G.R. No. 86603 - Active Wood Products Co., Inc. vs. Court of Appeals

Case Summary (G.R. No. 86603)

Factual Background: The Investment and Licensing Agreements

The factual setting was anchored on long-term casino resort investments by respondents and PAGCOR’s corresponding grant of casino operation authority through multiple agreements. Under Section 3(h) of P.D. No. 1869, PAGCOR had authority to enter into contracts “necessary, appropriate, proper or incidental” to its business, including investment agreements.

On November 9, 2004, ERI, together with its foreign principal International Thunderbird Gaming Corporation of Canada (Thunderbird), entered into a Memorandum of Agreement (MOA) with PAGCOR for investments in Fiesta Hotel and Casino (FHC) in Eastbay Arts Recreational and Tourism Zone, Binangonan, Rizal. To secure ERI’s compliance, the initial investment amount was placed in escrow. PAGCOR granted a six-month provisional authority to operate (ATO), but retained an option to revoke or terminate the ATO upon material default, legal or rule violations, failure to remedy within thirty (30) days, bankruptcy, or other analogous circumstances.

On May 19, 2005, PAGCOR executed a further agreement granting ERI and Thunderbird a permanent ATO co-terminus with PAGCOR’s franchise, or up to July 11, 2008. On January 18, 2006, an Addendum to the Agreement required ERI and Thunderbird to invest P2.5 Billion (US$31.2 Million) more for Phases 1–2 over seven years ending in 2012, contingent on PAGCOR receiving a new franchise or having its franchise extended beyond July 11, 2008, PAGCOR’s authority to license casinos in special economic zones being within the scope of that new or extended franchise, and PAGCOR granting ERI and Thunderbird extension of the ATO.

For another project, on April 11, 2006, PAGCOR and Thunderbird Pilipinas Hotel and Resorts, Inc. (a newly formed local affiliate now representing the foreign principal) entered into a MOA for investments in Fiesta Casino and Resort (FCR) in Poro Point Special Economic and Freeport Zone, San Fernando City, La Union. Thunderbird Pilipinas committed to invest US$100 Million or P5.2 Billion, with initial escrowed investment for Phase 1 and a six-month provisional ATO. Since completion investments extended beyond July 11, 2008, additional investments beyond that date were again conditioned on the issuance or extension of PAGCOR’s franchise and PAGCOR’s corresponding power to grant casino licenses in special economic zones, together with PAGCOR’s grant of extension of authority to operate.

On October 31, 2006, the parties executed an Amendment to the MOA. Thunderbird Pilipinas undertook to issue a corporate guarantee to fund, develop, and complete the FCR. If it failed, it would cede and transfer its shares in FCR to PAGCOR and lose its casino license. PAGCOR granted an ATO for FCR up to July 11, 2008, but extendible thereafter, expressly making the agreement effective from the date of execution and co-terminus with PAGCOR’s charter or until July 11, 2008, with the MOA being extendible if PAGCOR’s franchise was renewed or extended beyond that date and if PAGCOR’s authority to license casinos in special economic zones remained within the scope of the new franchise or extension.

An accompanying License dated October 31, 2006 likewise reflected the idea that Thunderbird Pilipinas’s casino authority would be co-terminus with PAGCOR’s charter or until July 11, 2008, extendible if PAGCOR’s authority to issue licenses was extended. Respondents later sought formal extension of their ATOs to match PAGCOR’s new franchise introduced by R.A. No. 9487 and concomitant extension of their development and investment schedules.

Subsequent Events: Expiration, Renewal Instruments, and Dispute

After the expiration of respondents’ previous ATOs, PAGCOR’s Board approved, on August 7, 2009, a retroactive month-to-month extension of respondents’ licenses from July 11, 2008, and a franchise extension of five years effective August 6, 2009. PAGCOR also extended ERI’s investment timetable to July 2015 and Thunderbird Pilipinas’s timetable to 2021. Respondents accepted these developments, but their expectations were later disappointed.

