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G.R. No. 244461, September 28, 2021,
♦ Decision, Lopez, [J]
♦ Concurring Opinion, Leonen, [J]

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EN BANC

[ G.R. No. 244461. September 28, 2021 ]

PNOC - EXPLORATION CORPORATION, PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT.

CONCURRING OPINION

LEONEN, J.:

This case involves a Petition for Certiorari under Rule 64 which raised the issue of whether or not the Commission on Audit committed grave abuse of discretion by denying petitioner Philippine National Oil Company-Exploration Corporation's (PNOC-EC) request for concurrence, on the sole ground that it was done belatedly.

PNOC-EC executed two contracts for the purchase of steam coal with Wilson International Trading Private Limited (Wilson)—the "Sual Contract" covering the Sual Plant and the "Pagbilao Contract" for the Pagbilao plant.1

Arbitration proceedings arose after PNOC-EC allegedly refused to accept Wilson's coal delivery at the Pagbilao plant despite due notice.2 PNOC-EC countered that Wilson delivered the coal prematurely and that the National Power Corporation "had not confirmed the shipment window[.]"3 Further, it argued that Wilson's claim is "barred by a settlement agreement entered into by the Parties in or around October 2009, whereby the Parties agreed to cancel and/or terminate the Pagbilao contract and enter into a new contract for the re-sale of the cargo"4 at a lower price.

In the Petition for Certiorari, PNOC-EC summarized Wilson's claim:

Wilson claimed for recovery of alleged demurrage charges amounting to One Million Three Hundred Ninety Two Thousand Sixty Four and 53/100 US Dollars (USD 1,392,064.53) and alleged losses for selling its coal to PNOC-EC at a lower price of Seven Hundred Nineteen Thousand Two Hundred Ninety Three and 25/100 US Dollars (USD719,293.25), or a total claim of Two Million One Hundred Eleven Thousand Three Hundred Fifty Seven and 78/100 US Dollars (USD2,111,357.78), plus interest and costs, relative to the purported shipment of Indonesian steam coal to the National Power Corporation's (NPC) Pagbilao plant in 2009 pursuant to Wilson's Coal Supply Contract (CSA) No. S9068N dated 17 July 2009 with PNOC-EC.5

Clause XIV of Coal Supply Contract (CSA) No. S9068N between Wilson and PNOC-EC embodies the arbitration clause:

XIV ARBITRATION

a. The parties agree that in the event that there is any dispute, controversy, claim, or difference between them arising out of or relating to this Agreement, or the breach thereof, or in the interpretation of any of the provisions hereof, they shall meet and endeavor to resolve such dispute by discussion between them. Failing such resolution, the Chief Executives or [the] representatives of BUYER [PNOC-EC] and SELLER [Wilson] shall meet to resolve such dispute or difference. If the Chief Executives or their representatives are unable to resolve the dispute or difference within fourteen (14) days from their initial meeting, any and all such disputes, claims and controversies shall be settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC Rules).

b. The arbitration shall be conducted by a single arbitrator to be selected in accordance with the ICC Rules.

c. Unless otherwise agreed by the parties to the arbitration, the place of arbitration shall be in Singapore.

d. The arbitration shall be in the English language.

e. The arbitration award shall be final and binding upon the parties to the arbitration and Judgment thereon may be entered in any court having jurisdiction.

f. The laws of England shall govern the terms and conditions of this Agreement.6

When the Request for Arbitration was filed in 2010 by Wilson, the prevailing International Chamber of Commerce (ICC) Arbitration Rules was the 1998 ICC Rules. Article 5 of the 1998 ICC Arbitration Rules provides:

Article 5 - Answer to the Request; Counterclaims

1. Within 30 days from the receipt of the Request from the Secretariat, the Respondent shall file an Answer (the "Answer") which shall, inter alia, contain the following information:

a) its name in full, description and address;

b) its comments as to the nature and circumstances of the dispute giving rise to the claim(s);

c) its response to the relief sought;

d) any comments concerning the number of arbitrators and their choice in light of the Claimant's proposals and in accordance with the provisions of Articles 8, 9 and 10, and any nomination of an arbitrator required thereby; and

e) any comments as to the place of arbitration, the applicable rules of law and the language of the arbitration.

