Tag: Office of the Government Corporate Counsel

Navigating Government Contracts: PSALM’s Authority to Hire Legal Experts Under EPIRA Law

The Supreme Court ruled that the Commission on Audit (COA) cannot deny concurrence to the renewal of contracts for legal advisors hired by the Power Sector Assets and Liabilities Management Corporation (PSALM) solely on procedural grounds, such as failing to secure prior approval from the Office of the Government Corporate Counsel (OGCC) and COA. The court emphasized that COA’s audit authority is limited to preventing irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. This decision affirms PSALM’s authority to hire legal experts, provided such hiring does not lead to unreasonable expenses, thereby balancing governmental oversight with the operational needs of GOCCs.

EPIRA Mandate vs. COA Oversight: Who Decides PSALM’s Legal Needs?

The Power Sector Assets and Liabilities Management Corporation (PSALM), tasked with managing the privatization of the National Power Corporation’s (NPC) assets under the Electric Power Industry Reform Act (EPIRA), sought to renew contracts with several legal advisors. These advisors provided consultancy services on privatization projects critical to PSALM’s mandate. However, the Commission on Audit (COA) denied concurrence to these contract renewals, citing PSALM’s failure to obtain prior written conformity from the Office of the Government Corporate Counsel (OGCC) and prior written concurrence from COA itself, as required by Memorandum Circular No. 9 and COA Circular No. 95-011. This denial led to a legal battle, questioning the extent of COA’s authority and PSALM’s operational autonomy in fulfilling its statutory obligations.

Under Presidential Decree No. 1415, the OGCC is designated as the principal law office for all government-owned or controlled corporations (GOCCs). However, this designation isn’t absolute. Recognizing the need for flexibility, Section 10, Chapter 3, Title III, Book IV of the Administrative Code allows for exceptions, acknowledging that GOCCs may, in certain cases, require specialized legal expertise not readily available within the OGCC. This understanding is crucial, as it sets the stage for balancing the OGCC’s oversight role with the practical realities faced by GOCCs like PSALM.

The Supreme Court has previously acknowledged that GOCCs can engage private lawyers in exceptional cases, provided they secure the written conformity of the OSG or the OGCC, and the written concurrence of the COA prior to the hiring. In PSALM’s case, the EPIRA Law contains no express prohibition on hiring private legal services. Section 51 (h) allows such hiring if availing the services of personnel detailed from other government agencies is not practicable. Given the technical and specialized nature of PSALM’s work, the Court recognized the impracticality of relying solely on the OGCC’s limited resources, reinforcing the need for PSALM to engage external legal expertise.

The EPIRA Law places specific time constraints on PSALM for implementing its key provisions. These include deadlines for submitting privatization plans, privatizing generating assets, and liquidating NPC financial obligations. These deadlines highlight the urgency and necessity of PSALM’s mission. If PSALM is to meet these statutory objectives in a timely manner, its administrative prerogative to determine its needs must be respected. This underscores the importance of allowing PSALM the flexibility to engage necessary expertise without undue procedural delays.

COA requires prior concurrence for every engagement of private lawyers and consultants, acting as a pre-audit to prevent suspicious transactions and ensure the proper use of public funds. This pre-audit is meant to identify potentially problematic transactions before they are implemented, thereby safeguarding against embezzlement or wastage of public funds. COA’s Circular No. 2021-003 outlines instances where government agencies and GOCCs can hire private lawyers without prior written concurrence, setting specific conditions for such exemptions.

The constitutional mandate of COA is to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The Court interpreted the term “irregular” in conjunction with the other terms, stating that it pertains to the transactions themselves. The court emphasized that the COA’s jurisdiction should focus on the transaction itself (the hiring or contract renewals) to determine if it aligns with constitutional standards, rather than solely on procedural compliance.

The COA’s refusal to grant concurrence centered on PSALM’s failure to secure prior approval. However, the court found that this procedural lapse, by itself, was insufficient justification for withholding concurrence. The COA must demonstrate that the contract renewals were, in fact, irregular, unreasonable, excessive, or extravagant. Without such a finding, PSALM’s actions could not be deemed a violation of the constitutional mandate to prevent misuse of public funds.

While COA possesses the authority to prevent excessive expenditures, this authority must be exercised in a reasonable and evidence-based manner. COA should have presented substantial evidence demonstrating the unreasonableness or extravagance of the contract renewals. Because they failed to do so, the court found that COA had gravely abused its discretion. Consequently, the Court granted PSALM’s petition, setting aside COA’s decisions and deeming the engagement of legal advisors as concurred in. This decision underscores the importance of balancing procedural compliance with the practical needs of GOCCs in fulfilling their statutory mandates.

