Summary

Reproduced from www.worldbank.org/icsid with permission of ICSID.

TABLE OF CONTENTS

I. INTRODUCTION AND PARTIES

II. OVERVIEW OF THE CASE AND PARTIES' REQUESTS FOR RELIEF

III. PROCEDURAL HISTORY

IV. FACTUAL BACKGROUND

A. The NAIA Terminal 3 Project and the Concession Agreements

B. Fraport's Investment in the Terminal 3 Project

C. Attempts to Renegotiate Terminal 3 Concession Agreement

D. Nullification of the Terminal 3 Concession

E. Further 2003/2004 Proceedings

F. The Government's Taking of NAIA Terminal 3

V. SUMMARY OF THE PARTIES' POSITIONS

V.I RESPONDENT'S OBJECTIONS TO JURISDICTION AND ADMISSIBILITY

A. Respondent's Basis for its Objections to Jurisdiction and Inadmissibility

B. Fraport Knowingly Based its Investment on a Concession that had been Illegally Obtained and that was Invalid under Philippine Law

C. Fraport Violated the Anti-Dummy Law

1. The Philippine Anti-Dummy Law

2. Fraport's Alleged ADL Violations

D. Fraport's Corruption and Unlawful Conduct Render its Claims Inadmissible

1. The Four "Liongson Schemes" to Procure Government Approvals

2. The EPC Contract Schedule 7 Kickback Scheme

3. Improper Receipt of Funds by Fraport Officials

4. Fraport's Responses

5. Respondent's Argument Relating to Fraport's Ultimate Use of the Funds Put in the Project

V.II SUMMARY OF FRAPORT'S CLAIMS AND RELIEFS

A. Fraport's Claims for Expropriation

1. The Alleged Acts of Expropriation

2. Respondent's Defense of the Invalidation of the Terminal 3 Concession Agreements

3. Failure to Pay Compensation

4. Public Purpose

B. Unfair and Inequitable Treatment

1. Legitimate Expectations

2. Bad Faith

3. Denial of Justice

4. Lack of Transparency

C. Impairment by Arbitrary and Discriminatory Measures

D. Failure to Afford Full Protection and Security

E. Breach of Umbrella Clause

F. Compensation under Theories of Unjust Enrichment and Quantum Meruit

V.III THE PHILIPPINES' COUNTERCLAIMS

VI. JURISDICTION

A. Governing Law and Burden of Proof

B. The "Investment" under the BIT

1. The Parties' Positions

1.1 Respondent's Position

1.2 Claimant's Position

2. The Tribunal's Analysis

C. Respondent's Jurisdictional Objections

1. Introduction

2. Jurisdictional Objection 1: Fraport Violated the Anti-Dummy Law

2.1 Introduction to the Anti-Dummy Law

2.2 The Parties' Arguments

a) Respondent's Position

b) Claimant's Position

2.3 The Tribunal's Analysis

a) Interpretation of the ADL

(i) Whether the ADL Applied Prior to the Operation of Terminal 3

(ii) Shareholder Conduct under the ADL

(iii) Whether the ADL Prohibits Planning a Prohibited Act without More

(iv) Whether a Violation Requires "Knowledge"

(v) Whether a Violation Can Be Cured

(vi) Good Faith as a Defense

b) Assessment of Fraport's Alleged ADL Violation

3. Jurisdictional Objection 2: There is no Jurisdiction and all of Fraport's Claims are Inadmissible as a Result of Fraport's Corruption and Fraud

4. Jurisdictional Objection 3: Fraport Knew of PIATCO's Misrepresentations to Obtain the Concession Award

4.1 Respondent's Position

4.2 Claimant's Position

4.3 The Tribunal's Analysis

VII. COSTS

A. The Parties' Positions

B. The Tribunal's Analysis

VIII. TRIBUNAL'S DECISION

I. INTRODUCTION AND PARTIES

1. This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the "Agreement between the Federal Republic of Germany and the Republic of the Philippines on the Promotion and Reciprocal Protection of Investments" dated April 18, 1997 and in force since February 1, 2000 (the "BIT" or "Treaty"), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on October 14, 1966 (the "ICSID Convention").

2. Claimant is Fraport AG Frankfurt Services Worldwide ("Fraport" or "Claimant"), a company incorporated in Germany. Fraport was formerly known as Flughafen Frankfurt Main AG ("FAG").

3. Respondent is the Republic of the Philippines ("The Philippines," the "Government," or "Respondent").

4. Claimant and Respondent are hereinafter collectively referred to as the "Parties." The Parties' respective representatives and their addresses are listed above on page (i).

II. OVERVIEW OF THE CASE AND PARTIES' REQUESTS FOR RELIEF

5. The Tribunal has been charged with the daunting task of deciding a dispute which has already been submitted to a first ICSID Tribunal, to an ICSID ad hoc Committee and which has been the subject of a related ICC arbitration and numerous Philippine proceedings.

6. This dispute centers around the invalidation of a concession to build and operate a new international terminal ("Terminal 3") at Ninoy Aquino International Airport in Manila further to the first airport privatization in Asia

7. Claimant, Fraport, is a direct and indirect investor in the concession project company, known as the Philippines International Air Terminals Co., Inc. ("PIATCO").

8. In July 1997, pursuant to a concession agreement, PIATCO was awarded, under President Fidel V. Ramos, the Terminal 3 Concession under the Philippines' Built-Operate-Transfer law. In 1999, Fraport, an experienced airport operator, became an investor in PIATCO and a "cascade" of other Philippine companies that had ownership interests in PIATCO.

