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Frequently Used Abbreviations and Acronyms
ADB Asian Development Bank
ADL Anti-Dummy Law (CBII-4)
Arbitration Rules ICSID 2006 Rules of Procedure for Arbitration Proceedings
ARCA Amended and Restated Concession Agreement for the Build-Operate-And-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III dated November 26, 1998 signed between the Government and PIATCO (CBII-55)
BIT or Treaty 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 (CA-1)
Blue Ribbon Committee Senate Committee on Accountability of Public Officers and Investigations
BOT law Republic Act No. 7718 entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes" (CBII-12)
BSP Bangko Sentral ng Pilipinas
[CA] [RL] [Claimant] [Respondent] Legal Authority
[CE] [RE] [Claimant] [Respondent] Exhibit
C-Mem. Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction, including counterclaims dated November 19, 2012
Clark Clark Field Airport
Concession Agreement Concession Agreement for the Build-Operate-And-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III dated July 12, 1997, signed between the Government and PIATCO (CBII-43)

Datacenta Agreement Agreement for the Provision of Consultancy Services in relation to tax and efficiency planning in respect of Terminal III dated August 22, 1997 signed between PIATCO and Datacenta Ltd. (RE-326)
DOJ Philippine Department of Justice
DOTC Philippine Department of Transportation and Communication
EPC Contract Agreement entered into by PIATCO and Takenaka for the construction of Terminal 3 dated March 31, 2000 (CBII-104)
FAG Flughafen Frankfurt Main AG (currently known as Fraport AG Frankfurt Services Worldwide)
Fraport Fraport AG Frankfurt Services Worldwide
Hearing Hearing on jurisdiction, liability and counterclaims held from September 16 through 26, 2013
Hr. Tr. [Day #], [page] Transcript of the hearing on jurisdiction, liability and counterclaims held from September 16 through 26, 2013
ICC NEDA Investment Coordination Committee
ICC-CC ICC Cabinet Committee
ICC Arbitration ICC arbitration proceedings, Philippine International Air Terminals Co., Inc. (Philippines) vs. The Government of the Republic of the Philippines (Acting through the Department of Transportation and Communications and the Manila International Airport Authority), ICC Case No. 12610/TE/MW/AVH/JEM/MLK
ICSID or the Centre International Centre for Settlement of Investment Disputes
[ICSID-#] Documents filed in the ICSID 1 arbitration proceedings
ICSID 1Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines (ICSID Case No. ARB/03/25)
ICSID 1 Award Award rendered on August 16, 2007, in Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines (ICSID Case No. ARB/03/25) (CBII-409)

ICSID 1 Tr. [Day #] [page] Transcript of the hearing on jurisdiction and liability in Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines (ICSID Case No. ARB/03/25) held from January 6 through 17, 2006
ICSID Annulment Annulment proceedings in Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines (ICSID Case No. ARB/03/25)
ICSID Annulment Decision ICSID ad hoc Committee’s Decision in the annulment proceedings in Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines (ICSID Case No. ARB/03/25) dated December 23, 2010 (CBII-417)
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated March 18, 1965
IRR 1994 Implementing Rules and Regulations (CBII-13)
KfW Kreditanstalt für Wiederaufbau
MASO MIA-NAIA Association of Service Operators
Mem. Claimant’s Memorial on Liability dated August 17, 2012
MIAA Manila International Airport Authority
NAIA Ninoy Aquino International Airport
NBI National Bureau of Investigation
NEDA Philippine National Economic Development Authority
O&M Agreement Operations & Maintenance Agreement dated July 27, 2001 signed between PIATCO and PTI (CBII-189)
PAGC Presidential Anti-Graft Commission
PAGS Philippine Airport & Ground Services, Inc.
PAIRCARGO People’s Aircargo & Warehousing Co., Inc.
PAL Philippine Airlines
PBAC Prequalification Bids and Awards Committee
PEZA Philippine Economic Zone Authority
PHB1 Post-hearing briefs dated March 3, 2014

PHB2 Reply post-hearing briefs dated on April 2, 2014
PIATCO Philippine International Air Terminals Co., Inc.
Pooling Agreement FAG-PAICARGO-PAGS-PTI Shareholders Agreement, dated July 6, 1999 (CBII-80)
PTH Philippine and Ground Services Terminals Holdings, Inc.
PTI Philippine Airport and Ground Services Terminals, Inc.
QT Quisumbing Torres
Rej. Respondent’s Rejoinder on the Merits and Reply on Jurisdiction, including counterclaims dated June 10, 2013
Rep. Claimant’s Reply on the Merits and Counter-Memorial on Jurisdiction, including counterclaims dated April 5, 2013
Request Request for Arbitration submitted by Fraport AG Frankfurt Services Worldwide against the Republic of the Philippines dated March 30, 2011
SEC Securities and Exchange Commission
Skeleton Skeleton Submissions dated September 3, 2013
Sur-Rej. Claimant’s Sur-Rejoinder on Jurisdiction, including counterclaims dated July 12, 2013
Security Bank Security Bank Corporation
OGCC Office of Government Corporate Counsel
VCLT Vienna Convention on the Law of Treaties dated May 23,1969

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.1
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, 2007 (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.2

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.3

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.