FAQs

What was the key issue in this case?	The central issue was whether the Commission on Audit (COA) correctly denied concurrence to the renewal of contracts for legal advisors hired by the Power Sector Assets and Liabilities Management Corporation (PSALM) due to procedural non-compliance. Specifically, PSALM did not secure prior approval from the Office of the Government Corporate Counsel (OGCC) and COA before renewing the contracts.
What is PSALM’s mandate under the EPIRA Law?	Under the Electric Power Industry Reform Act (EPIRA) of 2001, PSALM is responsible for managing the orderly sale, disposition, and privatization of the National Power Corporation’s (NPC) generation assets, real estate, and other disposable assets. Its main goal is to liquidate all NPC financial obligations and stranded contract costs efficiently within a 25-year period.
Why did PSALM hire private legal advisors?	PSALM hired private legal advisors to provide consultancy services on legal matters related to its privatization projects, aiming to achieve its mandate under the EPIRA Law. The corporation deemed these services vital for achieving its goals, especially given the specific time constraints set by the EPIRA Law.
What requirements did COA claim PSALM failed to meet?	COA claimed that PSALM failed to comply with Memorandum Circular No. 9 and COA Circular No. 95-011, which require government-owned and controlled corporations (GOCCs) to obtain prior written conformity from the Office of the Solicitor General (OSG) or OGCC, and prior written concurrence from COA before hiring private lawyers. These issuances aim to prevent unauthorized and unnecessary expenditures of public funds.
What was COA’s primary reason for denying concurrence?	COA primarily denied concurrence because PSALM did not obtain the required prior written conformity from the OGCC and prior written concurrence from COA before renewing the contracts. COA argued that PSALM’s non-compliance with these procedural requirements justified the denial.
What did the Supreme Court rule regarding COA’s denial?	The Supreme Court ruled that COA could not deny concurrence solely on procedural grounds. The Court emphasized that COA’s authority is limited to preventing irregular, unnecessary, excessive, extravagant, or unconscionable expenditures and that COA must present substantial evidence demonstrating that the contract renewals were indeed unreasonable or excessive.
What is the significance of the EPIRA Law in this case?	The EPIRA Law is significant because it provides the statutory context for PSALM’s mandate and imposes specific time constraints for achieving its objectives. The Court recognized the urgency of PSALM’s mission under the EPIRA Law as a factor in assessing the reasonableness of PSALM’s decision to hire legal advisors.
What does the ruling mean for other GOCCs hiring private lawyers?	The ruling clarifies that while GOCCs must comply with procedural requirements when hiring private lawyers, COA’s denial of concurrence must be based on substantive findings of irregular, unnecessary, or excessive expenditures. This underscores the need for COA to justify its decisions with evidence of actual misuse of public funds, rather than solely on procedural lapses.

This decision highlights the delicate balance between ensuring governmental oversight and allowing government-owned corporations the necessary flexibility to operate effectively and meet their statutory mandates. The Supreme Court’s ruling clarifies the scope of COA’s audit authority, ensuring that it is exercised within constitutional bounds and with due consideration for the operational needs and statutory obligations of government entities.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (PSALM) vs. COMMISSION ON AUDIT, G.R. No. 218041, August 30, 2022

August 30, 2022

Accountability in Government: Officers Held Liable for Unauthorized Legal Expenses

In a significant ruling, the Supreme Court addressed the accountability of government officers in the Philippine National Construction Corporation (PNCC) regarding the unauthorized hiring of private lawyers. The Court affirmed that while the lawyers who received payments in good faith were not required to refund the amounts, the officers who authorized these payments without proper approval from the Office of the Government Corporate Counsel (OGCC) and the Commission on Audit (COA) are personally liable. This decision underscores the importance of adhering to established procedures in government financial transactions, ensuring that public funds are used responsibly and transparently.

When Public Service Requires Prior Approval: Examining Unauthorized Legal Services

The case revolves around the Philippine National Construction Corporation (PNCC), which engaged the services of four private lawyers in 2011 without securing the required written conformity from the OGCC and concurrence from the COA. This action violated COA Circular No. 95-011 and Office of the President Memorandum Circular (OP-MC) No. 9. The COA subsequently issued a Notice of Disallowance No. 12-004-(2011), holding several PNCC officers, including Janice Day E. Alejandrino and Miriam M. Pasetes, liable for the P911,580.96 paid as salaries to these lawyers. The central legal question is whether these officers should be held personally liable for the disallowed amount, given that the lawyers who received the payments were absolved of responsibility due to good faith.

The petitioners, Alejandrino and Pasetes, argued that PNCC should be classified as a government-acquired asset corporation, not a government-owned and controlled corporation (GOCC), thereby exempting it from COA’s strict audit jurisdiction. They cited Philippine National Construction Corp. v. Pabion, asserting that as a corporation created under the general corporation law, PNCC should be considered a private entity. This argument was aimed at challenging the COA’s authority to disallow the payments made to the lawyers. The petitioners also contended that they acted in good faith, performing their duties as directed by PNCC’s Board of Directors, and that the principle of quantum meruit should apply, recognizing the benefit PNCC received from the lawyers’ services.

The Commission on Audit (COA) countered that PNCC is indeed a GOCC under the direct supervision of the Office of the President and, therefore, subject to its audit jurisdiction. The COA emphasized that the determining factor for its exercise of audit jurisdiction is government ownership and control, which PNCC indisputably met. According to the COA, the engagement of private lawyers without the required approvals constituted an irregular expense, justifying the disallowance. The COA maintained that the PNCC officers who failed to secure the necessary written conformity and concurrence should be held personally liable for the disallowed amount.

The Supreme Court sided with the COA, affirming PNCC’s status as a GOCC under the audit jurisdiction of the COA. The Court referenced Administrative Order No. 59 and Republic Act No. 10149, which define GOCCs as corporations owned or controlled by the government, directly or indirectly, with a majority ownership of capital or voting control. Citing Strategic Alliance v. Radstock Securities, the Court reiterated that PNCC is “not just like any other private corporation” but “indisputably a government owned corporation.” This classification brought PNCC squarely within the COA’s constitutional mandate to audit government entities and ensure accountability in the use of public funds.

Furthermore, the Court addressed the propriety of hiring private lawyers by GOCCs. Generally, GOCCs are required to utilize the legal services of the Office of the Government Corporate Counsel (OGCC), as mandated by Section 10, Chapter 3, Book IV, Title III of the Administrative Code:

Sec. 10. Office of the Government Corporate Counsel. – The Office of Government Corporate Counsel (OGCC) shall act as the principal law office of all government-owned or controlled corporations, their subsidiaries, other corporate off-springs and government acquired assert corporations and shall exercise control and supervision over all legal departments or divisions maintained separately and such powers and functions as are now or may hereafter be provided by law. In the exercise of such control and supervision, the Government Corporate Counsel shall promulgate rules and regulations to effectively implement the objectives of this Office.