On December 11 and 21, 2009, PAGCOR sent ERI and Thunderbird Pilipinas separate blank renewal ATOs, each bearing a term of only six months retroactive to July 12, 2008. Respondents refused to accept the blank instruments, reiterating in correspondence that, under their MOAs, their ATOs were supposed to be co-terminus with PAGCOR’s new charter. They emphasized the size of their investments, the tourism and economic benefits expected from their casino resorts, and the fact that another industry newcomer, Resorts World, had been granted a casino franchise co-terminus with PAGCOR’s terms.

On June 2, 2010, PAGCOR wrote to each respondent. It conveyed that it approved what it called the automatic five-year extensions of respondents’ ATOs up to 2033, conditioned on full and satisfactory compliance with investment schedules. The proposed ATO period was structured so that the authority would be valid for a five-year period until August 5, 2014, with automatic co-terminous extension with PAGCOR’s charter until July 11, 2033, subject to compliance with investment commitments. Respondents continued to request renewal of ATOs consistent with their understanding of the co-terminous arrangement.

After further exchanges, PAGCOR, in light of purported missed investment timetables under a new Board appointed after the election of President Benigno S. Aquino III, instructed respondents on November 2, 2010 to submit updated investment plans. Respondents replied on November 30, 2010 assuring compliance and again pleading for a longer ATO, arguing they needed the extended term to attract investors.

On February 16, 2011, PAGCOR requested clarification and pointed out discrepancies in capitalization and timetables, noting that respondents’ clients were mostly local rather than foreign. On May 30, 2011, insisting that respondents’ ATOs had expired on August 6, 2009 without renewal, PAGCOR served notice that it would order cessation of casino operations. It gave respondents until June 3, 2011 to signify unconditional acceptance of new terms, or else PAGCOR would initiate cessation proceedings. Those new terms included shortened completion periods (three years), space and facility requirements, limits on gaming tables and slot machines, an altered structure of casino revenue sharing, and a three-year provisional license followed by a seven-year regular license.

Respondents opposed closure by maintaining that PAGCOR had already recognized the subsistence of their new ATOs through actions such as receipt of their participation fees. They also asserted that PAGCOR approved details of operations, including importation and installation of slot machines and related operational matters.

RTC Proceedings: TRO, Closure Actions, and Injunctions

Believing they were entitled to a new franchise co-terminus with PAGCOR’s franchise, respondents filed separate complaints on June 3, 2011 for specific performance and damages with application for a TRO and writ of preliminary prohibitory injunction. They sought an injunction to prevent PAGCOR from initiating cessation proceedings and asked that, after trial, PAGCOR be directed to grant a new ATO consistent with the prior agreements.

On the afternoon of June 3, 2011, RTC Executive Judge Amor Reyes (Judge Reyes) issued an ex-parte 72-hour TRO. The cases were raffled on June 6, 2011 to RTC Presiding Judge Cicero D. Jurado, Jr. (Judge Jurado), Branch 11. On June 7, 2011, Judge Jurado extended the TRO and proceedings went forward.

Meanwhile, PAGCOR issued a Closure Order and withdrew its monitoring teams believing the 72-hour TRO issued by Judge Reyes had already expired. Judge Jurado later issued a Writ of Preliminary Prohibitory Injunction on June 23, 2011, upon a bond of P1 Million, enjoining PAGCOR from pursuing cessation proceedings against respondents’ business operations at FCR in La Union and FHC in Rizal.

Without seeking reconsideration of the June 23 order, PAGCOR filed directly with the Supreme Court on August 19, 2011 two certiorari petitions, G.R. Nos. 197942 and 197943, alleging grave abuse of discretion. The Court declined to suspend the proceedings below and required respondents to file comment.

During the pendency in the RTC, respondents filed a Supplemental Complaint on August 22, 2011 seeking actual damages and a writ of preliminary mandatory injunction, requesting that PAGCOR reinstate monitoring teams, act on and approve pending importation and related requests, and act on future requests concerning casino operations.