2. The Secretariat may grant the Respondent an extension of the time for filing the Answer, provided the application for such an extension contains the Respondent's comments concerning the number of arbitrators and their choice and, where required by Articles 8, 9 and 10, the nomination of an arbitrator. If the Respondent fails to do so the Court shall proceed in accordance with these Rules.7 (Emphasis supplied)

PNOC-EC received a copy of the Request for Arbitration on February 1, 2010.8 Its deadline for filing an Answer was 30 days from receipt of the Request for Arbitration, or on March 2, 2010.

On June 2, 2011, while arbitration was ongoing, PNOC-EC received Notice of Suspension (NS) No. PNOC-EC 2011-011.9 The Notice states under the column "Particulars and/or Requirements" that PNOC-EC should "submit COA's written concurrence as prescribed in COA Circular 86-255, amended by COA Circular 95-011."10

Commission on Audit Circular No. 86-255, dated April 2, 1986, as amended by Commission on Audit Circular No. 95-011, states:

Accordingly and pursuant to this Commission's exclusive authority to promulgate accounting and auditing rules and regulations, including for the prevention and disallowance of irregular, unnecessary, excessive, extravagant and/or unconscionable expenditure or uses of public funds and property (Sec. 2-2, Art. IX-D, Constitutional, public funds shall not be utilized for payment of the services of a private legal counsel or law firm to represent government agencies and instrumentalities, including government-owned or controlled corporations and local government units in court or to render legal services for them. In the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case maybe, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm. (Emphasis supplied)

On June 7, 2011, PNOC-EC responded by submitting to the Commission a request for "post-facto concurrence to the engagement of Baker Botts LLP considering the exigent circumstances present in PNOC-EC's situation."11 Attached to the request for concurrence was a certificate of availability of funds "for the settlement of legal fees of the arbitration case[.]"12

In its Request for Concurrence,13 PNOC-EC stated:

At the onset, and by the very nature of arbitration proceedings, it was clear that PNOC EC needed to immediately secure the services of a legal counsel who was highly experienced in arbitration before the International Court of Arbitration of the ICC, who was qualified to advise on English Law and qualified to practice law in Singapore. Even before PNOC EC could file its answer, said legal counsel needed to advise PNOC EC on Wilson's choice of arbitration, specifically on whether said choice could be relied upon to render a just and impartial decision. Hence, PNOC EC not only needed urgent advice from an experienced counsel on the possible choices of arbitrator but needed advice on what to expect from an arbitration under the ICC Rules where the governing law involved was not Philippine law but English law.

Within the tight thirty (30) day period given by the ICC, please note that PNOC EC had to prepare the necessary documentation for selection of a suitable legal counsel, look for possible candidates for the engagement, secure all necessary internal approvals, discuss the matter with and likewise secure approval of the OGCC, look for and decide on suitable candidates for an arbitrator, brief the legal counsel and get him up to speed on the facts of the case and then, finally, prepare and file an Answer or an Extension (with comments on the choice of arbitrator) with the ICC.

. . . .

As can be gleaned from the approval of the OGCC, the latter took into consideration the not so ordinary nature of arbitration proceedings, and the different kind of knowledge and experience required of a legal counsel to represent PNOC EC. By the OGCC's approval of the engagement of Baker Botts, it is therefore humbly submitted that PNOC EC's statutory counsel acknowledged and confirmed the necessity of hiring a private legal counsel because of the extraordinary nature and requirements of this arbitration proceeding in particular.

. . . .