COA Circular No. 95-011 and OP-MC No. 9 provide exceptions to this rule, allowing GOCCs to hire private lawyers under extraordinary circumstances, provided they secure written conformity from the Solicitor General or the OGCC and written concurrence from the COA. These requirements aim to prevent the unauthorized disbursement of public funds for legal services that should otherwise be provided by government legal offices. The Court emphasized that PNCC’s failure to comply with these requirements justified the COA’s disallowance of the salaries paid to the privately engaged lawyers.

The Court then considered the liability of the PNCC officers, Alejandrino and Pasetes. COA Circular No. 006-09 outlines the criteria for determining the liability of public officers in audit disallowances, focusing on the nature of the disallowance, the duties and responsibilities of the officers, their participation in the disallowed transaction, and the extent of damage or loss to the government. The Court noted that Alejandrino and Pasetes were merely performing their ministerial duties as Head of Human Resources and Administration and Acting Treasurer, respectively. It was not shown that they acted in bad faith or were involved in policy-making or decision-making concerning the hiring of the private lawyers. Therefore, the Court ruled that Alejandrino and Pasetes should not be held personally liable for the disallowed amount.

This decision carries significant implications for government officers and GOCCs. It reinforces the principle that public office entails a high degree of responsibility and accountability, especially in the handling of public funds. Officers must ensure strict compliance with established procedures and regulations, particularly those requiring prior approval from relevant government agencies. The ruling clarifies the extent of personal liability for officers involved in disallowed transactions, distinguishing between those who act in bad faith or participate in policy decisions and those who merely perform ministerial functions. It also serves as a reminder that the COA’s audit jurisdiction is broad and extends to all GOCCs, regardless of their corporate structure or history.

The absolution of the payees in good faith, the lawyers, also highlights the principle of quantum meruit, preventing unjust enrichment where services have been rendered and accepted. This nuanced approach seeks to balance the need for fiscal responsibility with the realities of government operations, providing a framework for accountability that is both fair and effective.

FAQs

What was the key issue in this case?	The central issue was whether PNCC officers should be held personally liable for the salaries paid to private lawyers hired without the required government approvals.
Why did the COA disallow the payments?	The COA disallowed the payments because PNCC failed to obtain the written conformity and concurrence from the OGCC and COA, respectively, before hiring the private lawyers, violating existing circulars.
Is PNCC considered a government-owned and controlled corporation (GOCC)?	Yes, the Supreme Court affirmed that PNCC is a GOCC under the direct supervision of the Office of the President, making it subject to COA’s audit jurisdiction.
Were the lawyers required to return the salaries they received?	No, the COA correctly held that the private lawyers who rendered legal services to PNCC were not required to refund the amount they received in good faith.
What is the role of the Office of the Government Corporate Counsel (OGCC)?	The OGCC is the principal law office for all GOCCs and is responsible for handling their legal matters, unless exceptions are properly authorized.
What is COA Circular No. 95-011?	COA Circular No. 95-011 prohibits government agencies and GOCCs from hiring private lawyers without prior written conformity from the Solicitor General or OGCC and written concurrence from COA.
Were the petitioners found liable in this case?	Initially, yes, but the Supreme Court modified the ruling, holding that Petitioners Janice Day E. Alejandrino and Miriam M. Pasetes are not personally liable to refund the disallowed amount as they were performing ministerial duties.
What is the significance of this ruling?	This ruling underscores the importance of adhering to established procedures in government financial transactions and clarifies the extent of personal liability for officers involved in disallowed transactions.

In conclusion, the Supreme Court’s decision serves as a critical reminder of the responsibilities and accountabilities inherent in public service. By holding accountable those who bypassed established protocols for engaging legal services, the Court reinforced the necessity for transparency and adherence to rules in government financial operations. Moving forward, government officers must prioritize compliance with established procedures to avoid personal liability and ensure the proper use of public resources.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: Janice Day E. Alejandrino and Miriam M. Pasetes vs. Commission on Audit, G.R. No. 245400, November 12, 2019

February 22, 2021

Salary Standardization Law: Limits on Local Water District General Manager Compensation

The Supreme Court ruled that while local water districts (LWDs) have the power to fix the compensation of their general managers (GMs), this power is subject to the limits prescribed by the Salary Standardization Law (SSL). This means that any compensation fixed by the board of directors must align with the position classification system under the SSL, unless the LWD’s charter specifically exempts it. The Court also affirmed that the engagement of private lawyers by government-owned and controlled corporations (GOCCs) requires the written conformity of the Office of the Government Corporate Counsel (OGCC) and the written concurrence of the Commission on Audit (COA).

Water Rights and Wage Ceilings: When Local Control Meets National Standards

This case revolves around Aleli C. Almadovar, the General Manager (GM) of Isabela Water District (ISAWAD), a government-owned and controlled corporation (GOCC). The Commission on Audit (COA) questioned several disbursements made by ISAWAD, including Almadovar’s salary increase, representation and transportation allowances (RATA), and payments to private legal counsel without proper authorization. The central legal question is whether ISAWAD’s board of directors has the autonomy to set the GM’s salary and engage legal services without adhering to national regulations, specifically the SSL and requirements for OGCC and COA approval.

The legal framework governing the compensation of GOCC employees is primarily the **Salary Standardization Law (SSL)**, embodied in Republic Act (R.A.) No. 6758. This law aims to standardize the salary structure of government personnel, including those in GOCCs. However, there are exceptions to this rule. GOCCs whose charters specifically exempt them from the SSL are allowed to have their own compensation schemes. Presidential Decree (P.D.) No. 198, also known as the “Provincial Water Utilities Act of 1973,” as amended by Republic Act (R.A.) No. 9286, created ISAWAD. However, the Supreme Court has previously held that this law does not explicitly exempt water utilities from the coverage of the SSL.