After a hearing on October 3, 2011, the RTC issued an Amended Order on October 13, 2011 granting a writ of preliminary mandatory injunction. It found prima facie that a contract to operate had been perfected between respondents and PAGCOR, and it ordered PAGCOR to reinstate monitoring teams, reasonably act on and approve pending requests, and reasonably act on similar requests that respondents might file during the pendency of the suit. A bond of P1,000,000.00 was set. PAGCOR received the order on October 18, 2011 and later supplemented its urgent motion in the Supreme Court seeking relief against both RTC orders.

PAGCOR filed a third certiorari petition on December 17, 2011, G.R. No. 199528, directed at setting aside the amended order. The Court consolidated it with G.R. Nos. 197942–43.

Termination of Below Proceedings and the Petitions’ Mootness

Not long after the pleadings in the Supreme Court were underway, the parties disclosed that they had effectively settled their dispute at the RTC level. In a Manifestation dated September 11, 2012, respondents revealed that on May 15, 2012, the parties submitted a Joint Manifestation and Motion to Dismiss and requested release of monies consigned in PAGCOR’s favor. The parties also agreed to pay remaining franchise fees and tax liabilities found due after audit.

On May 21, 2012, the RTC ap

Case Syllabus (G.R. No. 86603)

The case involved three consolidated petitions for certiorari filed by Philippine Amusement and Gaming Corporation (PAGCOR) to annul RTC Orders and injunctive writs issued against it in Civil Case Nos. 11-125832-33.
PAGCOR relied on the claim that the petitions raised pure questions of law and sought relief for alleged grave abuse of discretion amounting to lack or excess of jurisdiction.
The respondents were Thunderbird Pilipinas Hotels and Resorts, Inc., Eastbay Resorts, Inc., and Hon. Cicero Jurado, Jr., Presiding Judge, RTC Manila, Branch 11.
The Court ultimately dismissed the petitions on procedural and substantive grounds and did not grant any injunctive relief from the RTC issuances.

Parties and Procedural Posture

PAGCOR filed direct petitions for certiorari on August 19, 2011 with respect to the RTC Order and Writ of Preliminary Prohibitory Injunction dated June 23, 2011, and the related Amended Order dated October 13, 2011 with Writ of Preliminary Mandatory Injunction dated October 18, 2011.
The petitions were docketed as G.R. Nos. 197942-43 and later accompanied by a third petition docketed as G.R. No. 199528, which was consolidated with G.R. Nos. 197942-43.
Meanwhile, the respondents filed a Supplemental Complaint below on August 22, 2011 for actual damages and for a writ of preliminary mandatory injunction directing PAGCOR to return monitoring teams and act on pending casino-related requests.
After hearing, the RTC issued the Amended Order ordering reinstatement of monitoring teams and requiring PAGCOR to reasonably act upon requests and similar requests during the pendency of the case.
PAGCOR later filed a supplement to its urgent motion with respect to the RTC orders, and filed G.R. No. 199528 on December 17, 2011 to set aside the amended order.
After consolidation and extended proceedings, the parties later disclosed a Joint Manifestation and Motion to Dismiss, leading to the RTC dismissal of the complaints and release of consigned monies.

Key Contractual and Regulatory Background

P.D. No. 1067-A created PAGCOR on January 1, 1977 to centralize and integrate all games of chance not heretofore authorized by franchises or permitted by laws.
P.D. No. 1869, promulgated on July 11, 1983, consolidated PAGCOR decrees into a single charter and contained key provisions governing the franchise and corporate powers.
P.D. No. 1869, Section 1(b) declared the policy to centralize and integrate games of chance and to minimize, if not totally eradicate, evils, malpractices, and corruptions in gambling operations without direct government involvement.
P.D. No. 1869, Section 10 granted PAGCOR for a franchise term of twenty-five (25) years, renewable for another twenty-five (25) years, to operate and maintain gambling casinos and related recreation or amusement places within the Philippine territorial jurisdiction, subject to terms and conditions in the decree.
R.A. No. 9487 amended PAGCOR’s franchise by extending the franchise for an additional 25 years after July 11, 2008, renewable for another 25 years, and also expanding and circumscribing PAGCOR’s corporate powers.
P.D. No. 1869, Section 3(h) empowered PAGCOR to enter into contracts, including investment agreements and other arrangements, as principal or agent, as necessary and incidental to its lawful business purposes.