Being placed in a situation where the Company was constrained to hire private counsel, and where time was of the essence in the hiring of such counsel, PNOC EC admittedly committed a misstep in not securing this Honorable Commission's concurrence to the OGCC's approval. However, and upon learning of this misstep, the Company immediately sought to rectify its error by writing this letter to the Honorable Commission.14

On October 4, 2011, the arbitral tribunal rendered an Award15 dismissing Wilson's .claim for damages and favoring PNOC-EC. However, the parties were adjudged to bear their own costs. They were also adjudged to pay the ICC administrative fees and the Tribunal's fees and expenses in equal proportions. The pertinent portion of the Award states:

16. AWARD AND FINDINGS

16.1 The Tribunal hereby Awards and Adjudges as follows:

(a) that the Claimant's claim for damages for breach of contract be and is hereby dismissed;

(b) that each party bear and pay its own legal fees in this arbitration;

(c) that both Parties bear in equal proportions the ICC administrative expenses and the fees and expenses of the Tribunal amounting to US$92,000; and

(d) that all other claims are dismissed.16

On August 24, 2012, the Commission on Audit denied PNOC-EC's request for concurrence on the ground that "the request was made not prior to the hiring of the private counsel as required under COA Circular No. 86-255 as amended by COA Circular No. 95-011."17

On September 21, 2012, PNOC-EC filed a Motion for Reconsideration which was denied by the Commission in a November 23, 2015 Decision.18 The Decision stated that the Notice of Suspension was issued "for lack of the requisite written concurrence of the COA in the hiring of Baker Botts LLP as legal counsel of PNOC-EC as required under COA Circular Nos. 86-255 and 95-011 dated April 2, 1986 and December 4, 1995, respectively."19

On February 5, 2016, PNOC-EC filed another Motion for Reconsideration explaining why it inadvertently failed to obtain the Commission's concurrence "before engaging the services of Baker Botts LLP as private counsel."20

On February 6, 2019, the Commission on Audit En Banc issued Notice No. 2019-018 denying PNOC-EC's second Motion for Reconsideration. A copy of the Notice was received by PNOC-EC on February 19, 201921 prompting it to file a Petition for Certiorari under Rule 64 before this Court.

PNOC-EC's belated request for the Commission on Audit's written concurrence may have been a misstep but the circumstances of this case left PNOC-EC with no other choice but to act quickly to protect its interests and that of the government.

I

Through a February 10, 2010 letter, PNOC-EC informed the Office of the Government Corporate Counsel (OGCC) of the Request for Arbitration.1aшphi122 In the same letter, it requested for assistance from the OGCC or in the alternative, to hire "the services of a private law firm with extensive experience in arbitration under the ICC Rules, qualified to practice law in Singapore and well versed in English law[.]"23

Subsequently, PNOC-EC informed the OGCC24 of proposals it received from various law firms and recommended Baker Botts LLP.25 Through a February 23, 2010 letter, PNOC-EC submitted to the OGCC an engagement letter from Baker Botts LLP.26

PNOC-EC received the OGCC's approval to engage Baker Botts LLP on March 12, 2010,27 or after the deadline to submit an Answer to the Request for Arbitration.

Waiting for the concurrence of the OGCC and the Commission up until the deadline to submit an Answer to the Request for Arbitration would have been time-consuming and might have resulted in an unfavorable arbitral award against PNOC-EC.

While PNOC-EC may partly be at fault for not immediately requesting for a written concurrence, it should be noted that the Commission's denial of the request was issued more than a year after it was filed. Though it cannot be said with certainty how long it would have taken for the Commission to issue its concurrence had the request been filed prior to engaging the services of Baker Botts LLP, the number of months it took for the Commission to deny the request tells us of the possibility that the Commission itself might not have been able to give its written concurrence within the 30-day period for PNOC-EC to file its Answer.

II

I am aware of my ponencia in Laguesma v. Commission on Audit,28 but there is a stark difference between labor cases and international arbitration. In Laguesma, Clark Development Corporation engaged the services of a private counsel to handle several labor cases, without the concurrence of the OGCC and the Commission on Audit. As held in Laguesma:

The labor cases petitioner handled were not of a complicated or peculiar nature that could justify the hiring of a known expert in the field. On the contrary, these appear to be standard labor cases of illegal dismissal and collective bargaining agreement negotiations, which Clark Development Corporation's lawyers or the Office of the Government Corporate Counsel could have handled.