Building on this principle, the Court reiterated that the power of a local water district’s (LWD) board of directors to fix the compensation of its general manager, as outlined in Section 23 of P.D. No. 198, does not grant them unlimited discretion. The compensation must align with the position classification system established under the SSL. Almadovar argued that R.A. No. 9286, being a later law, impliedly repealed the SSL with respect to LWDs. The Supreme Court rejected this argument, stating that implied repeals are disfavored and only occur when there is an irreconcilable inconsistency between the two laws.

The Court found no such inconsistency, emphasizing that the board of directors can fix the GM’s salary but must do so within the limits set by the SSL. In this context, the court quoted the *Mendoza vs COA* case which stated:

The Salary Standardization Law applies to all government positions, including those in government-owned or controlled corporations, without qualification. The exception to this rule is when the government-owned or controlled corporation’s charter specifically exempts the corporation from the coverage of the Salary Standardization Law. xxx

We are not convinced that Section 23 of Presidential Decree No. 198, as amended, or any of its provisions, exempts water utilities from the coverage of the Salary Standardization Law. In statutes subsequent to Republic Act No. 6758, Congress consistently provided not only for the power to fix compensation but also the agency’s or corporation’s exemption from the Salary Standardization Law.

Another crucial aspect of the case concerns the engagement of private legal counsel by ISAWAD. COA Circular No. 95-011 dictates that GOCCs must secure the written conformity of the OGCC and the written concurrence of the COA before engaging a private lawyer, unless exceptional circumstances justify it. Almadovar argued that the written concurrence of the COA was not necessary for the renewal of a retainership contract with a private lawyer, Atty. Esguerra, but only for the initial hiring.

The Court disagreed, clarifying that each renewal of the retainership contract constitutes a new engagement, requiring both OGCC conformity and COA concurrence. As there was no COA concurrence for Atty. Esguerra’s services from January to October 2005, the payments were deemed unauthorized. Similarly, the payments to Atty. Operario, an OGCC lawyer, were disallowed because he provided legal services to ISAWAD before receiving the necessary authority from the OGCC. The Court reasoned that these requirements are in place to ensure proper oversight and accountability in the engagement of legal services by GOCCs.

Regarding the issue of good faith, the Court acknowledged that Almadovar acted in good faith concerning the salary increase. At the time of the disbursement, there was no clear jurisprudence definitively stating that LWDs were subject to the SSL. Thus, Almadovar relied on the scale provided by the Office of the Philippine Association of Water Districts, Inc., which held an erroneous belief that R.A. No. 9286 repealed the SSL.

However, the Court found that Almadovar could not claim good faith regarding the payments to Atty. Esguerra and Atty. Operaria or the excessive RATA. She knowingly approved these payments without the required government approvals, violating existing regulations. Furthermore, she continued to claim excessive RATA despite Corporate Budget Circular (CBC) No. 18 and National Budget Circular (NBC) No. 498 already providing the allowable RATA rates for LWD GMs.

Finally, Almadovar sought a writ of preliminary injunction to prevent the COA from enforcing its decision. However, the Court held that she failed to demonstrate a clear and unmistakable right that warranted injunctive relief. Given the unauthorized disbursements, the Court affirmed the COA’s decision with the modification that Almadovar was absolved from refunding the salary increase due to her good faith in that particular instance. This ruling underscores the importance of adhering to established regulations and seeking proper authorization when disbursing public funds, even for seemingly routine matters.

FAQs

What was the key issue in this case?	The key issue was whether the General Manager (GM) of Isabela Water District (ISAWAD) could be held liable for unauthorized disbursements, including salary increases, legal fees, and representation allowances. It also examined the extent to which Local Water Districts (LWDs) are governed by the Salary Standardization Law (SSL).
Are Local Water Districts (LWDs) exempt from the Salary Standardization Law (SSL)?	No, LWDs are not exempt from the SSL unless their charter specifically states otherwise. The Supreme Court has consistently held that the power of LWDs to fix the compensation of their general managers is subject to the limitations of the SSL.
What approvals are needed to hire a private lawyer for a GOCC?	Engaging a private lawyer requires the written conformity of the Office of the Government Corporate Counsel (OGCC) and the written concurrence of the Commission on Audit (COA), as per COA Circular No. 95-011. These approvals are required for both initial hiring and renewal of retainership contracts.
What constitutes “good faith” in disbursement of public funds?	Good faith, in this context, means an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with an absence of all information or belief of facts which would render the transaction unconscientious. This can be claimed when no prior jurisprudence or clear guidelines exist.
When can a writ of preliminary injunction be issued?	A writ of preliminary injunction can be issued when the right sought to be protected is clear and unmistakable, and there is an urgent necessity to prevent serious damage. It cannot be issued if the right is doubtful or disputed.
Who is responsible for refunding disallowed amounts in unauthorized disbursements?	The responsible officers who authorized the disbursements, including the General Manager, are typically held liable to refund the disallowed amounts, unless they can prove they acted in good faith and without negligence. The recipient of the funds is generally not held liable.
What are Representation and Transportation Allowances (RATA)?	Representation and Transportation Allowances (RATA) are allowances given to government officials to cover expenses related to their official duties. These allowances are subject to specific limits set by the Department of Budget and Management (DBM).
How does this case affect other GOCCs and LWDs?	This case serves as a reminder to all GOCCs and LWDs to strictly adhere to the requirements of the SSL and COA regulations. It reinforces the importance of seeking proper approvals before disbursing public funds and sets a precedent for accountability in financial transactions.