Parties’ Agreements and Investment Commitments

On November 9, 2004, Eastbay Resorts, Inc. (ERI) and its foreign principal International Thunderbird Gaming Corporation of Canada (Thunderbird) executed a Memorandum of Agreement (MOA) with PAGCOR for the investment of US$7.5 Million in Fiesta Hotel and Casino (FHC) in Eastbay Arts Recreational and Tourism Zone.
The MOA placed ERI’s investment amount in escrow and granted ERI a six-month provisional authority to operate (ATO), while PAGCOR retained a sole option to revoke or terminate upon material default, legal or regulatory violations, failure to remedy within 30 days, bankruptcy, or analogous situations.
On May 19, 2005, PAGCOR executed a document titled Agreement providing ERI and Thunderbird a permanent ATO co-terminus with PAGCOR’s franchise, up to July 11, 2008.
On January 18, 2006, an Addendum to the Agreement increased the investment by P2.5 Billion (US$31.2 Million) for Phases 1-2 over seven years ending in 2012, contingent on PAGCOR’s new or extended franchise, the scope of PAGCOR authority in special economic zones, and PAGCOR granting ERI and Thunderbird extension of the authority to operate FHC.
On April 11, 2006, PAGCOR and Thunderbird Pilipinas Hotel and Resorts, Inc. executed another MOA for investment of US$100 Million (P5.2 Billion) in Fiesta Casino and Resort (FCR) in Poro Point Special Economic and Freeport Zone.
The MOA required Phase 1 escrow deposit and granted a six-month provisional ATO for FCR, and it made Phases 2-5 investment obligations contingent upon PAGCOR’s new or extended franchise and the authority to license private casinos in special economic zones.
On October 31, 2006, the parties executed an Amendment to the Memorandum of Agreement whereby Thunderbird Pilipinas agreed to issue a Corporate Guarantee and, if it failed, it would cede its shares in FCR to PAGCOR and lose its license to operate.
The same amendment and an accompanying License stated that the ATO and casino authority were co-terminus with PAGCOR’s charter (until July 11, 2008), but extendible if PAGCOR’s authority to issue licenses was extended.

Franchise Extension Attempts and Renewal Terms

After the passage of R.A. No. 9487, the respondents sought formal extension of their ATOs to be co-terminus with PAGCOR’s new franchise and extension of development and investment schedules.
On August 7, 2009, PAGCOR’s Board approved retroactive month-to-month extension of licenses from July 11, 2008, and a franchise extension of five years effective August 6, 2009.
PAGCOR also extended ERI’s investment timetable to July 2015 and Thunderbird Pilipinas’ timetable to 2021.
Despite this, PAGCOR issued blank renewal ATOs dated December 11 and 21, 2009 that reflected only six months retroactive to July 12, 2008.
The respondents refused to accede, asserting that their MOAs required ATOs co-terminus with PAGCOR’s new charter and emphasizing the scale of their investments totaling about P7.7 Billion.
The respondents claimed that PAGCOR had acknowledged co-terminus terms through its actions, including acceptance of participation fees and approvals of various operating details.
PAGCOR asserted on June 2, 2010 that it approved automatic five-year extensions to 2033, conditioned on full compliance with investment schedules, and that it would issue language making the ATO valid for a five-year period until August 5, 2014, after which it would be automatically extended to co-terminus with PAGCOR charter until July 11, 2033.
PAGCOR also required submission of updated plans on November 2, 2010, after newly-appointed leadership allegedly found missed investment timetables.
After further communications, PAGCOR served notice on May 30, 2011 insisting that the respondents ATOs had expired August 6, 2009 absent renewal and required acceptance of new terms of reference by June 3, 2011 or it would initiate cessation proceedings.
The new terms include