CA issues correction, says Piatco interest only at 6%

The Court of Appeals has corrected its recent ruling ordering the government to pay the Philippine International Air Terminals Company Inc. (Piatco) $371.4 million, or around P16.7 billion, in just compensation for the construction of the Ninoy Aquino International Airport Terminal 3.

In its original ruling penned by Associate Justice Apolinario Bruselas Jr., the CA's Third Division modified a ruling by a Pasay Regional Trial Court awarding compensation of only $149 million to Piatco for the expropriation of the airport terminal.

The CA ordered the government to pay Piatco a fixed just compensation worth US$240,768,035.00 plus a legal interest of 6 percent or a total of US$371,426,688.24 as of 31 July 2013. The CA said the 6 percent was the interest due as of July 31, 2013.

In the same original decision, the CA added that on top of the just compensation, the government will also have to pay, upon finality of the ruling, an additional 12 percent interest per annum until the amount is fully paid.

In its amended decision, however, the CA corrected and lowered the interest rate from 12 percent to 6 percent.

"Upon finality of judgment, interest on the sum due by then shall be at 6% per annum until fully paid pursuant to Bangko Sentral ng Pilipinas (BSP) Circular No. 799, 39 Series of 2013 which took effect on 01 July 2013 and which effectively modified the interest rate rulings in Eastern Shipping Lines, Inc. v. Court of Appeals," the court said.

"Eastern Shipping was the basis of the Court's earlier imposition of a 12% interest from finality of judgment," it added.

Concurring in the decision were Associate Justice Rebecca de Guia-Salvador and Samuel Gaerlan.

Just compensation refers to the full and fair equivalent of the property sought to be expropriated.

The NAIA Terminal 3 was built by Piatco, a consortium which in turn subcontracted Japanese firms Takenaka and Asahikosan for the project in 1997.

In January 2005, the Board of Commissioners (BOC) was created to help a Pasay City Court determine just compensation to be paid by the government to Piatco so the government can finally take over the terminal.

A separate assessment by the government placed the construction cost valuation (CCV) of the NAIA Terminal 3 as of December 2002 at $300,206,693. When the expropriation was filed, the CCV had gone down to $263,392,081 due to depreciation which the government said should be deducted from the construction cost.

The government added that the CCV should be reduced further to $149,448,037 to account for deductions due to Piatco's non-compliance with contract specifications.

For its part, Takenaka and Asahikosan placed the contract price of the airport at $323,753,238.11, which was later adjusted up due to changes in the contract. The Japanese subcontractor said Piatco had already paid them $275 million of the total cost.

On March 31, 2011, the BOC submitted its final report recommending that $376,149,742.56 be paid as just compensation to Piatco, with a 12-percent interest rate per annum, plus payment of commissioners fees.

In a May 23, 2011 ruling however, the Pasay court rejected the computations submitted by the BOC, Piatco, and intervenors. Instead, the court went with the computation of the government that just compensation should only be pegged at $149,448,037.00, saying the deductions were "reasonable."

Piatco later contested the just compensation set by the trial court, and insisted that the terminal did not suffer massive structural defects which the court used as basis for the deductions. Piatco also insisted its claims on the  "income, fruits, and benefits   generated from the operation of NAIA Terminal 3 despite the fact that the Republic has been illegally  possessing and operating the   terminal."

Meanwhile the Japanese firms insisted to the appeals court that the just compensation should not be paid directly to Piatco.

In its ruling, the CA Division disagreed with the lower court when it deducted depreciation, deterioration, and non-compliance from the construction cost.

"There is no clear evidence of any massive structural defect," the CA said, adding the "much publicized" collapse of a portion of the ceiling of the NAIA Terminal 3 in 2008 could not be used to justify deductions due to supposed deterioration of the structure.

It added that a building looking "ugly, worn out, deteriorated, and dilapidated" does not necessarily mean it is "structurally unsound."

The CA also ruled that a structure's value depreciation should not be deducted from the replacement cost or just compensation, which should either be equal or higher than the construction cost.

"The RTC therefore erred in adopting the proposal of the Republic to allow deductions from the   construction cost of US$300,206,693.00... We would be accepting the preposterous proposition that replacement cost under the replacement cost method would be lower and lower as one  moves away from the original  point of construction," the CA said.

"Simple economic logic dictates that the replacement cost can never be lower than the construction cost at the time the structures were built. The reverse possibility, if at all, would require an economic miracle," it added.

In its ruling, the CA also stressed it was "just and reasonable" for the government to pay interest to Piatco on top of the just compensation.

"It is unfair not to award interest, as what the RTC did, because evidently the Republic had been enjoying the income or fruits from the operation (that is use and enjoyment) of the structures it had expropriated," the CA said.

The CA however placed the interest rate at 6 percent per annum, half of what Piatco was asking for and what the BOC had recommended. — KBK, GMA News