III. PROCEDURAL HISTORY

20.
On March 30, 2011, ICSID received a request for arbitration of the same date submitted by Fraport against the Republic of the Philippines, accompanied by exhibits CE-1 through CE-23 and legal authority CA-1 (the "Request").
21.
On April 27, 2011, the Secretary-General of ICSID registered the Request in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an Arbitral Tribunal as soon as possible in accordance with Rule 7(d) of the Centre’s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.
22.
By letters of May 12 and 26, 2011, the Parties agreed to constitute the Arbitral Tribunal in accordance with Article 37(2)(a) of the ICSID Convention and that the Tribunal would consist of three arbitrators, one to be appointed by each Party, the third arbitrator and President of the Tribunal to be appointed by agreement of the Parties.
23.
The Tribunal is composed of Professor Piero Bernardini, a national of Italy, President, appointed by agreement of the Parties on January 30, 2012; Mr. Stanimir A. Alexandrov, a national of Bulgaria, appointed by Claimant on June 23, 2011; and Professor Albert Jan van den Berg, a national of the Netherlands, appointed by Respondent on July 27, 2011.
24.
On February 7, 2012, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules") notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Eloise Obadia, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal. She was later replaced by Ms. Aurélia Antonietti, ICSID Legal Counsel.
25.
The Tribunal held a first session with the Parties on April 3, 2012, at the World Bank’s office in Washington, D.C. The Parties confirmed that the Members of the Tribunal had been validly appointed. It was agreed inter alia that the applicable Arbitration Rules would be those in effect from April 10, 2006, that the procedural language would be English and that the place of proceeding would be Washington, D.C. The decisions of the Tribunal and the agreement of the Parties were embodied in the Minutes of the First Session signed by the President and the Secretary of the Tribunal and circulated to the Parties on April 17, 2012.
26.
At the Session, it was decided that, considering the factual background of this case, it was appropriate to address issues of jurisdiction and liability in a first phase, followed by a second phase on issues relating to quantum, if needed.4
27.
At the Session, it was also decided that the Tribunal would first examine threshold procedural matters (the "Preliminary Phase") raised by Respondent on March 28 and 29, 2012, and that a schedule for further procedures would be fixed once the Tribunal would have decided on the aforementioned matters.
28.
By letter dated April 4, 2012, the Tribunal invited the Parties to submit observations on two points relating to the Preliminary Phase matters as specified during the First Session,5 namely whether and to what extent findings of fact and conclusions of law of the ICSID 1 Award were binding, and whether and to what extent the evidentiary record of the ICSID 1 proceedings and the ICC related proceedings were to be incorporated into these proceedings.
29.
In accordance with the schedule set forth by the Tribunal, the Parties submitted their respective observations. Respondent’s submission dated April 18, 2012, was accompanied by exhibits RE-1 through RE-102, legal authorities RL-1 through RL-75, Annexes A through D (Legal Opinion of Professor Dr. Rudolf Dolzer dated April 18, 2012 (Annex A), and Legal Opinion of Professor Christoph Schreuer dated April 12, 2012 (Annex B)), while Claimant’s submission dated May 2, 2012, was accompanied by exhibits CE-24 through CE-35, legal authorities CA-2 through CA-42, and by a Declaration of Professor Andreas F. Lowenfeld dated May 1, 2012.
30.
On May 17, 2012, having considered the Parties’ respective submissions, the Tribunal issued Procedural Order No. 1 whereby (i) it found that the ICSID 1 Award had been annulled in its entirety by the ad hoc Committee, (ii) it denied Respondent’s requests to consider certain determinations of the ICSID 1 Tribunal and the ICC Tribunal binding on the Parties, and (iii) it admitted the records of the ICSID 1 proceedings and the ICC proceedings into the present record.6 The Tribunal also fixed a schedule for further procedures, including a date for a hearing.
31.
On August 17, 2012, Claimant filed its Memorial on Liability ("Mem."), accompanied by exhibits CE-36 through CE-150, legal authorities CA-43 through CA-104, and the following supporting documents:

Witness Statements :

- Statement of Mr. Peter Henkel dated August 15, 2012 ("Henkel III")7;

- Statement of Dr. Dietrich F.R. Stiller dated August 17, 2012 ("Stiller IV"); and

- Statement of Mrs. Dôrte Ochs dated August 9, 2012 ("Ochs") (hereinafter "Ochs (ICSID 2)").

Legal Opinion:

- Joint Legal Opinion of Justices Jose R. Melo (ret.) and Artemio G. Tuquero (ret.), and Dean Raul C. Pangalangan signed on December 12 and 18, 2011 ("Joint Legal Opinion") (hereinafter "Melo-Tuquero-Pangalangan I (ICSID 2)").

Expert Reports:

- PricewaterhouseCoopers ("PwC") Supplemental Opinion by Ms. Claudia Nestler and Dr. Michael Hammes dated August 16, 2012 ("PwC Report III"); and

- Memorandum of Professor Amedeo Odoni dated August 14, 2012 ("Odoni II").

32.
On November 19, 2012, Respondent filed its Counter-Memorial on the Merits and Memorial on Jurisdiction ("C-Mem."), including counterclaims, accompanied by exhibits RE-103 through RE-1358, legal authorities RL-76 through RL-431, Annexes E through G, and the following supporting documents:

Witness Statements :

- Witness Statement of Secretary Leila De Lima dated November 19, 2012 ("De Lima I");

- Witness Statement of Major General Jose Angel A. Honrado AFP (ret.) dated November 16, 2012 ("Honrado"); and

- Witness Statement of Mr. Dennis Villa-Ignacio dated November 19, 2012 ("Villa-Ignacio").

Legal Opinions :

- Legal Opinion of Dean Dando L. Concepcion dated November 20, 2012 ("Concepcion") (hereinafter "Concepcion I (ICSID 2)");

- Expert Opinion of Professor Rudolf Dolzer dated November 15, 2012 ("Dolzer") (hereinafter "Dolzer II (ICSID 2)");

- Opinion of Sir Elihu Lauterpacht dated November 16, 2012 ("Lauterpacht"); and

- Legal Opinion of Professors Christoph Schreuer, Ursula Kriebaum and Christina Binder dated November 18, 2012 ("Schreuer") (hereinafter "Schreuer-Kriebaum-Binder I (ICSID 2)").

Expert Reports :

- Statement of Mr. Raul Manlapig (Ove Arup & Partners) dated November 16, 2012 ("Arup");

- Expert Statement of Mr. Tim Lunt (Gleeds Cost Management Ltd.) dated November 12, 2012 ("Gleeds");

- Statement of Mr. Richard Francis Klenk dated November 15, 2012 ("Klenk");

- Expert Opinion of Professor Dr. Mark Pieth dated November 9, 2012 ("Pieth I (ICSID II)");

- Expert Report of Mr. Rex E. Pingle dated November 16, 2012 ("Pingle I (ICSID II)");

- Expert Report of Dr. Michael B. Rosenzweig dated November 19, 2012 ("Rosenzweig I (ICSID II)"); and

- Expert Report of Mr. Howard M. Silverstone dated November 19, 2012 ("Silverstone I (ICSID II)") (hereinafter "Silverstone I (ICSID 2)").

33.
By letter of January 7, 2013, both Parties requested for the Tribunal to decide on their respective requests for production of documents, which the Tribunal decided, in the form of Redfern Schedules on January 18, 2013.
34.
On April 5, 2013, Claimant filed its Reply on the Merits and Counter-Memorial on Jurisdiction, including counterclaims ("Rep."), accompanied by Annex A, exhibits CE-151 through CE-219,8 legal authorities CA-105 through CA-171, and the following supporting documents:

Witness Statement :

- Statement of Professor Dr. Jürgen Taschke dated April 4, 2013 ("Taschke").

Expert Reports :

- Statement of Mr. John M. Niehuss dated April 2, 2013 ("Niehuss II") (hereinafter "Niehuss I (ICSID 2)");

- Expert Report of Dr. Richard de Neufville dated April 5, 2013 ("de Neufville"); Statement of Professor David W. Kennedy dated April 5, 2013;

- PwC Supplemental Opinion by Ms. Claudia Nestler and Dr. Michael Hammes dated March 2013 ("PwC Report IV") (hereinafter "PwC II (ICSID 2)");

- Expert Report and Disclosure of Mr. Thomas W. Golden dated April 5, 2013; and

- URS Report on the Status of NAIA Terminal 3 by Mr. Mike Jackson dated April 2013 ("URS Report").

