TL;DR

The Supreme Court ruled that the Commission on Audit (COA) should re-evaluate if PNOC-EC’s hiring of a private lawyer, Baker Botts LLP, can be exempted from the usual requirement of prior COA concurrence. This is due to a new COA circular (2021-003) that allows exemptions in extraordinary or urgent situations, like PNOC-EC’s international arbitration case. The Court didn’t decide if PNOC-EC qualifies for exemption but ordered COA to review based on the new circular, acknowledging that strict adherence to prior concurrence might hinder effective government operations in time-sensitive, exceptional cases. This means GOCCs might have more flexibility to hire private counsel in urgent situations, but still need to justify it and undergo post-audit review.

Urgency vs. Red Tape: Can Government Corporations Act Fast Enough?

This case delves into the critical balance between ensuring proper oversight of public funds and enabling government-owned and controlled corporations (GOCCs) to act swiftly and effectively, especially in complex international disputes. At the heart of the matter is PNOC-Exploration Corporation’s (PNOC-EC) engagement of a private international law firm, Baker Botts LLP, for an arbitration case in Singapore. The Commission on Audit (COA) questioned this engagement because PNOC-EC failed to secure prior written concurrence from COA before hiring Baker Botts, as required by existing COA circulars. PNOC-EC argued that the urgency of the arbitration proceedings, governed by international rules and English law, necessitated immediate action to secure competent legal representation. The Supreme Court was tasked to determine if COA gravely abused its discretion in denying PNOC-EC’s request for post-facto concurrence and upholding the suspension of legal fees paid to Baker Botts.

Philippine law generally prohibits GOCCs from hiring private lawyers, mandating that the Government Corporate Counsel (OGCC) should handle their legal affairs. This rule aims to prevent unnecessary expenditure of public funds. However, exceptions exist for “exceptional or extraordinary circumstances.” To regulate these exceptions, COA issued Circular No. 86-255, later amended by Circular No. 95-011, requiring both OGCC conformity and prior written concurrence from COA before a GOCC can hire private counsel. Office of the President Memorandum Circular No. 9 further reinforces this, emphasizing OGCC’s primary role. The Supreme Court has consistently upheld these regulations, recognizing COA’s constitutional mandate as guardian of public funds.

In this case, PNOC-EC faced a tight deadline to respond to an international arbitration initiated by Wilson International Trading Private Limited in Singapore. They needed specialized legal expertise in international arbitration, English law, and Singapore legal practice. PNOC-EC obtained “authority in principle” from the OGCC and eventually formal approval for Baker Botts’ engagement. However, they failed to secure prior COA concurrence. COA issued a Notice of Suspension for the legal fees, citing non-compliance with circular requirements. PNOC-EC then filed a post-facto request for concurrence, which COA denied, leading to this Supreme Court petition.

The Supreme Court acknowledged the validity of COA’s regulations and the necessity for prior concurrence in general. However, the Court highlighted a significant development: COA Circular No. 2021-003, issued during the pendency of this case. This new circular recognizes that strict prior concurrence can be impractical in urgent situations and exempts GOCCs from this requirement under specific conditions for hiring lawyers under contract of service or as legal consultants. These conditions include OGCC approval, lack of plantilla positions, comparable government compensation, and specific expertise requirements. Crucially, Circular 2021-003 states that pending requests for concurrence and appeals against disallowances due to lack of prior concurrence should be granted if these new conditions are met.

The Court emphasized that Circular 2021-003 shifts the focus from rigid prior approval to a more flexible post-audit review, especially in extraordinary cases. While prior concurrence is generally required to ensure reasonable legal fees, the new circular acknowledges that this objective can be achieved through other safeguards and that urgent situations demand agility. The Supreme Court, therefore, did not rule on whether PNOC-EC’s case specifically qualifies for exemption under Circular 2021-003. Instead, recognizing COA’s expertise in implementing its own circulars and evaluating factual matters, the Court remanded the case to COA. COA is now tasked to determine if PNOC-EC’s engagement of Baker Botts meets the conditions for exemption under the new circular and to conduct a post-audit to assess the reasonableness of the legal fees based on quantum meruit, regardless of the concurrence issue. The Court underscored that even with the exemption, disbursements remain subject to post-audit and applicable rules, ensuring accountability and preventing irregular expenditures.

This decision signals a move towards a more pragmatic approach, recognizing that while COA oversight is essential, GOCCs must also have the capacity to respond effectively to urgent and complex legal challenges, particularly in the international arena. The ruling does not invalidate the prior concurrence rule entirely but introduces flexibility for extraordinary cases, subject to specific conditions and post-audit scrutiny. It underscores that compliance with procedural rules should not unduly hinder efficient government operations, especially when public interest is at stake.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PNOC – Exploration Corporation v. COA, G.R. No. 244461, September 28, 2021