9. Between 2001 and 2002, the relationship between PIATCO and Respondent soured for disputed reasons, including disagreements over the renegotiation of the terms of the concession agreement, as it will be explained in Section IV below.

10. In November 2002, as construction of Terminal 3 neared completion according to Fraport, President Gloria Macapagal-Arroyo announced that the Philippine Government had determined that the concession contracts were legally invalid and would not be honored.

On May 5, 2003, the Philippine Supreme Court declared the Terminal 3 concession to be void ab initio because the consortium behind PIATCO allegedly did not meet the financial qualification requirements to have been awarded the concession originally, among other reasons.

11. Pursuant to expropriation procedures in domestic Philippine law, a court transferred possession of Terminal 3 to the Philippine Government in December 2004, which began operating the Terminal in 2008. Domestic court proceedings to determine the amount of compensation due PIATCO are still ongoing.

12. Fraport initiated a first ICSID case which was registered in October 2003 (ICSID Case No. ARB/03/25) ("ICSID 1"). A Tribunal composed of Messrs. L. Yves Fortier (President), Bernardo M. Cremades and W. Michael Reisman rendered an award on August 16, (the "ICSID 1 Award") dismissing the case on jurisdiction, with a dissent from Dr. Cremades. An application for annulment was lodged by Fraport and an ad hoc Committee composed of Messrs. Peter Tomka (President), Dominique Hascher and Campbell McLachlan rendered a decision annulling the ICSID 1 Award on December 23, 2010 (the "ICSID Annulment Decision").

13. PIATCO also initiated an ICC arbitration against Respondent in 2003, pursuant to an arbitration clause in an amended concession agreement. On July 22, 2010, the ICC Tribunal composed of Messrs. Michael Pryles (President), Florenz D. Regalado and V. V. Veeder rendered a partial award dismissing PIATCO's claims as inadmissible and rejecting all the counterclaims presented by Respondent.

14. In this new arbitration proceeding, Fraport claims that it was subject to an uncompensated and unlawful expropriation of its investment in PIATCO, along with other BIT violations arising out of the same series of events.

15. The Philippines argues that the Tribunal does not have jurisdiction under the BIT to hear Fraport's claims because Fraport's investment violated Philippine law, and more particularly nationality restrictions applicable to the Concession (also known as the Anti- Dummy Law (the "ADL")). It further argues that Fraport's claims are inadmissible both because of such violations, as well as corruption in obtaining and carrying out the Concession. The Philippines admits the expropriation of Terminal 3, but argues that the expropriation was lawful and that compensation has been paid and will continue to be paid. It further denies any other violation of the BIT. The Philippines also counterclaims for costs associated with the Terminal 3 Concession and amounts related to Fraport's alleged corruption.

16. Fraport responds that the Philippines' jurisdictional and admissibility objections have no legal basis and, moreover, are factually incorrect and unsupported. Fraport also contends that the Tribunal does not have jurisdiction over the Philippines' counterclaims, which are, nevertheless, meritless. Fraport claims that the Philippines destroyed its investment and unlawfully expropriated by not providing prompt and adequate compensation and failed to accord Fraport and its investment fair and equitable treatment. The Philippines is also said to have subjected Fraport and its investments to arbitrary and discriminatory treatment and to have violated the umbrella clause of the BIT in breaching the express terms of the concession agreements.

17. Fraport's request for relief is as follows:

Fraport requests that the Arbitral Tribunal in this case issue an award:

(a) Accepting jurisdiction of Fraport's claims and rejecting the Philippines objection to jurisdiction;

(b) Denying jurisdiction to the counterclaims of the Philippines;

(c) Declaring that the Philippines breached its obligations under the Germany- Philippines BIT, Philippines laws and regulations and international law;

(d) Ordering the Philippines to pay Fraport damages with respect to all injury caused to Fraport as a result of the Philippines' breaches, in an amount to be determined;

(e) Ordering the Philippines to reimburse Fraport for the costs of this arbitration, including its legal fees and expenses, the fees and expenses of the Tribunal and the fees of the Centre;

(f) Ordering the Philippines to pay pre-award and post-award interest at rates to be determined; and

(g) Ordering such other relief as the Tribunal deems just and proper

18. The Philippines' request for relief is as follows:

For all the reasons set forth above and in its prior submissions, Respondent respectfully requests that the Tribunal (1) dismiss Claimant's claims in their entirety for lack of jurisdiction, inadmissibility, or on the merits; (2) enter a decision in favor of Respondent in respect of all of its counterclaims; and (3) order Claimant to bear all costs and expenses incurred by Respondent in defending against Claimant's claims

19. The Tribunal will now recall the procedural history of this case and will proceed to set forward the facts and the Parties' positions, before examining its jurisdiction.

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VIII.TRIBUNAL'S DECISION

530. For the reasons set forth above, the Tribunal decides as follows:

1. Claimant's claims are dismissed for lack of jurisdiction of the Centre and competence of the Tribunal.

2. Claimant shall pay Respondent US $5 million as part of the latter's fees and costs.

3. Each Party shall bear in full all other legal fees and costs it has incurred and equally share the fees and expenses of the Tribunal and the costs of the ICSID Secretariat.

656 The ICSID Secretariat will provide the Parties with a detailed Financial Statement of the case account as soon as the account is finalized.

657 On December 1, 2014, the Hearing related expenses (US $149,942) and other expenses were estimated to amount to US $164,000. This amount includes estimated charges (courier, printing and copying) in respect of the dispatch of this Award. The remaining balance will be reimbursed to the Parties in proportion to the payments advanced to ICSID.

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Mr. Stanimir A. Alexandrov
Professor Albert Jan van den Berg
Piero Bernardini