CA wants arbitration on John Hay row

MANILA, Philippines - A dispute over alleged unpaid rentals on the former Camp John Hay in Baguio City must be settled through arbitration.

That is the Court of Appeals (CA)’s order to the   Bases Conversion and Development Authority (BCDA) and developer Camp John Hay Development Corporation (CJHDevCo).

Reporters obtained a copy of the 14-page decision yesterday.

The CA’s special 11th division had affirmed the order of Baguio  Regional Trial Court Branch 6 last July 2012 for BCDA to submit itself to arbitration on CJHDevCo’s allegations of   “fundamental and material breach” of agreement.

It also ordered the lifting of the writ of preliminary injunction issued by the trial court on April 27, 2012 stopping BCDA from taking control of the leased property.

In dismissing BCDA’s petition against the   order, the CA cited the Supreme Court (SC) policy to encourage arbitration as an alternative method of dispute resolution.

“Finally, the records of the case reveal that the factual allegations of the parties already refer to the merits of the controversy between them, which is the alleged breach of their RMOA (Restructuring Memorandum of Agreement),” read the CA decision.

“These issues are best threshed out in the appropriate arbitration proceedings. It bears emphasis that the parties, in this case, have been directed to submit their controversy to arbitration, with due stress on the policy of the Supreme Court to encourage arbitration as an alternative method of dispute resolution . . . (which) hastens solution, especially of commercial disputes.”

Associate Justice Victoria Isabel Paredes wrote the decision.

Associate Justices Isaias Dicdican and Agnes Reyes-Carpio concurred.

In 2012, CJHDevCo asked BCDA to settle their dispute involving the development of the 247-hectare John Hay Special Economic Zone (JHSEZ) in arbitration as provided under the lease agreement.

BCDA refused and demanded that CJHDevCo   surrender control over the leased property due to alleged “incurable material breaches” of their contract.

CJHDevCo then filed a complaint against BCDA before the Philippine Dispute Resolution Center (PDRC) for confirmation of the rescission of the RMOA and the amendment of certain provisions of the lease agreement.

BCDA and CJHDevCo entered into a lease agreement for the use, management and operation of the former camp in October 1996.

Chairman and chief executive officer Robert John Sobrepeña said CJHDevCo expected to subsequently receive the 247-hectare property, clean and free to commence development, together with the necessary Environment Compliance Certificate (ECC).

However, a dispute arose after the BCDA failed to handover “clean” possession of 32 hectares of the most suitable area for development of the 247-hectare leased property.

Despite the BCDA breaches, CJHDevCo paid another P425 million in lease payment in 1997.

Sobrepeña said that the ECC was released only in 1998  or two years after the date agreed upon.

Since the issues involving 32 hectares were only resolved in 2000, the BCDA and CJHDC agreed to enter into a RMOA in the same year.

However, the 1st RMOA remained ineffective since BCDA failed to secure a Commission on Audit (COA) approval from the newly-installed Arroyo administration.

A second RMOA was signed in 2003, which obliged CJHDC to pay P50 million in rental payments.

Several months after the signing of the second RMOA, the SC revoked the Special Economic Zone (SEZ) tax and fiscal incentives in Camp John Hay.

CJHDevCo was forced to suspend rental payments and prevented from proceeding with any further construction.

Following the SC ruling, then Baguio City Mayor Braulio Yaranon  revoked all building and development permits in Camp John Hay.

It resulted in the complete stoppage of all construction and development work.

Sobrepeña said it took five years before Congress partially restored the benefits of the John Hay Special Economic Zone.

CJHDevCo agreed to acknowledge the rental during the period BCDA was in default, on   condition that BCDA would guarantee a one-stop-action center to process and issue all permits within a 30-day period.

On July 1, 2008, BCDA and CJHDC entered into a compromise called the 3rd RMOA.

CJHDC agreed to several substantial concessions, including the assumption of prior rental obligations amounting to more than P2.69 billion and current annual rental of P150 million.

In consideration thereof, BCDA undertook to establish an effective mechanism to facilitate CJHDC development of Camp John Hay.

However, Sobrepeña said CJHDC was forced to exercise its legal right to suspend lease payments again under the 3rd RMOAin October 2009 after the BCDA failed to timely release the permits for its projects anew.

The BCDA then exerted all legal remedies to take over the subject property from CJHDevCO.