P1.42-billion rentals.

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