Baguio court prevents takeover: BCDA stops contract with John Hay lessee

By March Fianza and Alfred Dizon

BAGUIO CITY -- The state-owned Bases Conversion and Development Authority (BCDA) has terminated the lease agreement with its non-paying lessee, the Camp John Hay Development Corporation (CJHDevco), and ordered it to vacate John Hay because of the lessee’s “material and incurable breaches” of its contractual obligations.

BCDA also demanded that the Sobrepena-led CJHDevco pay its outstanding rentals and restructured obligations in the total amount of P3,007,712,654.00 as of end-April 2012.

The termination notice was served to CJHDevco on May 16 in its corporate offices in the Camp John Hay Special Economic Zone in Baguio City, following a special meeting of the BCDA Board yesterday (May 15) at the state-firm’s headquarters in Taguig City.

The notice, signed by BCDA president and chief executive officer Arnel Casanova, was addressed to CJHDevco chief executive officer Robert John Sobrepena and president Ferdinand Santos.  

Earlier on Tuesday (May 15), the regional trial court here stopped the BCDA from taking over establishments, facilities and administrative offices of CJHDevCo, developer of the 247-hectare former American vacation and recreation base in the summer capital.

In a six-page order, the Baguio City RTC Branch 6 granted the initial prayer in the petition filed by CJHDevCo and issued a writ of preliminary injunction enjoining the BCDA from carrying out its order to unilaterally take control of the leased properties.

Judge CletoVillacorta said he found sufficient basis to issue the writ to prevent “grave and irreparable injury” arising from such a takeover.

The order takes effect until the court rules on the merits of CJHDevCo’s petition.

After the court order, on Thursday (May 17), the BCDA issued the notice to CJHDevCo  terminating the Lease Agreement dated 19 October 1996 and the Restructuring Memorandum of Agreement (RMOA) dated 1 July 2008 due to CJHDevco’s material and incurable breaches.

Eight breaches of CJHDevco were enumerated, which included the following: CJHDevco’s failure to pay the annual rent due government for many years; failure to open an escrow account and deposit 50% of the Common Usage Services Assessment; fraudulent double-sale of a property given as payment to BCDA; violation of fire and safety laws in the Camp John Hay Suites; unlawful squatting of CJHDevco’s security agency; subcontracting of the water operations and distribution without BCDA’s consent; violations on safety, health and environmental regulations; and CJHDevco’s gross misrepresentation of its financial standing.

Private individuals and corporations have also filed estafa cases against CJHDevco officers and directors for fraudulent business activities while operating in the John Hay Special Economic Zone (JHSEZ).

“The breaches, which involve disloyal, dishonest, fraudulent and self-dealing conduct, are so serious that they have fundamentally destroyed and frustrated the purposes, not to mention, the very heart and essence of the contract,” Casanova said in the termination notice.

BCDA terminated the contract following the state agency’s rejection of CJHDevco’s latest settlement proposal. “The supposed offer of compromise that CJHDevco offered on May 15, was unacceptable because it required the writing off of the lessee’s debts from 1997 to 2011, which totals to more than P3 billion,” Casanova said.

CJHDevco’s proposed settlement also seeks to change the bid terms and extend the lease contract until 2061. Casanova said “This is grossly disadvantageous to government.”

“It is clear that from the beginning that CJHDevco had no intention to pay the contracted amounts, and the restructurings it sought from BCDA were purely designed to delay or evade the payment of rentals and the performance of its development obligations,” Casanova said.

The BCDA chief also underscored CJHDevco’s evident “lack of good faith in complying with its obligations.” The firm pleaded financial difficulty and losses as reason for defaulting in its lease rentals for the years 1998 and 1999, and sought a restructuring in the year 2000. However, amidst claims of losses, CJHDevco declared dividends during those three years.

“Clearly, there is no business, practical, or legal sense for BCDA to continue in partnership with a party who has consistently breached and unjustly refused to comply with its contractual obligations,” Casanova pointed out.

He said further negotiations will be futile in this case, “and it would be to the detriment of the government and the Filipino people to prolong the relationship that has largely been one-sided in CJHDevco’s favor.”