Legal Opinions :

- Reply Joint Legal Opinion of Justices Jose R. Melo (ret.) and Artemio G. Tuquero (ret.), and Dean Raul Pangalangan dated April 4, 2013 ("Reply Joint Legal Opinion") (hereinafter "Melo-Tuquero-Pangalangan II (ICSID 2)"); and

- Legal Opinion of Justice Jose C. Vitug dated April 5, 2013 ("Vitug I") (hereinafter "Vitug I (ICSID 2)").

35.
By letter dated May 13, 2013, Respondent requested the Tribunal to order Claimant to produce documents allegedly withheld further to the Tribunal’s decision of January 18, 2013. Claimant provided its observations on Respondent’s request on May 17, 2013.
36.
Following several rounds of written submissions made by the Parties between May 20 and June 3, 2013, including Respondent’s further request for production of documents regarding Claimant’s claim of attorney work product protection of May 28, 2013, the Tribunal issued Procedural Order No. 2 on June 5, 2013, by which it confirmed its decision of January 18, 2013, clarified its position regarding issues raised between the Parties and rejected Respondent’s request of May 28, 2013.
37.
On June 10, 2013, Respondent filed its Rejoinder on the Merits and Reply on Jurisdiction, including counterclaims ("Rej."), accompanied by exhibits RE-1359 through RE-2044, legal authorities RL-432 through RL-507, Annexes H through I, and the following supporting documents:

Witness Statements :

- Supplemental Witness Statement of Secretary Leila De Lima dated June 7, 2013 ("De Lima II");

- Supplemental Witness Statement of Mr. Dennis Villa-Ignacio dated June 7, 2013 ("Villa-Ignacio II");

- Witness Statement of Dr. Norbert Lôsch dated June 2, 2013;

- Witness Statement of Secretary Alberto G. Rómulo dated June 6, 2013; and

- Witness Statement of Mr. F. Arthur Villaraza dated June 7, 2013.

Legal Opinions :

- Second Opinion of Professor Rudolf Dolzer dated June 2013 ("Dolzer II");

- Supplemental Legal Opinion of Dean Dando L. Concepcion dated June 10, 2013 ("Concepcion II") (hereafter "Concepcion II (ICSID 2)");

- Supplementary Legal Opinion by Professors Christoph Schreuer, Ursula Kriebaum and Christina Binder dated June 10, 2013 ("Schreuer II");

- Opinion of Law of Professor Jan Paulsson dated June 4, 2013; and

- Legal Opinion of Justice Reynato S. Puno (ret.) dated June 10, 2013 (hereafter "Puno (ICSID 2)").

Expert Reports :

- Supplemental Expert Statement of Mr. Tim Lunt (Gleeds Cost Management Ltd.) dated June 9, 2013 ("Gleeds II");

- Supplemental Statement of Ove Arup & Partners by Messrs. Raul Manlapig and Ashok Raiji dated June 10, 2013 ("Arup II");

- Supplemental Expert Opinion of Professor Dr. Mark Pieth dated June 9, 2013 ("Pieth II (ICSID II)");

- Supplemental Expert Report of Mr. Rex E. Pingle dated June 10, 2013 ("Pingle II (ICSID II)");

- Rejoinder Report of Dr. Michael B. Rosenzweig dated June 10, 2013 ("Rosenzweig II (ICSID II)");

- Supplemental Expert Report of Mr. Howard M. Silverstone dated June 10, 2013 ("Silverstone II (ICSID II)") (hereafter "Silverstone II (ICSID 2)"); and

- Expert Report of Mr. Brent C. Kaczmarek (Navigant Consulting, Inc.) dated June 10, 2013.

38.
On July 12, 2013, Claimant filed its Sur-Rejoinder on Jurisdiction, including counterclaims ("Sur-Rej"), which was accompanied by Annex A, new exhibits CE-218 and CE-219, exhibits CE-220 through CE-306, legal authorities CA-165 through CA-179, and the following supporting documents:

Witness Statement :

- Statement of Mr. Sanim Aydin dated July 3, 2013.

Legal Opinions :

- Second Supplemental Joint Legal Opinion of Justices Jose R. Melo (ret.) and Artemio G. Tuquero (ret.), and Dean Raul Pangalangan dated July 9, 2013 ("See. Supp. Joint Legal Opinion") (hereafter "Melo-Tuquero-Pangalangan III (ICSID 2)"); and

- Reply Legal Opinion of Justice Jose C. Vitug dated July 11, 2013 ("Vitug II") (hereafter "Vitug II (ICSID 2)").

Expert Reports :

- Supplemental Expert Report and Disclosure of Mr. Thomas W. Golden dated July 12, 2013;

- Statement of Dr. Richard de Neufville dated June 28, 2013 ("de Neufville II"); Supplemental Statement of Professor David W. Kennedy dated July 12, 2013;

- PwC Second Supplemental Expert Report by Ms. Claudia Nestler and Dr. Michael Hammes dated July 10, 2013 ("PwC Report V");

- Supplemental Statement of Mr. John M. Niehuss dated July 12, 2013 ("Niehuss III") (hereafter "Niehuss II (ICSID 2)"); and

- Expert Report and Disclosure of Glenn Ware, Esq. (PwC) dated July 12, 2013.

39.
On August 5, 2013, and in accordance with paragraph 15.9 of the Minutes of the First Session, each Party exchanged a list of witnesses and experts it wished to cross-examine at the hearing. Claimant’s and Respondent’s lists of witnesses and experts were submitted to the ICSID Secretariat on August 12, 2014 and August 14, 2014 respectively.
40.
Pursuant to paragraph 15.9 of the Minutes of the First Session, each Party could request the Tribunal to be allowed to designate up to 3 of its own witnesses or experts for direct testimony, indicating the scope and questions of the direct testimony, regardless of whether such individual has been called for cross-examination by the other Party. By letter of August 12, 2013, Fraport requested to hear Messrs. Peter Henkel, Mike Jackson (URS) and Dietrich Stiller. By letter of August 13, 2013, Respondent requested to hear Messrs. Norbert Lôsch and Venner Mendoza. Respondent also requested to call two rebuttal experts for direct testimony (to rebut new analysis by Claimant in its Sur-Rejoinder), namely Messrs. Mark Pieth and Brent Kaczmarek. Claimant objected to this last request on August 15, 2013, and Respondent answered on August 16, 2013.
41.
By letter of August 19, 2013, the Tribunal extended until August 26, 2013, the deadline provided under paragraph 15.9 of the Minutes of the First Session to determine the witnesses and experts who were to appear at the hearing. By the same letter, the Parties were invited to submit simultaneous Skeleton Submissions by September 3, 2013.
42.
On August 20, 2013, the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference to discuss the forthcoming hearing and its logistics. The decisions of the Tribunal and the agreement of the Parties were embodied in the Minutes of the Pre-Hearing Organizational Meeting signed by the President and the Secretary of the Tribunal and circulated to the Parties on August 22, 2013.9
43.
Following several rounds of Parties’ correspondence on each other’s designation of witnesses and experts who were to be made available at the hearing and the scope of the direct testimony, the Tribunal issued Procedural Order No. 3 on September 2, 2013, by which it determined the list of witnesses and experts to be made available for cross-examination and direct examination at the hearing. The Tribunal allowed the Parties’ requests to call Messrs. Peter Henkel, Mike Jackson (URS), Dietrich Stiller, Norbert Lôsch and Venner Mendoza for direct testimony, listing the scope and questions of their direct testimonies. The Tribunal allowed the direct supplemental testimony of Messrs. Mark Pieth and Brent Kaczmarek on the condition that a written rebuttal be submitted a week before the hearing, and upon the condition that their direct examination remain within the scope of their reports and subject to Claimant’s right to cross-examine them.
44.
Further to disagreements between the Parties on September 5 and 6, 2013 as to the availability of some witnesses and experts and their rolling order, as well as Respondent’s request to use video-conference for the cross-examination of some its witnesses, the Tribunal ordered the Parties on September 6, 2013, to confer and endeavor to agree on the schedule by September 9, 2013, and denied any examination by video at that late stage, except for Ms. De Lima and Mr. De Ocampo, for whom Claimant had not objected provided that Respondent paid for the costs of Claimant’s counsel to travel to Manila and attend the examination in the video-conference room.
45.
Following the submission of Claimant’s Sur-Rejoinder on Jurisdiction, the Parties filed several requests to admit new documents into the record:

- By letter of 16 August 2013, Respondent requested leave to submit 27 new documents to rebut new evidence and new arguments alleged asserted by Claimant in its Sur-Rejoinder. By letter of August 21, 2013, Claimant objected to Respondent’s request. By letter of August 23, 2013, the Tribunal granted Respondent leave to submit the said new documents, namely exhibits RE-2045 through RE-2071, submitted on August 31, 2013, subject to Claimant’s opportunity to submit documents in response.

- By letter of August 29, 2013, Claimant requested leave to admit into the record (and produced) 5 newly received letters from Credit Suisse and BNP Paribas, regarding the ownership of bank accounts by Messrs. Endler and Struck, that were proposed to stand in lieu of Messrs. Endler and Struck’s cross-examinations. Respondent objected to that suggestion on September 1, 2013. In its Procedural Order No. 3, the Tribunal admitted in the record Claimant’s letters (exhibit CE-372), and confirmed that the witnesses were to be heard at the hearing.

- By letter of August 29, 2013, Respondent requested leave to introduce 5 new documents containing updates on related Philippine proceedings, which Claimant commented by email of September 1, 2013. By cover letter of September 2, 2013, to Procedural Order No. 3, the Tribunal partially granted Respondent’s request. Respondent submitted into the record exhibits RE-2072 through RE-2075 on September 3, 2013, and exhibits RE-2076 and RE-2077 on September 4, 2013.

- Claimant submitted exhibits CE-307 through CE-333 on September 6, 2013 responsive to (i) the documents that Respondent introduced further to its letter of August 29, 2013, and (ii) the 27 new documents submitted by Respondent on August 31, 2013.

46.
On September 3, 2013, the Parties filed their respective Skeleton Submissions ("Cl./R. Skeleton").
47.
On September 9, 2013, Respondent submitted written rebuttal reports of Messrs. Brent Kaczmarek and Mark Pieth, as provided by the Tribunal’s letter of August 30, 2013, and Procedural Order No. 3. Respondent’s submission was accompanied by Respondent’s exhibits RE-2078 through RE-2093.
48.
Claimant objected to these reports on September 10, 2013, and reiterated its request that the direct testimony of those experts be rejected, which prompted a series of exchange of letters between the Parties. Intensive correspondence was also exchanged between the Parties regarding the schedule of the hearing. By letter of September 12, 2013, the Tribunal rejected Claimant’s request of September 10, 2013, and allowed Messrs. Pieth and Kaczmarek’s testimony. The Tribunal also settled the sequence of the Parties’ presentations, fixed dates for the examination of some witnesses, and took note of Respondent’s decision not to call Messrs. Lôsch and Villaraza. Given that Mr. Lôsch had not been called by Claimant for cross-examination, the Tribunal indicated that it would evaluate Mr. Lôsch’s statements submitted in this proceeding and the testimony given in the previous ICSID and the ICC proceedings and would assign to that testimony such evidentiary weight as it deems appropriate under the circumstances. By contrast, Mr. Villaraza had been called by Claimant for cross-examination and Respondent did not provide justified reasons for its request to hear him by video-conference. The Tribunal decided therefore to disregard his testimony in accordance with paragraph 15.10 of the Minutes of the First Session.
49.
By letter of September 15, 2013, Respondent requested leave from the Tribunal to introduce into the record 30 new documents. Pursuant to the Parties’ agreement and the Tribunal’s leave granted on the first day of the hearing, Respondent submitted exhibits RE-2094 through RE-2123 into the record on September 17, 2013.
50.
A hearing on jurisdiction, liability and counterclaims took place in Washington, D.C. from September 16 through 26, 2013 (the "Hearing"). In addition to the Members of the Tribunal, the Secretary of the Tribunal, and ICSID paralegal, Ms. Angela Ting, present at the Hearing were:

On behalf of Claimant:
Counsel:
Mr. Michael Nolan Milbank, Tweed, Hadley & McCloy LLP ("Milbank")
Mr. Edward Baldwin Milbank
Ms. Elitza Popova-Talty Milbank
Mr. Brett Lowe Milbank
Mr. Hugh Carlson Milbank
Mr. Mark McCrone Milbank
Ms. Angel Anderson Milbank
Dr. Sabine Konrad McDermott Will & Emery ("McDermott")
Ms. Lisa M. Richman McDermott
Mr. Arne Fuchs McDermott
Ms. Andrea Alegrett McDermott
Mr. Edgardo G. B al ois Siguion Reyna Montecillo & Ongsiako ("SRMO")
Mr. Cesar P. Manalaysay SRMO
Mr. Victorio H. Macasaet SRMO
Ms. Lesley A. Benn Outside Consultant
Parties:
Mr. Martin Glock Fraport AG
Mr. Peter Henkel Fraport AG