In conclusion, the Almadovar case reaffirms the principle that GOCCs and LWDs are not entirely autonomous in their financial decisions and must adhere to national regulations and guidelines. While local boards have the power to manage their affairs, they must operate within the boundaries set by law to ensure transparency and accountability in the use of public funds. The decision highlights the need for good governance and compliance with established procedures to avoid potential liabilities and uphold the integrity of public service.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: ALELI C. ALMADOVAR vs. MA. GRACIA M. PULIDO-TAN, G.R. No. 213330, November 16, 2015

November 16, 2015

Unauthorized Legal Representation: Government Officials’ Liability for Private Counsel Fees

When a government entity hires a private lawyer without proper authorization, the officials involved are personally responsible for paying the legal fees. This protects public funds from unauthorized expenses and ensures that government-owned corporations adhere to legal procedures for engaging external legal services. The Supreme Court emphasizes the importance of securing written consent from both the Office of the Government Corporate Counsel (OGCC) and the Commission on Audit (COA) before hiring private counsel. Without this approval, the financial burden falls on the individual government officials who bypassed these necessary steps.

Clark Development Corp.’s Legal Misstep: Who Pays the Price for Unauthorized Counsel?

In the case of The Law Firm of Laguesma Magsalin Consulta and Gastardo vs. The Commission on Audit, the Clark Development Corporation (CDC), a government-owned and controlled corporation, engaged a private law firm, Laguesma Magsalin Consulta and Gastardo, to handle its labor cases. However, the CDC failed to secure the necessary written approval from both the OGCC and the COA before hiring the law firm. This oversight led the COA to disallow the payment of legal fees to the law firm, raising the question of who should bear the financial responsibility for the services rendered.

The legal framework governing the engagement of private counsel by government-owned and controlled corporations is clear. As a general rule, these corporations must refer all legal matters to the OGCC, as stipulated in Book IV, Title III, Chapter 3, Section 10 of the Administrative Code of 1987. This provision designates the OGCC as the primary legal advisor for government entities. However, exceptions exist under specific circumstances, such as those outlined in Commission on Audit Circular No. 86-255 and Office of the President Memorandum Circular No. 9.

These circulars allow government-owned corporations to hire private counsel in “extraordinary or exceptional circumstances” or “exceptional cases.” To do so, they must obtain the written consent from the OGCC and the written concurrence of the COA before the hiring takes place. This requirement ensures transparency and accountability in the expenditure of public funds. In this case, CDC argued that the numerous labor cases requiring urgent attention justified hiring the private law firm. However, the COA determined that these cases were not complex enough to warrant bypassing the OGCC.

Section 3 of Office of the President Memorandum Circular No. 9 states: “GOCCs are likewise enjoined to refrain from hiring private lawyers or law firms to handle their cases and legal matters. But in exceptional cases, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm.”

The Supreme Court emphasized that CDC had failed to comply with these mandatory requirements. Although CDC sought reconsideration from the OGCC, the approval granted by Government Corporate Counsel Valdez was conditional, pending submission of a signed retainership contract. CDC failed to submit this contract, and the OGCC subsequently denied final approval. Furthermore, CDC only requested COA concurrence three years after engaging the law firm’s services, violating the requirement for prior written approval. The court cited previous cases, such as Polloso v. Gangan and PHIVIDEC Industrial Authority v. Capitol Steel Corporation, which underscore the necessity of obtaining both OGCC and COA approval before hiring private counsel.

The Supreme Court dismissed the petition filed by the law firm, upholding the COA’s decision to disallow the payment of legal fees from public funds. The court acknowledged that the law firm had provided legal services to CDC but ruled that the unauthorized engagement meant the government was not liable for the fees. Instead, the court pointed to Section 103 of the Government Auditing Code of the Philippines, which states, “Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.”

Section 103 of the Government Auditing Code of the Philippines states: “Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.”

The Court noted a gap in the law caused by an amendment to Commission on Audit Circular No. 86-255, which removed the provision explicitly holding officials personally liable for unauthorized engagements. However, the Court emphasized that the general principle of personal liability for unlawful expenditures, as enshrined in the Government Auditing Code, still applied. The Court concluded that the officials of CDC who violated the rules and regulations should be personally responsible for paying the legal fees owed to the law firm.

The decision serves as a clear reminder that government officials must adhere to established procedures when engaging private counsel. The ruling underscores the importance of protecting public funds and preventing unauthorized expenditures. By holding officials personally liable, the Court aimed to deter future violations and ensure that government-owned corporations comply with the legal requirements for hiring external legal services.

FAQs

What was the key issue in this case?	The central issue was whether the Commission on Audit (COA) erred in disallowing the payment of legal fees to a private law firm hired by Clark Development Corporation (CDC) without the required prior approvals. The case hinged on determining who should be liable for these fees, given the lack of proper authorization.
What are the requirements for a government-owned corporation to hire private counsel?	Government-owned and controlled corporations must generally refer legal matters to the Office of the Government Corporate Counsel (OGCC). If private counsel is needed in exceptional cases, written conformity from the OGCC and written concurrence from the COA must be secured before hiring.
What happens if a government-owned corporation hires private counsel without proper authorization?	If a government-owned corporation hires private counsel without prior OGCC and COA approval, the expenditure of public funds for those legal services is disallowed. The officials responsible for the unauthorized hiring may be held personally liable for the legal fees.
What is the basis for holding government officials personally liable?	Section 103 of the Government Auditing Code of the Philippines states that expenditures of government funds in violation of law or regulations are the personal liability of the responsible official. This principle ensures accountability and deters unauthorized spending.
*What is the meaning of quantum meruit* in this context?**	Quantum meruit, meaning “as much as he deserves,” is a basis for determining attorney’s fees in the absence of an express agreement. However, the COA disallowed payment on this basis because the contract was executed in violation of COA and presidential circulars.
Why was the Law Firm’s petition denied by the Supreme Court?	The Supreme Court denied the law firm’s petition primarily because Clark Development Corporation failed to secure final approval from the Office of the Government Corporate Counsel and written concurrence from the Commission on Audit before engaging the law firm’s services.
What was the effect of COA Circular 86-255 amendment?	The amendment of COA Circular No. 86-255 by Circular No. 98-002 created a gap in the law by removing the explicit statement that officials would be personally liable for unauthorized hiring, but the Supreme Court still upheld that there is personal liabilty due to Government Auditing Code.
What practical lesson can government officials learn from this case?	Government officials should always adhere to established procedures and secure all required approvals before engaging the services of private counsel. Failure to do so can result in personal liability for the associated legal fees.

