Sanctity of contracts

How can our country attract foreign investments if our government can’t even honor contracts it has entered into with these investors?

Take the case of TMA, an Australian thermal paper manufacturing company which in 2009 entered into a contractual joint venture agreement under which the Philippine Charity Sweepstakes Office (PCSO) agreed to exclusively obtain its paper and other specialized paper products and consumables requirements from TMA for a period of 25 years.

TMA is Australia’s leading ticket manufacturer, providing integrated solutions and manufactured products to the parking, venue, airline, transit, gaming, retail, security and specialist label industry sectors in Australia, New Zealand and the Asia-Pacific region. It supplies baggage tags, boarding passes, among others to all national and international carriers in Australia and New Zealand.

In 2013, it put up a multi-billion peso thermal paper plant in Laguna. Back then, there were reports that TMA was pulling out of China and plans to relocate to the Philippines as its regional hub for AsPac. It is the only thermal paper plant in the country using high-tech machinery while other local suppliers have to import thermal paper being utilized by government agencies, airlines and other private firms.

The Laguna plant supplies its more than 2,800 customers all over the AsPac region. Among TMA’s customers are Qantas, Virgin Airlines, Hongkong Jockey Club and China Lotteries. Some of the Philippines’ airline companies are getting their paper requirements from TMA Philippines, which is also about to sign an agreement with one of the country’s biggest mall operators for its parking ticket requirement.

Prior to and after its execution, the agreement between PCSO and TMA was reviewed and approved by the Office of the Government Corporate Counsel (OGCC) and was found to be valid and legal.

When former PCSO head Margie Juico took over office in 2010, she unilaterally suspended the agreement. As a result, TMA filed a case before the Regional Trial Court of Makati, which issued in 2011 a writ of preliminary injunction ordering PCSO and its directors to immediately lift the suspension on the implementation of the agreement between PCSO and TMA and to resume its implementation, and to cease and desist from performing any act that will lead to the cancellation of the JVA and commit any act that would nullify in effect the agreement, including but not limited to the conduct of any bidding for its lotto paper requirements. The said injunction was sustained by the Court of Appeals.

The Makati RTC, in 2016, reiterated the tenor of its injunction and advised PCSO that it is precluded from doing anything that would violate the agreement with TMA, which includes the act of obtaining its gaming/lotto paper requirements from the National Printing Office, Bangko Sentral ng Pilipinas, APO Production Unit, or any other entity except TMA.

Last December, the Makati RTC reminded PCSO that the preliminary mandatory injunction ordered in 2011 was made permanent last December 2017 and that the procurement of lotto papers and any other gaming paper consumables from any other suppliers except TMA is prohibited and in disregard of the orders of the court.

The RTC’s latest ruling was in answer to a motion filed by TMA where it informed the court that PCSO was attempting to procure lotto paper from other suppliers through an emergency purchase and eventually through a bidding.  TMA emphasized that there was no emergency to speak of since PCSO can obtain lotto paper anytime from the company.

Despite said orders from the RTC and the CA, PCSO still refused to get its requirements from TMA and instead secured them from other entities, forcing TMA to file contempt charges against PCSO officers and directors.

One remedy undertaken by TMA was to constructively deliver lotto paper to PCSO amounting to P707 million. The court granted TMA’s motion for execution for the garnishment of PCSO’s funds and the company was in fact able to obtain the P707 million. TMA officials said they actually delivered one truckload of paper to PCSO but the latter refused to accept it.

In November 2018, PCSO chairman Anselmo Pinili, in a letter to Malacañang, said the joint venture agreement with TMA deserves to be declared invalid since its provisions are clearly outside the agency’s mandate. It claimed among others that lotto papers were overpriced and that the agreement with TMA was not approved by NEDA.

Pinili said that since PCSO’s current lotto paper supply will only last an estimated 55 days, the PCSO board is inclined to terminate settlement negotiations with TMA and to procure its paper requirements from other suppliers through public bidding.

In two letters dated Jan. 8 and March 13 this year, TMA reminded Pinili and the other board members and officers of the injunction orders issued by the courts which prohibited PCSO from sourcing its lotto and gaming paper requirements from entities other than TMA.

TMA’s lawyers said the company is willing and able to deliver PCSO’s lotto paper requirements at any time since TMA has in fact manufactured millions of thermal rolls and bet slips pursuant to the joint venture agreement, currently stored in its warehouse in Laguna.

Inspite of this, sources revealed that Pinili has written Malacanang informing it of his intention to purchase its paper requirements from other suppliers at a cheaper price through public bidding.

It was also learned that PCSO has entered into a negotiated purchase with the APO Production Unit for two months’ supply of thermal paper and betting slips at P220 per thermal roll and 27 centavos per betting slip.

In an effort to put an end to years of dispute with PCSO, TMA offered to just match the price offered by APO, although PCSO is legally required to exclusively obtain its requirements from TMA. PCSO reportedly did not respond to said offer.

Lately, TMA learned that in addition to the purchase orders issued to APO, PCSO is in the process of sourcing out its six months’ worth of lotto paper requirements from other suppliers.

In their March 13 letter, TMA’s lawyers warned PCSO’s bids and awards committee that any procurement and/or bidding of PCSO’s lotto and gaming paper requirements not only violates the joint venture agreement but also RA 6713 or the Code of Conduct and Ethical Standards for Public Officials.

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