Ms. Dôerte Ochs Fraport AG
Mr. Matthias Engler Fraport AG
Witnesses:
Mr. Wilhelm Bender Former Chairman of the Executive Board of Fraport
Mr. Johannes Endler Former employee of Fraport
Mr. Manfred Schôlch Former Vice-Chairman of Fraport
Mr. Dietrich Stiller Partner of Clifford Chance, Germany
Mr. Bernd Struck Former employee of Fraport
Experts: Mr. Mike Jackson URS
Mr. Ryan Murphy PwC
On behalf of Respondent:
Counsel:
Solicitor General Francis H. Jardeleza Office of the Solicitor General
Mr. Bernard G. Hernandez Assistant Solicitor General, Office of the Solicitor General
Mr. Eric Remegio o. Panga Assistant Solicitor General, Office of the Solicitor General
Mr. Dando D. Leyva Senior State Solicitor, Office of the Solicitor General (Counsel)
Ms. Jane E. Yu Senior State Solicitor, Office of the Solicitor General
Ms. Josephine D. Arias State Solicitor, Office of the Solicitor General
Ms. Rebecca E. Khan State Solicitor, Office of the Solicitor General
Ms. Charisse G. Olalia State Solicitor, Office of the Solicitor General
Justice Florentino P. Feliciano Supreme Court of the Philippines (retired)
Ms. Carolyn B. Lamm White & Case LLP
Ms. Abby Cohen Smutny White & Case LLP

Mr. Frank Vasquez White & Case LLP
Mr. William Currier White & Case LLP
Mr. Hansel Pham White & Case LLP
Ms. Anne Smith White & Case LLP
Mr. Frank Panopoulos White & Case LLP
Mr. Lee Steven White & Case LLP
Mr. Eckhard Hellbeck White & Case LLP
Mr. Matthew Leddi cotte White & Case LLP
Mr. Brody Greenwald White & Case LLP
Mr. Jonathan Ulrich White & Case LLP
Mr. Michael Daly White & Case LLP
Mr. Karthik Nagaraj an White & Case LLP
Ms. Leah Witters White & Case LLP
Mr. Daniel Hickman White & Case LLP
Mr. Luke Engan White & Case LLP
Mr. Ziad Haider White & Case LLP
Ms. Amara Levy-Moore White & Case LLP
Mr. Nikolaos Tsolakidis White & Case LLP
Mr. Roland Hartung White & Case LLP
Ms. Kim Quarantello White & Case LLP
Mr. Jeffery Stellhom White & Case LLP
Ms. Erin Vaccaro White & Case LLP
Mr. Jacob Bachmaier White & Case LLP
Mr. Timothy Perry White & Case LLP
Mr. Robert Kosik White & Case LLP
Parties:
Ambassador Jose L. Cuisia Jr. Philippine Embassy
Ms. Maria Andrelita S. Austria Deputy Chief of Mission, Philippine Embassy
Ms. Ariel Peñaranda Consul General and Legislative Affairs Minister, Philippine Embassy

Ms. Arlene Magno First Secretary and Consul for Consular Affairs, Philippine Embassy
Mr. Emil Fernandez First Secretary and Consul and Minister for Cultural Affairs, Philippine Embassy
Ms. Lilibeth Almonte-Arbez Second Secretary and Consul for Economic Affairs, Philippine Embassy
Ms. Corina Reyes Third Secretary and Vice Consul for Political Affairs, Philippine Embassy
Ms. Shiena Escoto-Tesorero Third Secretary and Vice Consul for Administrative and Legal Affairs, Philippine Embassy
Ms. Ma. Perla E. Dumo Manager, Legal Office, MIAA
Ms. Irene P. Montalbo Manager, Finance Department, MIAA
Ms. Joycelyn B. Mapanao Manager, Accounting Division, MIAA
Witnesses:
Ms. Leila De Lima (via video-conference) Secretary, Department of Justice
Mr. Jose Angel Honrado General Manager, MIAA
Mr. Venner M. Mendoza Former Computer-Aided Design Operator, Wintrack Builders
Mr. Alberto Rómulo Former Executive Secretary to the President (retired)
Mr. Dennis Villa-Ignacio Special Prosecutor of the Philippines
Experts:
Mr. Juval Aviv Interior Inc.
Mr. Brent Kaczmarek Navigant Consulting, Inc.
Mr. Matthew Shopp Navigant Consulting, Inc.
Ms. Yelena Aleksandrovich Navigant Consulting, Inc.
Mr. Richard Francis Klenk Independent Consultant
Mr. Tim Lunt Gleeds Cost Management Ltd.
Mr. Raul Manlapig Ove Arup & Partners

51.
The following persons were examined:
52.
On September 27, 2013, the Tribunal issued Procedural Order No. 4 providing the subsequent procedural steps, including a schedule for the Parties to submit the slides used during the Hearing (with "limited and only necessary (marked-up) corrections to their slides"10 permitted), for the revisions to the Hearing transcripts, for post-hearing briefs and submissions on costs. Specific steps were taken for the production of documents expressly relied upon during direct and cross examinations, which had not been exchanged between the Parties and were not yet part of the record, as well as for documents exchanged between the Parties in view of direct and cross examinations but not expressly relied upon during those examinations and which were to be introduced into the record only upon leave granted by the Tribunal to be requested within 2 weeks after the finalization of the transcripts. In addition, the Parties were requested to submit together with their posthearing briefs a list of "every question submitted to the Tribunal" within the meaning of Article 48(3) of the ICSID Convention. For each question, reference was to be given to the relevant part of the written and oral pleadings as well as exhibits and witness statements and experts’ reports.
53.
On October 4, 2013, the Parties submitted the electronic version of their respective slides used during the Hearing.
54.
By letters dated October 11, 2013, Respondent alleged that Claimant made modifications to its slides in violation of paragraph 2(a) of the Tribunal’s Procedural Order No. 4. Claimant presented similar allegations by letter dated October 12, 2013, in which it also commented on Respondent’s allegations. On October 14, 2013, Respondent provided its response to Claimant’s letter of October 12, 2013, to which Claimant replied by letter dated October 15, 2013. By email of the same date, Respondent reiterated its position against Claimant’s assertions.
55.
Having considered the Parties’ respective positions, the Tribunal issued Procedural Order No. 5 on October 24, 2013, by which it decided to retain the slides as submitted by each Party, (i) keeping in mind the Parties’ respective observations on record, (ii) taking into account that the Tribunal had at its disposal the original hard copy of the slides provided by the Parties at the Hearing, also on record, and (iii) having regard to the forthcoming post-hearing briefs in which each Party were allowed to comment on the alleged additions by the other Party in its slides.
56.
By email dated November 26, 2013, Respondent informed the Centre that the Parties were still conferring on the proposed revisions to the Hearing transcripts in the hopes of reaching an agreement. On November 27, 2013, Claimant submitted on behalf of both Parties a joint errata sheet identifying the proposed revisions to the Hearing transcripts on which the Parties agreed and disagreed. The Parties submitted later that day their respective reasoning for their objections to the disputed proposed revisions to the Hearing transcripts.
57.
By letter dated December 4, 2013, Claimant requested leave from the Tribunal to introduce into the record letters from IBIS Capital LP, Credit Suisse S.A. and BNP Paribas responding to a release letter by Mr. Struck, the production of which had not been objected to by Respondent during the Hearing. On December 5, 2013, Claimant submitted these letters into the record (exhibit CE-373) further to the Tribunal’s decision granting leave.
58.
By letter dated December 8, 2013, Respondent submitted on behalf of both Parties an updated version of the Hearing transcripts reflecting the Parties’ proposed revisions, along with a corrected joint errata sheet identifying the Parties’ proposed revisions to the Hearing transcripts. By letter dated December 11, 2013, Respondent submitted on behalf of both Parties a further corrected j oint errata sheet.
59.
On December 16, 2013, finalized Hearing transcripts incorporating the Parties’ proposed revisions on which the Parties agreed, and the Tribunal’s decision on the Parties’ disputed proposed revisions, were circulated to the Parties.
60.
Further to the finalization of the Hearing transcripts, the Tribunal determined that the starting date for the remaining schedule set forth in the Tribunal’s Procedural Order No. 4 would be January 2, 2014, having considered the Parties’ respective response of December 16, 2013 to the Secretary.
61.
As scheduled, the Parties filed simultaneous post-hearing briefs on March 3, 2014 ("Cl./R. PHB1"), and simultaneous reply post-hearing briefs on April 2, 2014 ("Cl./R. PHB2").
62.
The Parties filed simultaneous submissions on costs on May 2, 2014, and simultaneous reply submissions on costs on May 19, 2014.
63.
Following the completion of the Hearing, the Parties also filed several requests to admit new documents into the record:

- By letters of January 17, 2014, the Parties respectively requested leave from the Tribunal to introduce into the record additional documents in accordance with paragraph 4 of Procedural Order No. 4. In its letter, Respondent further requested leave from the Tribunal to introduce into the record "copies of brief, motions, and decisions filed from October onward in the Philippine just compensation proceedings."11 As directed by the Tribunal, Claimant filed its observations on Respondent’s further request by letter dated January 22, 2014. By letter dated January 24, 2014, Respondent submitted unsolicited comments. By letter of the same date, the Tribunal granted the Parties leave to introduce the additional documents into the record, namely Claimant’s exhibits CE-334 through CE-373 and legal authorities CA-180 and CA-181, and Respondent’s exhibits RE-2123 through RE-2139, respectively submitted by the Parties on January 17, 2013, and denied Respondent’s further request.

- By letter of February 13, 2014, Respondent requested leave from the Tribunal to introduce into the record (i) documents relating to the Philippines’ efforts to extradite Mr. Alfonso Liongson from the United States, (ii) a cover letter attached to the Draft Memorandum from Clifford Chance to Fraport dated September 6, 2006 (CBII-309) and (iii) the ICSID Brown Book. By letter dated February 17, 2014, the Tribunal granted the Respondent’s leave to introduce into the record these documents, namely Respondent’s exhibits RE-2140 and RE-2141 and legal authority RL-508.

- By letter of March 12, 2014, Claimant requested leave from the Tribunal to introduce into the record three documents relating to new developments in the Philippine court. By letters dated March 17, 2014, Respondent submitted its observations, including its request to be permitted to introduce into the record its own additional documents were the Tribunal to grant Claimant’s request. As directed by the Tribunal, Respondent provided further observations by letter dated March 19, 2014. By letter dated March 20, 2014, the Tribunal decided to grant the Parties leave to submit their respective documents into the record, namely Claimant’s exhibits CE-374 through CE-376, submitted on March 20, 2014, and Respondent’s exhibits RE-2142 through RE-2145, submitted on March 21, 2014. The Parties had the opportunity to provide their comments in their second PHBs.

- By letter of April 14, 2014, Respondent requested leave from the Tribunal to introduce into the record the Philippine Supreme Court decision in People v. Henry Go (G.R. No. 168539). On April 21, 2014, Claimant provided its observations. On April 22, 2014, the Tribunal decided to grant Respondent leave to introduce into the record the aforementioned decision, namely exhibit RE-2146, submitted on April 24, 2014. Claimant provided its comments on this document by letter of April 28, 2014 and in its reply submission on costs on May 19, 2014.

- By letter of June 6, 2014, Respondent requested leave from the Tribunal to introduce into the record a one-page Philippine Supreme Court Resolution issued in the domestic expropriation proceedings. On June 9, 2014, the Tribunal decided to grant Respondent leave to introduce into the record the aforementioned document, namely exhibit RE-2147, submitted on June 9, 2014. Claimant provided its comments on this document by letter of June 13, 2014.

- By letter of September 9, 2014, Respondent requested leave from the Tribunal to introduce into the record a Manifestation filed by Respondent to the Supreme Court in the Philippine expropriation proceedings. By letter of September 15, 2014, Claimant submitted its observations. By letter of September 16, 2014, the Tribunal denied Respondent’s request.

64.
The Tribunal declared the proceedings closed on December 10, 2014.

IV. FACTUAL BACKGROUND

65.
The Tribunal needs to set out the factual matrix of this case as it arises from the evidence, written and oral, presented by the Parties and to review the history of Fraport’s investment in the Terminal 3 Project. To do so, it will adopt a chronological timeline when possible, taking into consideration that the Parties are in disagreement over important facts. To the extent relevant or useful, some facts will be discussed in more detail in the Tribunal’s analysis of the disputed issues.

A. The NAIA Terminal 3 Project and the Concession Agreements

66.
In the early 1990s, the Philippine Government under President Fidel V. Ramos decided to establish a new international passenger terminal ("Terminal 3") at Ninoy Aquino International Airport ("NAIA"), using procedures provided in the 1994 Philippines’ Built-Operate-Transfer ("BOT") law.12
67.
NAIA Terminal 1 had been built in 1981 and handled domestic flights of carriers other than the Philippines Airlines ("PAL"). Terminal 2 had opened in 1999 and was devoted to domestic flights and PAL’s domestic and international flights. The new Terminal 3 was supposed to exclusively handle international flights, while Terminals 1 and 2 would be closed to international flights from the date Terminal 3 was to enter into service.
68.
The successful bidder was to have the sole and exclusive responsibility to finance, construct, manage and operate Terminal 3, and was supposed to transfer the Terminal to the Government at the end of a concession period of 25 years. The successful bidder was to generate revenue from public and non-public revenues in line with airport practices.
69.
The 1994 BOT law allowed "unsolicited" proposals from private entities (i.e., not solicited by the Government), provided that such proposals could only be accepted if they did not create financial exposure for the Government.13 Under the BOT law, unsolicited proposals must meet financial, technical, and legal prequalification requirements. Prior to final approval of an unsolicited proposal, the Government must solicit competing proposals from other bidders to complete the Project at a lower price, although the original proposer was given the right to match any competing bid within 30 days (also known as the "Swiss Challenge").14
70.
The pre-bidding and bidding process was overseen by the Pre-qualification, Bids and Awards Committee ("PBAC"), an agency of the Department of Transportation and Communications ("DOTC"), in charge of applying the 1994 Implementing Rules and Regulations15 ("IRR") of the BOT law. The approval of the Project was of the jurisdiction of the National Economic Development Authority ("NEDA"), chaired by the President of the Philippines, and its Investment Coordination Committee ("ICC"), run by the ICC Cabinet Committee ("ICC-CC") chaired by the Secretary of Finance.
71.
For unsolicited proposals, Section 11.4 of the IRR provides that an unsolicited proposal "shall be submitted to the ICC16 only upon official endorsement by the Head of the concerned Agency [...]. ICC shall approve the project scope in accordance with the guidelines" attached as Annex B to the IRR. Regarding the contract approval for unsolicited proposals, Section 12.1 of the IRR provides that the contract shall be approved by the Head of the concerned Agency subject to various conditions, one of which being "clearance from the ICC on a no-objection basis pursuant to section 9.2." Section 9.2 of the IRR entitled "ICC clearance" provides:

SECTION 9.2 ICC Clearance. - In case of projects involving substantial government undertakings as defined under the ICC guidelines hereto attached as Annex B, the concerned Agency/LGU shall, prior to the approval of the Notice of Awards, submit the draft contract to the ICC for clearance on a noobjection basis, specifically on the extent of the final government undertaking to be provided to the project, if any, within seven (7) calendar days from the date the decision to award the contract is made. If the draft contract includes government undertakings within the scope of an earlier ICC approval, then the submission will only be for the information of the ICC. However, should it include additional provisions or provisions different from the original scope of government undertakings, then the draft contract will have to be reviewed by the ICC. In which case, the ICC shall act on the final draft contract within fifteen (15) working days upon submission of complete documentation. Unless otherwise previously notified in writing by the ICC, failure to act within this prescribed period shall mean that the concerned Agency/LGU may proceed with contract award. The concerned Head of Agency/LGU shall approve the Notice of Award within seven (7) calendar days from the date the clearance by the ICC on a no-objection basis for the contract has been received. The Notice of Award shall then be issued within seven (7) calendar days from the approval thereof.

Annex B of the IRR is entitled "ICC Guidelines for the Review of Projects Proposed to be Financed under the Various Private Sector Investment (PSI) Schemes."

72.
The Parties disagree as to the specific approval process to be followed for a concession contract. For Claimant, after approval of the project by PB AC, it was bided out with a draft contract. The ICC clearance of the draft contract is on a no objections basis17 and it suffices to constitute the approval of the contract since contracts and drafts contracts are of the sole responsibility of the ICC under Section 9.2 of the 1994 IRR. For Respondent, once the ICC clearance is secured, the project needs to be elevated to the NEDA Board for approval with the issuance of a NEDA Board resolution pursuant to Section IV.l.d of Annex B-2 to the IRR.18 Any condition reflected in such a resolution must be the basis for loans negotiations, the compliance of which is monitored and reported to the ICC.19 In any event, Respondent argues, if the contract includes additional provisions or provisions different from the original in a range of 10% of costs increase, then the draft contract has to be reviewed by the ICC.20
73.
As it will be explained below, the Parties disagree as to whether certain key agreements in this case have been actually approved.21
74.
In October 1994, Asia’s Emerging Dragon Corp. ("AEDC") - a project company formed by Lucio Tan, the Chairman/owner of Philippines Air Lines,22 and five other prominent Filipino-Chinese businessmen (all known as the "Taipans") - made an "unsolicited" BOT proposal to establish and operate the new international terminal at NAIA.23
75.
In September 1995, AEDC made a revised BOT proposal for both Terminal 3 and the planned Clark International Airport (outside of Manila), which was approved under certain conditions by the NEDA Board in February 13, 1996.24 The DOTC then solicited competing proposals, as required by the BOT law.25
76.
On September 3, 1996, the PAIRCARGO Consortium (consisting of 3 Philippine companies: PAIRCARGO,26 Philippines Airport and Ground Services, Inc. ("PAGS"), and Security Bank, a Philippine commercial bank) applied to PBAC to be exempted from minimum equity requirements; this request was denied. Nevertheless, the PAIRCARGO consortium was allowed to show that the consortium members - rather than the entity that would be incorporated to undertake the Terminal 3 Project, i.e., PIATCO - had the required capital.27
77.
On September 19, 1996, the PAIRCARGO Consortium put forward a bid for the Terminal 3 Project28 that, according to Fraport, would include significantly higher payments to the Government than the AEDC bid would.29 The PAIRCARGO Consortium was prequalified by PBAC to bid for the Project on September 26, 1996.30 In October 1996, PBAC declared that the technical proposal was complying with the technical requirements of the Bid,31 and complying with the Bid Documents for the purpose of matching the price challenge.32 AEDC had 30 days to match the price challenge.
78.
According to Fraport,33 and this does not seem to be disputed, the Taipans never submitted a bid to match the PAIRCARGO’s bid. AEDC objected however that the PAIRCARGO Consortium’s bid did not have sufficient capital to meet the pre-qualification requirement, and that by law only 15% of the net worth of Security Bank, rather than 100%, should be counted towards the PAIRCARGO Consortium’s minimum equity.34 AEDC also requested a copy of the proposal. PBAC rejected the challenge.35
79.
On February 17, 1997, PIATCO was incorporated by PAIRCARGO, PAGS, and SB Capital Investment Corp, (the last of which is authorized to act on behalf of Security Bank), but not by Security Bank itself.36 PIATCO’s original president was Cheng Yong, later replaced by Henry T. Go.
80.
The circumstances surrounding the finalization of the Concession Agreement are highly disputed among the Parties together with the question of whether the Concession Agreement was approved by the appropriate body.
81.
On April 15, 1997, the ICC Technical Working Group met to review the final draft concession agreement and "recommend[ed] the notation of the BOT contract subject to DOTC’s consideration of points" attached in a separate summary document.37
82.
On April 16, 1997, the NEDA Deputy Director General/Technical Board Chairman, Dante Calans, wrote to the 9 members of the ICC "for [their] decision on the final draft project agreement." Attaching the draft contract and the ICC Technical Working Group summary, he wrote "[t]o facilitate the ICC processing of the project, we would appreciate receiving the accomplished ad referendum38 signature sheet" by April 16, 1997.39
83.
The ICC Minutes dated April 17, 1997, indicate as follows under the heading "VI Other Matters," "NAIA Terminal 3 International Passenger Terminal BOT Project":

The ICC conducted an ad referendum to facilitate the approval, on a no objections basis, of the BIT agreement between DOTC and PIATCO. The ad referendum was able to gather four signatures - OP, CCAP, BSP and NEDA.

Ad referendum approval requires six signatures.