The ruling in Laguesma Magsalin Consulta and Gastardo vs. The Commission on Audit serves as a crucial reminder for government officials to strictly adhere to the regulations governing the engagement of private legal services. By emphasizing personal liability for unauthorized expenditures, the Supreme Court reinforces the importance of transparency and accountability in the use of public funds. This decision ensures that government entities comply with established procedures, safeguarding public resources and promoting responsible governance.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: The Law Firm of Laguesma Magsalin Consulta and Gastardo vs. The Commission on Audit, G.R. No. 185544, January 13, 2015

January 13, 2015

Authority to Represent: The Limits of Legal Representation for Government-Owned Corporations

The Supreme Court in Vargas v. Ignes ruled that attorneys who represent a government-owned and controlled corporation (GOCC) without proper authorization from the Office of the Government Corporate Counsel (OGCC) and the Commission on Audit (COA) are subject to disciplinary action. The Court emphasized the importance of adhering to the rules set forth in the Administrative Code of 1987 and Memorandum Circular No. 9, which require GOCCs to secure written consent from the OGCC and COA before hiring private lawyers. This decision underscores the principle that lawyers must ensure they have valid authority to represent their clients, especially when dealing with government entities, and it reinforces the accountability of legal professionals to uphold the integrity of the legal profession.

When Representation Exceeds Authority: The Case of Koronadal Water District

This case revolves around a disbarment complaint filed by Rey J. Vargas and Eduardo A. Panes, Jr. against Attys. Michael A. Ignes, Leonard Buentipo Mann, Rodolfo U. Viajar, Jr., and John Rangal D. Nadua. The central issue is whether these attorneys acted as counsel for the Koronadal Water District (KWD), a government-owned and controlled corporation (GOCC), without proper legal authority. The controversy arose when two factions claimed to be the legitimate Board of Directors of KWD, leading to legal disputes and the engagement of the respondent attorneys.

The facts reveal that KWD initially hired Atty. Michael A. Ignes as private legal counsel with the consent of the OGCC and COA. However, as internal conflicts escalated, the Dela Peña board, one of the contending factions, appointed Attys. Rodolfo U. Viajar, Jr. and Leonard Buentipo Mann as collaborating counsels under Atty. Ignes’s supervision. Subsequently, Attys. Ignes, Viajar, Jr., and Mann filed cases on behalf of KWD. The legal complications deepened when the OGCC approved the retainership of a new legal counsel, Atty. Benjamin B. Cuanan, and stated that Atty. Ignes’s contract had already expired. Despite this, the complainants alleged that the respondents continued to represent KWD without proper authorization, leading to the disbarment complaint.

The Integrated Bar of the Philippines (IBP) initially dismissed the complaint, but the Supreme Court reversed this decision. The Court emphasized the necessity of OGCC and COA approval for GOCCs to hire private lawyers, citing Section 10, Chapter 3, Title III, Book IV of the Administrative Code of 1987, which designates the OGCC as the principal law office for all GOCCs. Furthermore, the Court referred to Memorandum Circular No. 9, which discourages GOCCs from hiring private lawyers without the written consent of the Solicitor General or the Government Corporate Counsel and the written concurrence of the COA.

“Under Section 10, Chapter 3, Title III, Book IV of the Administrative Code of 1987, it is the OGCC which shall act as the principal law office of all GOCCs.”

The Supreme Court then examined whether the respondent attorneys had valid authority to represent KWD. It found that Attys. Nadua, Viajar, Jr., and Mann lacked the required approval from the OGCC and COA to act as collaborating counsels. The Court noted that while Resolution No. 009 appointed Attys. Viajar, Jr., and Mann as collaborating counsels, this resolution lacked the necessary OGCC and COA approval. Atty. Nadua’s engagement also lacked proper authorization, as there was no proof that the OGCC and COA approved his engagement as legal or collaborating counsel.

Building on this principle, the Court compared the situation to the case of Phividec Industrial Authority v. Capitol Steel Corporation, where it ruled that a private counsel of a GOCC had no authority to file a case on the GOCC’s behalf due to non-compliance with Memorandum Circular No. 9. The Court clarified that Atty. Ignes’s lack of notification regarding the pre-termination of his contract did not validate the unauthorized representation by Attys. Nadua, Viajar, Jr., and Mann.

The Court found that Atty. Ignes also appeared as counsel for KWD without authority after his retainership contract had expired. Despite his claim that he stopped representing KWD after April 17, 2007, the evidence showed that he continued to act as KWD’s counsel even after this date. The Court referred to a transcript of stenographic notes from January 28, 2008, in Civil Case No. 1799, where Atty. Ignes argued a motion for the return of KWD’s facilities and identified himself as counsel for KWD. Additionally, he filed a notice of appeal in Civil Case No. 1799, which the RTC denied due to his lack of proper authorization.

The Court then addressed whether the respondents willfully appeared as counsels of KWD without authority. The Court found convincing evidence that the respondents deliberately acted without proper authorization. The respondents admitted their awareness of Memorandum Circular No. 9 and the ruling in Phividec. Despite this knowledge, they signed pleadings as counsels of KWD and presented themselves as such without complying with the required conditions.

Furthermore, despite challenges to their authority raised in Civil Case No. 1799, the respondents continued to file pleadings and represent KWD. The Court noted that Atty. Ignes had to be reminded by the RTC of the need for OGCC authority to file motions on behalf of KWD. This series of actions demonstrated a clear disregard for the established rules and procedures governing the representation of GOCCs.

