Legal points

Late last month, the Supreme Court, deciding en banc, upheld the legality of the P65-billion Light Rail Transit (LRT) Line 1 Extension project from Baclaran to Bacoor, Cavite.

The SC denied a petition filed by Bagong Alyansang Makabayan, et.al. questioning the legality of the concession agreement for the Manila LRT-1 Extension project.

On Sept. 12, 2014, the then Department of Transportation and Communications (DOTC) and Light Rail Transit Authority (LRTA) executed the assailed concession agreement with the Light Rail Manila Consortium (LRMC), composed of the Metro Pacific Rail Corp., Ayala Corp.’s AC Infrastructure Holdings Corp. and the Philippine Investment Alliance for Infrastructure’s Macquarie Infrastructure Holdings Pte Ltd., to construct the LRT Line 1 extension and operate and maintain it for 32 years.

The petitioners claimed that the concession agreement was unconstitutional and detrimental to the Filipino people.

They asked the High Court to declare the agreement null and void based on a number of grounds.

One of the issues raised was the grant to the concessionaire of the right to periodically adjust the LRT fare without notice and hearing as required under the Public Service Act (PSA).

Another is that the DOTC and LRTA did not have the authority to enter into the agreement. They insisted that the concession agreement is essentially a public utility franchise which can only be granted by Congress. With respect to the construction and maintenance of a light rail system, petitioners maintained that the franchise or authority was granted to LRTA through Executive Order 603 which contains no provision allowing it to delegate its function to another entity.

They also noted that the powers and functions over railways of the DOTC, now Department of Transportation (DOTr), do not include the authority to grant a franchise for the LRT’s construction, operation and maintenance.

They likewise claimed that the grantors assumed substantial financial risks equating to unconscionable financial guarantees in favor of the concessionaire. They also assailed the grantor’s assumption of real property tax liabilities for the rail project assets.

The petitioners emphasized that all these financial guarantees constitute government subsidies which effectively render useless the Build-Operate-Transfer (BOT) Law’s objective.

It was pointed out that the grantors’ financial guarantees and the parties’ failure to conduct public hearings prior to a fare increase confirm that the concession agreement unjustly enriches the concessionaire, to the prejudice of the government and ultimately, the taxpayers.

The High Court’s ruling is instructional on a number of points.

Here, the Court noted that certiorari and prohibition are remedies which may be used to question acts of the executive and legislative departments and that these special civil actions may be used to assail acts of any branch or instrumentality of the government, even if the latter does not exercise judicial, quasi-judicial, or ministerial functions. Thus, the petitioners’ resort to a petition for certiorari and prohibition to assail the validity of the concession agreement was proper, it said.

On the issue of petitioners’ legal standing to sue, the SC held that it has acted on cases filed by litigants who have no personal or substantial interest in the challenged governmental act but whose petitions nevertheless raise constitutional issues of critical significance.

Here, the issues raised are of transcendental importance warranting the relaxation of the rule on legal standing, it said.

On the question of whether the concession agreement’s provision on the periodic adjustment of LRT fares violates the public’s right to due process since the notional and approved fares may be adjusted without complying with the notice and hearing requirements under the PSA, however, the Court held that such argument is unavailing.

It explained that the concession agreement does not violate the public’s right to due process since it merely provides for a mechanism through which the concessionaire may apply for an increase of the LRT fare and any increase shall still be subject to the grantors’ approval, which in turn are required to comply with the notice and hearing requirements.

The Court emphasized that as correctly argued by LRMC, the adjustment of the approved fare is not automatic and requires authorization from the grantors, who in turn, are obligated to obtain the relevant consents for such adjustment and to comply with various statutory requirements, including the notice and hearing requirements under the PSA and the Administrative Code.

Meanwhile, on the issue of a provision in the agreement which provides that the liability to pay the real property tax on rail project assets falls on the grantors, the SC said that petitioners failed to establish that the grantors assumption of the liability to pay the taxes was illegal or contrary to public policy.

Here, the petitioners also claimed that the grantors’ financial obligations, which include the assumption of the real property tax, are considered government subsidies that would render useless the BOT Law’s objective. They relied on the Court’s ruling in the Piatco case where the latter held that the agreements contained provisions obligating to pay the lenders of Piatco should it default on its loans, which are considered direct government guarantees prohibited by the BOT Law.

However, in the present case, the SC distinguished between the Piatco case which emanated from an unsolicited proposal for the development of NAIA Terminal 3 and the LRT-1 extension concession agreement which pertains to a priority infrastructure project of the government.

It said that while the NAIA T3 agreement contained stipulations on direct government guarantee, the one involving LRT-1 extension does not involve such direct guarantees.

The Court also noted that unlike in unsolicited proposals where there is an express prohibition against direct government guarantee, subsidy, or equity, agreements covering priority infrastructure projects may contain stipulations on direct government subsidy. It said that the BOT Law implementing rules even provide that among the supports or contributions which government may extend to solicited projects are direct government subsidies.

The SC likewise held in this case that congressional approval or franchise is not a prerequisite for the execution of the LRT-1 extension concession agreement.

It explained that while the grant of authority to operate a public utility is a prerogative generally belonging to the legislature, this power can be delegated to administrative agencies and one such agencies is the DOTr.

The Court said that EO 125-A grants to the DOTr the power to issue certificates of public convenience for the operation of public land and rail transportation utilities and services and this authority of the department was granted through the concession agreement with LRMC. Therefore, the agreement was validly executed notwithstanding the absence of a legislative franchise, it noted.

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