. . . .

The cases that the private counsel was asked to manage are not beyond the range of reasonable competence expected from the Office of the Government Corporate Counsel. Certainly, the issues do not appear to be complex or of substantial national interest to merit additional counsel. Even so, there was no showing that the delays in the approval also were due to circumstances not attributable to petitioner nor was there a clear showing that there was unreasonable delay in any action of the approving authorities. Rather, it appears that the procurement of the proper authorizations was mere afterthought.29 (Citations omitted)

On the other hand, the arbitration clause between Wilson and PNOC-EC itself indicates the extraordinary circumstance that justifies the engagement of an external counsel. In this case, the place of arbitration was Singapore and the law of the contract was English law. Hence, counsel for the arbitration proceedings needed to be someone authorized to practice law in Singapore and knowledgeable on English law.

In addition, 30 days was a short period for PNOC-EC to request for concurrence, search for external counsel, and prepare for the submission of its Answer before the ICC.

III

There is no hard and fast rule as to what may constitute extraordinary or exceptional circumstances. A case may be considered extraordinary or exceptional under these rules if, for example, its prosecution requires specialized technical expertise to assist the government's lawyers. For this reason, the government has, from time to time, employed legal experts from the private sector to assist the country in various international litigations.

In Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia v. Malaysia),30 the country entered an application for permission to intervene with the International Court of Justice to assert its claim over North Borneo, now known as Sabah. In its application, the country's legal team was assisted by Professor W. Michael Reisman of Yale Law School and Professor Peter Payoyo of the University of the Philippines.

In SGS Société Générale de Surveillance S.A. v. Republic of the Philippines,31 involving a dispute over a service agreement before the International Centre for Settlement of Investment Disputes, the Office of the Solicitor General was assisted by the firm of Allen & Overy, London, and Professor Christopher Greenwood of London.

The country also employed private counsels in the arbitration proceedings over the construction of Ninoy Aquino International Airport Terminal 3. In Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines,32 the country employed the assistance of the law firm of Siguion Reyna, Montecillo & Ongsiako, former Justice Florentino P. Feliciano, and the Washington, D.C. firm of White & Case in the original proceedings, while the firm of Sycip Salazar Hernandez & Gatmaitan, former Justice Florentino P. Feliciano, and the Washington, D.C. firm of White & Case assisted in the annulment proceedings.33

In The Republic of the Philippines v. The People's Republic of China,34 the country hired Paul S. Reichler and Lawrence H. Martin of Foley Hoag LLP Washington DC, Professor Bernard H. Oxman of the University of Miami School of Law, Professor Philippe Sands QC of the Matrix Chambers, London, and Professor Alan Boyle of the Essex Court Chambers, London, as its legal team before the Permanent Court of Arbitration to assist in our territorial claims over the islands in the West Philippine Sea.

IV

Arbitration is a private dispute resolution process which is based on the contract between the parties. When PNOC-EC and Wilson executed the Pagbilao contract, both parties committed to resolve any dispute arising out of or in relation to the Pagbilao contract through arbitration. Unless and until the arbitration clause is declared void, PNOC-EC is bound by it and cannot opt out of it without the consent of the other party.

Arbitration has rigid timelines that must be observed by the parties. Non-compliance with the procedural timeline in an ongoing arbitration may lead one party who has a valid claim to lose the case. Unlike in regular courts, PNOC-EC could not have simply filed before the arbitral tribunal a motion for extension of time to file its Answer on the ground that it has to wait for the Commission on Audit's written concurrence before it can engage the services of a law firm.

There are times when an isolated and hermeneutically-sealed interpretation of an administrative period, devoid from the reality of the pace of arbitration, can become unreasonable and disadvantageous for the government. Without considering the totality of circumstances in this case, we exacerbate the injury suffered by our government by denying legal representation in international arbitration simply because of a time period.