Consequently, the Court concluded that the respondents’ willful appearance as counsels of KWD without authority warranted disciplinary action. It cited Section 27, Rule 138 of the Rules of Court, which allows for disbarment or suspension for various misconducts, including willfully appearing as an attorney for a party to a case without authority to do so. However, considering that disbarment is the most severe sanction, the Court opted to impose a fine of P5,000 on each respondent, consistent with the penalty imposed in Santayana v. Alampay, where a similar offense occurred.

Finally, the Court noted that the respondents did not fully disclose the subsequent nullification of certain orders in Civil Case No. 1799 by the Court of Appeals. The Court reminded lawyers of their duty to show candor and good faith to the courts, as required by the Code of Professional Responsibility.

FAQs

What was the key issue in this case?	The key issue was whether the respondent attorneys acted as counsel for the Koronadal Water District (KWD), a government-owned and controlled corporation (GOCC), without proper legal authority from the Office of the Government Corporate Counsel (OGCC) and the Commission on Audit (COA).
Why is OGCC and COA approval necessary for GOCCs to hire private lawyers?	OGCC and COA approval is necessary because Section 10 of the Administrative Code of 1987 designates the OGCC as the principal law office for all GOCCs, and Memorandum Circular No. 9 discourages GOCCs from hiring private lawyers without written consent from the OGCC and COA to ensure proper oversight and accountability.
What is the significance of Memorandum Circular No. 9?	Memorandum Circular No. 9, issued by President Estrada, prohibits GOCCs from referring their cases and legal matters to private legal counsel or law firms and directs them to refer such matters to the Office of the Government Corporate Counsel, unless otherwise authorized under certain exceptional circumstances.
What was the basis for the Supreme Court’s decision?	The Supreme Court based its decision on the finding that the respondent attorneys willfully appeared as counsels of KWD without the required authorization from the OGCC and COA, which violated Section 27, Rule 138 of the Rules of Court.
What penalty did the Supreme Court impose on the attorneys?	The Supreme Court imposed a fine of P5,000 on each respondent, namely Attys. Michael A. Ignes, Leonard Buentipo Mann, Rodolfo U. Viajar, Jr., and John Rangal D. Nadua, payable to the Court within ten (10) days from notice of the Resolution.
What is the implication of this ruling for lawyers representing GOCCs?	This ruling implies that lawyers must ensure they have valid and proper authorization from the OGCC and COA before representing GOCCs in legal matters, and failure to do so can result in disciplinary action, including fines or suspension.
How did the Court view Atty. Ignes’s continued representation of KWD after his contract expired?	The Court viewed Atty. Ignes’s continued representation of KWD after his contract expired as unauthorized, despite his claim that he was not notified of the contract’s pre-termination, because he continued to act as KWD’s counsel in court proceedings.
*What is the relevance of the case Phividec Industrial Authority v. Capitol Steel Corporation* to this case?**	The case of Phividec Industrial Authority v. Capitol Steel Corporation is relevant because it established that a private counsel of a GOCC had no authority to file a case on the GOCC’s behalf due to non-compliance with Memorandum Circular No. 9, reinforcing the need for proper authorization.

The Supreme Court’s decision in Vargas v. Ignes serves as a crucial reminder to legal professionals about the importance of adhering to the established rules and regulations when representing government-owned and controlled corporations. By underscoring the necessity of obtaining proper authorization from the OGCC and COA, the Court reinforces the integrity of the legal profession and ensures accountability in the representation of government entities.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: REY J. VARGAS AND EDUARDO A. PANES, JR. VS. ATTY. MICHAEL A. IGNES, ET AL., A.C. No. 8096, July 05, 2010

July 5, 2010

The Limits of Private Counsel: When Can Government Corporations Hire Outside Lawyers?

The Supreme Court in PHIVIDEC Industrial Authority vs. Capitol Steel Corporation clarified the stringent requirements for government-owned and controlled corporations (GOCCs) to hire private legal counsel. The Court emphasized that GOCCs must primarily rely on the Office of the Government Corporate Counsel (OGCC) for legal representation, and can only hire private lawyers in exceptional cases with prior written consent from both the OGCC and the Commission on Audit (COA). This ruling underscores the government’s policy to reduce public expenditures and ensure fidelity to the government’s cause.

Hiring Hurdles: Can PHIVIDEC Side-Step Rules on Government Counsel for Expropriation?

This case originated from an expropriation complaint filed by PHIVIDEC Industrial Authority against Capitol Steel Corporation, represented by Atty. Cesilo Adaza, a private lawyer. The central legal issue revolved around whether Atty. Adaza had the proper authority to represent PHIVIDEC, considering the rules governing the engagement of private counsel by GOCCs. Capitol Steel questioned Atty. Adaza’s authority, arguing that PHIVIDEC had not complied with the requirements of securing prior written consent from the OGCC and COA. The Regional Trial Court initially denied Capitol Steel’s motion to dismiss, but the Court of Appeals later reversed this decision, leading to the Supreme Court review.

The Supreme Court delved into the history of laws governing the role of the OGCC, tracing it back to Republic Act No. 2327 in 1959, which established the position of Government Corporate Counsel. Subsequent amendments, particularly Republic Act No. 3838, solidified the OGCC as the principal law office for GOCCs, imposing restrictions on hiring private counsels. Initially, GOCCs could hire private lawyers with the written consent of the Government Corporate Counsel or the Secretary of Justice. However, Presidential Decree No. 1415 in 1978, eliminated this exception, mandating the OGCC as the exclusive legal representative for all GOCCs without exception.

Executive Order No. 292, the Administrative Code of 1987, later removed the phrase “without exception,” but retained the OGCC’s role as the principal law office. The Court explained that this amendment, coupled with the President’s executive and administrative powers, allowed for the issuance of rules governing the relationship between GOCCs and the OGCC. This led to Administrative Order No. 130, which reaffirmed the exclusive mandate of the OGCC, allowing the President to authorize only the Office of the Solicitor General to represent GOCCs in place of or in addition to the OGCC.

