BCDA terminates lease deal with John Hay developer

Posted at 05/16/12 6:20 PM

MANILA, Philippines - State-owned Bases Conversion and Development Authority (BCDA) on Wednesday terminated its lease agreement with Camp John Hay Development Corp. (CJHDevco). BCDA ordered the Sobrepena-led company to vacate the property in Baguio City and pay more than P3 billion in outstanding rentals and obligations.

In response, CJHDevco said the BCDA's attempt to terminate the John Hay contract is illegal.

BCDA sent the termination notice to CJHDevco's corporate offices in the Camp John Hay Special Economic Zone in Baguio on Wednesday.

Signed by BCDA president and chief executive officer Arnel Casanova, the notice stated that BCDA is terminating its lease agreement dated October 19, 1996 and the restructuring memorandum of agreement (RMOA) dated July 1, 2008 due to CJHDevco’s "material and incurable breaches."

The BCDA said the 8 breaches of CJHDevco are as follows:

  • 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.

"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.
The termination of the contract follows BCDA'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 also proposed to changed the bid terms and extend the lease contract until 2061, which Casanova said 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.
Casanova also cited CJHDevco’s evident "lack of good faith in complying with its obligations." The company claimed financial difficulties as the reason for failing to pay its lease rentals in 1998 and 1999 and sough restructuring in 2000. But CJHDevco declared dividends from 1998 to 2000.
Any further negotiations would be futile, he said. "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," he said.

'Termination notice is illegal'

CJHDevco hit back at the BCDA for terminating the lease.  "Our lawyers have advised us that Casanova has acted arbitrarily and without basis, using accusations instead of facts as basis to terminate a valid and binding contract that cannot be terminated without following proper procedure," Alfredo Yñiguez, executive vice president and chief operating officer of CJHDevco said, in a statement.

Yniguez denied that the company had no intention to pay its rentals and debts to the BCDA.

"We have paid BCDA a total amount of P1.4 billion. We have been diligent with our payments. In fact, in an act of good faith and to amicably settle all pending disputes, CJHDevco reached out to BCDA to settle the ongoing impasse and even offered to pay P500 million and presented another proposal that should generate almost P13 billion in revenues for BCDA. He has no basis to say that there is no intention to pay," he said.

Before any termination notice can be served, Yniguez said it should go through the arbitration procedure.

"There is currently an arbitration procedure that is ongoing. BCDA should submit itself to this procedure first. Casanova cannot just whimsically terminate the contract without following this procedure, otherwise he is acting in abuse of his discretion as BCDA president and should be sanctioned for it," Yniguez said.

CJHDevco is also readying criminal charges against Casanova for making what the company says are "false representations" about the facts on the developments in Camp John Hay.