Transnational private companies continue to have disproportionate advantage in terms of their managerial decisions. They have the flexibility to attend to the circumstances so that their strategies are executed with efficiency and with the least cost. Government, and even government-owned and controlled corporations, suffer the bane of rigidity and inflexibility of rules and regulations.

We should take cognizance of how arbitral proceedings work and consider such reality in the application and interpretation of existing laws. To rule otherwise would lead to an absurd situation where government officials are held liable for doing the best they can to protect the government's interests.

V

The issuance of Commission on Audit Circular No. 2021-003 shows that the Commission has recognized the existence of situations where time is not on the side of the government.

This is embodied in the circular's purpose "to avoid unnecessary delay in the hiring of a private lawyer or legal retainer to address the urgent need for legal services in national government agencies and GOCCs under extraordinary or exceptional circumstances, and improve efficiency in government operations."35 The circular explains:

The purpose for requiring the written conformity of the OSG or the OGCC prior to the engagement of private lawyers or of legal consultants is to confirm the necessity of such engagement by the government agency or GOCC concerned, while the purpose for requiring COA's written concurrence is to ensure the reasonableness of the amount of legal fees.

In compliance with the abovementioned COA rules and regulations, this Commission has received numerous requests for written concurrence in the engagement of (1) lawyers under contracts of service or job order contracts; and (2) legal consultants from various government agencies and GOCCs due to absence or lack of plantilla positions to meet their legal requirements or the specific legal services not being covered by the provided by the OSG or the OGCC.

However, the reasonableness of the amount of legal fees in the engagement of lawyers under contract of service or job order contract and legal consultants may be guaranteed by safeguards other than the requisite COA's written concurrence; hence, there is a need to revisit such requirement.36

In this case, it appears that the reason for the Notice of Suspension is the lack of written concurrence from the Commission on Audit. There was no definitive finding on the reasonableness of the legal fees paid, or in the alternative, whether the principle of quantum meruit can be applied. As recognized in the ponencia, it would be more prudent to remand this case for the Commission to determine "the propriety of exempting PNOC-EC from the written concurrence requirement[.]"37

ACCORDINGLY, I concur.

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Footnotes

1 Petition, p. 121, ICC Arbitral Award.

2 Id. at 130.

3 Id. at 112.

4 Id.

5 Id. at 6.

6 Id. at 6-7.

7 1998 Rules of Arbitration of the International Chamber of Commerce.

8 Petition, p. 6.

9 Id. at 8.

10 Id. at 54, COA Notice of Suspension.

11 Id. at 9.

12 Id. at 32, COA Decision No. 2015-281.

13 Request for Concurrence to the Approval by Office of the Government Corporate Counsel of the Engagement by PNOC Exploration Corporation of Private Counsel in Arbitration Proceedings before the ICC International Court of Arbitration (Singapore).

14 Petition, p. 44-46, Request for Concurrence.

15 Id. at 102-200, ICC Award.

16 Id. at 200.

17 Id. at 9.

18 Id.

19 Id. at 31, COA Decision No. 2015-281 dated November 23, 2015.

20 Id. at 9.

21 Id.

22 Id. at 62.

23 Id. at 64.

24 Id. at 66, Letter dated February 16, 2010.

25 Id. at 66-67.

26 Id. at 68-69.

27 Id. at 70-71.

28 750 Phil. 258 (2015) [Per J. Leonen, En Banc].

29 Id. at 280-281.

30 Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/Malaysia), Application, for Permission to Intervene, 2001 I. C. J. 575 (October 23, 2001).

31 SGS Societe Generate de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6 (December 17, 2007).

32 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25 (August 16, 2007).

33 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25 (August 16, 2007), Decision on the Application for Annulment dated December 23, 2010.

34 South China Sea Arbitration (Philippines v. China), PCA Case No. 2013-19 (July 12, 2016), (Last accessed on September 28, 2021).

35 Commission on Audit Circular No. 2021-003, dated July 16, 2021.

36 Commission on Audit Circular No. 2021-003, dated July 16, 2021, sec. 1.0.

37 Ponencia, p. 9.

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