A pivotal point came with Memorandum Circular No. 9, issued in 1998, which provided a specific exception to the prohibition of hiring private lawyers. According to Section 3 of this Circular:

“GOCCs are likewise enjoined to refrain from hiring private lawyers or law firms to handle their cases and legal matters. But in exceptional cases, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm.”

The Supreme Court emphasized that this exception was subject to stringent conditions. First, hiring private counsel could only occur in exceptional cases. Second, the GOCC had to first secure written consent from the Solicitor General or the Government Corporate Counsel. Third, the written concurrence of the COA was also required before hiring. These requirements reflect a clear policy to curtail unnecessary public expenditures and ensure the fidelity of legal representation to the government’s interests.

The Court noted the significant reasons behind this public policy. Minimizing the expenses of GOCCs, particularly the high costs associated with private legal fees, was a primary concern. The whereas clauses of Memorandum Circular No. 9 explicitly state the need to reduce government expenditures by minimizing the expenses of GOCCs:

WHEREAS, there is a need to reduce government expenditures by minimizing the expenses of government-owned or controlled corporations (GOCCs) which hire private lawyers and law firms, considering the high cost of retainers, fees and charges that are paid to said private lawyers and law firms;

WHEREAS, one way of realizing savings on the part of government-owned or controlled corporations (GOCCs) is to implement and enforce pertinent laws and regulations which prohibit GOCCs from hiring private retainers and law firms to handle their cases and legal matters, and those which direct GOCCs to refer their cases and legal matters to the Office of the Government Corporate Counsel (OGCC) for proper handling.

Furthermore, the policy recognized the stronger ties of OGCC lawyers to their client government corporations, fostering a deeper sense of fidelity and preserving the confidentiality of sensitive information. Given this framework, the Court scrutinized PHIVIDEC’s claim of compliance with these requirements.

The Supreme Court found that PHIVIDEC failed to meet the conditions set by Memorandum Circular No. 9. Atty. Adaza filed the expropriation suit on August 24, 1999, before PHIVIDEC secured the required written concurrences from the OGCC and the COA. The documents submitted by PHIVIDEC did not substantiate the claim that the requisite concurrences were obtained at all. The Court dismissed the COA Regional Office’s Indorsement as mere second-hand information and noted it was dated June 4, 2002, long after the case was filed. There was also no concrete proof of written concurrence from the Office of the Government Corporate Counsel. The Court referenced a letter from the OGCC suggesting changes to the retainer contract, but concluded that this could not serve as proof of concurrence.

The Court also mentioned COA Circular No. 86-255, which requires prior written concurrences from the OGCC or the Solicitor General and the COA before GOCCs hire private counsel. However, it clarified that the COA Circular does not grant or disallow the authority for GOCCs to hire private counsel, but rather governs the disbursement of public funds for retained lawyers. In conclusion, the Supreme Court determined that Atty. Adaza lacked the authority to file the expropriation case on behalf of PHIVIDEC. Citing analogous cases, the Court emphasized that such a lack of authority is sufficient grounds for dismissal.

Therefore, the Supreme Court upheld the Court of Appeals’ decision, ordering the dismissal of the case without prejudice to refiling by PHIVIDEC through a proper legal officer or counsel. The Court deemed it unnecessary to address the procedural issue raised in the petition, given the unauthorized engagement of Atty. Adaza. The decision underscores the importance of strict adherence to the rules governing the legal representation of GOCCs, reinforcing the policy of prioritizing the OGCC and minimizing unnecessary expenses.

FAQs

What was the key issue in this case?	The central issue was whether a private lawyer, Atty. Adaza, had the authority to represent PHIVIDEC, a government-owned corporation, in an expropriation case, given the regulations governing the hiring of private counsel by GOCCs. The court focused on the necessity of prior written consent from the OGCC and COA.
What is a GOCC?	A GOCC is a government-owned or controlled corporation. These are entities where the government owns the majority of shares or has significant control over their operations.
What is the role of the OGCC?	The Office of the Government Corporate Counsel (OGCC) is the principal law office for all government-owned and controlled corporations (GOCCs). It is primarily responsible for providing legal advice and representation to these entities.
Can GOCCs hire private lawyers?	Generally, GOCCs are expected to be represented by the OGCC. They can only hire private lawyers in exceptional cases, and only with prior written consent from both the OGCC and the Commission on Audit (COA).
What is Memorandum Circular No. 9?	Memorandum Circular No. 9, issued in 1998, outlines the conditions under which GOCCs can hire private lawyers. It requires that the hiring be for an exceptional case and that prior written consent from the OGCC (or Solicitor General) and COA be obtained.
Why are there restrictions on GOCCs hiring private lawyers?	The restrictions aim to reduce government expenditures by minimizing the legal fees paid to private lawyers. They also ensure that GOCCs are represented by counsel who are deeply committed to the government’s interests and maintaining confidentiality.
What happens if a private lawyer represents a GOCC without proper authorization?	If a private lawyer represents a GOCC without the required authorization, the actions taken by the lawyer on behalf of the GOCC may be deemed invalid. The case could be dismissed, as it was in this instance.
What does “without prejudice” mean in the court’s decision?	“Without prejudice” means that the case was dismissed, but PHIVIDEC is not barred from refiling the case. However, they must do so through a proper legal officer or counsel, ensuring compliance with the requirements for legal representation of GOCCs.

This case serves as a clear reminder of the strict regulations governing the engagement of private legal counsel by government-owned and controlled corporations. It emphasizes the importance of adhering to established procedures and securing the necessary approvals to ensure the validity of legal representation. This ruling reinforces the government’s commitment to fiscal responsibility and the integrity of legal processes within the public sector.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: PHIVIDEC INDUSTRIAL AUTHORITY VS. CAPITOL STEEL CORPORATION, G.R. No. 155692, October 23, 2003

October 23, 2003