(Article published in the Oct 20,2003 issue of TODAY, Business Section)
A number of people
who were not distracted by attributions of wrong doing on the part of
Gloria Tan Climaco and unsavory references to the law firm of Villaraza
and Angangco, were nevertheless perplexed with the news that Fraport AG
Frankfurt Airport Services Worldwide (Fraport) had, in a letter last
month, requested arbitration by the World Bankís International Centre
for Settlement of Investment Disputes (ICSID) of its dispute with the
Philippine government over its investments in the Philippine International
Air Terminal Co., Inc. (PIATCO).
World Bank has an arbitration center? A mere letter was used to lodge the
request? Can the Philippines, a sovereign state, dragged into
arbitration by a private entity? For those who wish to understand
the legal framework of what will undoubtedly hug the headlines for many
days to come, here are some facts and figures as well as unsolicited
comments and observations.
was not just a letter, as we generally under what a letter is, but instead
a formal 35-page (exclusive of cover and attachments) request for
arbitration, replete with lawyerly prose and ringing with media manís
spin, that was lodged with the ICSID. The ICSID, on the other hand,
is not a department, a subsidiary, or a part of the World Bank. It
is an autonomous body established under an international convention, but,
undoubtedly, it has strong links with the World Bank.
1966, the World Bank and its President have often been asked to assist,
and have in fact assisted, in the settlement of disputes among the
bankís member countries, on the one hand, and nationals of other member
countries, on the other regarding the investments of the latter in the
former. One of the major reasons for the establishment of the ICSID
is to enable the World Bank and its staff avoid being involved in such
after a number of consultations with member countries, the executive
directors of the World Bank submitted, on March 18, 1965, for
consideration and eventual signature and ratification of, a convention, or
a multinational agreement, that would provide facilities for conciliation
and arbitration of investment disputes between a contracting state and the
nationals of another contracting state. The convention, establishing
the ICSID, was ratified, initially, by 20 countries and thus entered into
force on October 14, 1966. Other countries since then have ratified
the convention and by December 15, 2002, 136 countries have become
Philippines signed the convention September 26, 1978. It deposited
the instrument of ratification on November 17, 1978, and the entry into
force of the convention, with respect to the Philippines, was one month
thereafter. Germany, of which Fraport is a national, signed on
January 27, 1966; deposited ratification on
April 18, 1969 and was bound on May 18, 1969.
25(1) of the Convention describes the jurisdiction of the centre as
extending to any legal dispute arising directly out of an investment,
between a contracting state and a national of another contracting state
which the parties consent in writing to submit to the centre. Hence,
voluntary submission is a key to invoking the involvement of the centre in
the resolution of the dispute.
rules are loose about the existence of consent. For instance,
consent may be given in an investment agreement providing for the
submission to the centre of future disputes arising out of that investment
agreement. The consent need not be made in a single instrument.
The offer to submit disputes to the centre may be made in an investment
promotion legislation of a contracting party and the consent of the
investor of another country may be made by an acceptance in writing.
Fraportís request for arbitration, the German company invokes Article 9
of the Agreement between the Republic of the Philippines and the Federal
Republic of Germany for the Promotion and Reciprocal Protection of
Investments. Section (2) provides that, in case divergencies are not
resovled amicably through negotiations, the investor may submit the
dispute to (a) the competent court of the contracting state; (b) the ICSID.
Curiosly, the Section does not say whether it is (a) and (b) or whether it
is (a) or (b).
its own consent, Fraport submits its own request for arbitration as
manifestation of its consent. That is why in the opening paragraph
of Fraportís request for arbitration, it states that it ďhereby
accepts the offer of the Republic of the PhilippinesĒ for arbitration in
the centre of its legal dispute.
Office of the Solicitor General is reported to have stated that it intends
to block the arbitration and it will be interesting to watch how the
governmentís counsel would argue that the Philippines has not given its
consent to submit to the ICSID. That position will impact not only
this case of Fraport but also the way the international community would
look at stipulations may be the Philippine government in other agreements
where it has agreed to have disputes submitted to the decision of third
other interesting development to watch is how the Philippines would treat
an arbitral award, for or against it. Article 53 of the convention
provides that the award is to be considered binding on the parties and
Article 54 binds the contracting state to recognize an award as binding
and enforce the pecuniary obligation within its boundaries as if it were a
final judgment of a court in that state. Article 54(3) provides that
execution of the award shall be governed by the laws concerning the
execution of judgments in force in the state in whose territories such
execution is sought. But what if, in the contracting state,
judgments cannot be executed against the government?
seems that, in many cases, the sought after result of submitting a case to
the ICSID is to bring the contracting state to the negotiating table.
Thus, about 40 percent of the cases concluded at the ICSID from 1976 to
2003 ended with the termination of the proceedings on account of the
settlement between the parties. This explains, in my view, the
show-biz tenor in which the Fraport complaint makes references to Gloria
Tan Climaco and Pancho Villaraza.
It could be Fraportís thinking, and I am definitely speculating here, that targeting personalities close to the President would be perceived as a shot across the bow, a warning shot that speaks both a resolve to go to war and at the same time a signal that doors to peace are not yet closed. For the good of the country, I hope that Fraportís suit goes the way of the 40 percent of ICSIDís casesóand as soon as possible, too.