Action taken:

The ICC noted the BOT agreement.40

84.
The Parties are in agreement that the Project of Terminal 3, at the time upon AEDC’s proposal, was approved by a NEDA Board resolution on February 13, 1996. However they disagree as whether a subsequent NEDA Board resolution was needed for the actual award of the Concession Agreement.
85.
Fraport submits that the ICC did approve the agreement,41 while Respondent submits that it was not approved but merely noted.42 This specific point was argued by both Parties at the Hearing (day 3 and 5) in response to the Tribunal’s questions. A similar discussion arose between the Parties regarding the approval of the ARCA (see infra).
86.
AEDC was denied in May 1997 a preliminary injunction against the DOTC for awarding the Project to PIATCO.43 A Memorandum from the Chief Legal Counsel to the President Ramos advised on July 10, 1997, to proceed without delay in implementing the awarding of the Project to PIATCO.44
87.
Mid-July 1997, the DOTC issued the official Notice of Award in favor of PIATCO.45 On July 12, 1997, the Terminal 3 Concession Agreement46 was signed by PIATCO, the Secretary of the DOTC, and the head of the Manila airport authority ("MIAA").
88.
The Concession Agreement provided that PIATCO was to finance, construct, and operate the Terminal 3 for 25 years. Terminal 3 was to be the only international terminal at NAIA and duty free operations were to be located there, which Fraport insists was a key aspect of the Terminal 3 Project.47
89.
On July 14, 1997, PIATCO Shareholders entered into a Shareholders’ Agreement.48
90.
MIAA issued on July 14, 1997, PIATCO with a Notice to Commence Work for the Project.49
91.
In June 1998, President Joseph Estrada succeeded President Ramos.
92.
AEDC’s challenge: As previously mentioned, between April 1997 and April 1999, AEDC sued the DOTC over the PIATCO Concession, re-asserting inter alia that PIATCO was not financially prequalified.
93.
On the same day that the Concession Agreement, on July 12, 1997, an agreement between the Philippines, MIAA and PIATCO was entered into to consider AEDC’s civil case and giving PIATCO the opportunity to terminate the Concession Agreement if the civil case was unfavorably resolved by June 30, 1998.50 On May 20, 1998, this agreement was modified to give additional time until June 30, 1999, to the Philippines "to reach a resolution of the Civil Case or to sufficiently defend its position therein."51
94.
According to Claimant, the Government defended the suit, arguing that the standards for financial prequalification had been applied correctly.52 Ultimately, AEDC and the Solicitor General requested a joint motion to dismiss granted in April 1999.53
95.
The ARCA: On November 26, 1998, the Amended and Restated Concession Agreement (the "ARCA") was signed by PIATCO and the head of DOTC/MIAA.54 The ARCA clarified certain commitments and obligations at the request of foreign lenders, which required some changes prior to committing, and included a warranty on the part of the Philippines as to the legality and validity of the ARCA and the procedures under which it was entered into.55
96.
Section 4.04(c) of the ARCA gave the external project financiers (the "Senior Lenders," i.e. a consortium made of Kreditanstalt fur Wiederaufbau (KfW), the Asian Development Bank, and the World Bank’s International Finance Corporation) the option - in case of default by PIATCO - to designate a qualified nominee to operate the Terminal or to transfer it. Failing to find a nominee within certain time period, the Terminal was to be transferred to the Government upon payment of a "termination payment" to PIATCO.
97.
The Parties disagree as to whether the ARCA was properly approved and as to whether Section 4.04(c) contains a Government guarantee, in breach of the IRR.56
98.
On February 12, 1999, President Estrada issued a memorandum to Government agencies "affirming the government’s commitment to extend full assistance" to the Terminal 3 Project, acknowledging the Philippines’s obligations under the Concession Agreement and the ARCA and ordering the agencies to provide full cooperation to complete the Project.57
99.
On June 25, 1999, the NEDA-ICC approved the ARCA58 with the condition that the Philippine Central Bank reviewed, monitored, and approved the credit agreement between the Senior Lenders and PIATCO. This was reiterated on August 19, 1999.59
100.
Some of the agencies represented on the ICC considered that the ARCA included a direct governmental guarantee in its Section 4.04(c)(vi). However, the Central Bank’s view -that the ARCA provided the Government with an optional right to buy-out the Terminal 3 Project in the case of default by PIATCO - prevailed.60
101.
In March 2000, after six committee hearings, a review by the House Committee on Transportation and Communications founds that the award of the Terminal 3 Concession to PIATCO was "proper and valid," and the ARCA did not contain a direct governmental guarantee or other unlawful clauses.61
102.
On September 20, 2000, an investigation by the Philippine Office of the Ombudsman, in response to a petition from Mr. Estrella against the former Secretary of the DOTC, Mr. Rivera, and others, found no probable cause to indict the former DOTC Secretary or PIATCO’s President for entering into a contract disadvantageous to the Government, finding it on the contrary advantageous, or violations of the anti-graft laws.62
103.
Early 2000, PIATCO selected the Japanese firm Takenaka as the Engineering, Procurement and Construction ("EPC") contractor for the Terminal 3 Project.63 In June 2000, Takenaka began construction on the Terminal 3 Project to be completed in 30 months. According to Fraport, the EPC contractor was paid by PIATCO and Fraport in total more than US $266.7 million.64
104.
Three Supplements to the ARCA were later executed. The Parties also disagree as to the approval of the ARCA Supplements and as to their validity.65

• The First Supplement dated August 27, 1999, concerned inter alia an extension of time for the Philippines to deliver clean possession of the Project site and the deletion of an access tunnel between Terminal 2 and 3.66

• The Second Supplement dated September 4, 2000, concerned subterranean structures and transferred responsibility for clearing the Project site from the Government to PIATCO.67

• The Third Supplement was executed on June 22, 2001, regarded the construction of a surface access road connecting Terminals 2 and 3.68

• On October 16, 2001, the Third ARCA Supplement was presented to the ICC for approval.69 The ICC deferred action pending an explanation from the DOTC and MIAA as to why the previous ARCA supplements had not been presented for its approval.70

• A Fourth Supplement was drafted in March 2001, to reflect changes international banks requested as pre-conditions for the drawdown of longterm financing and modifying inter alia the Government’s obligations regarding attendant liabilities, force majeure, incremental and consequential costs, and other "special obligations," but was not executed.71

B. Fraport’s Investment in the Terminal 3 Project

105.
Claimant contends that it had invested by September 2003 more than US $420 million72 in Terminal 3, becoming the principal source of funding for the Terminal 3 Project; this is not in dispute. Claimant submits that it made equity investment pro rata in PIATCO starting in 1999 and ending in 2002-2003 and in a cascade of Philippine companies that have ownership interests in PIATCO. It claims that it is a 30% non-controlling shareholder of PIATCO and does not hold a controlling share in any of the cascade companies,73 a statement that the Respondent disputes.
106.
In 1998, Fraport was retained by PIATCO as a consultant for its technical expertise. In 1999, PIATCO decided to seek Fraport’s financing due to concerns by foreign lenders over providing long-term project financing.
107.
In January 1999, PIATCO, seeking Fraport’s investment, proposed a "master concession concept," involving a shareholder agreement that would give Fraport full executive and management control over the operation of Terminal 3 "as may be allowed by Philippine laws."74
108.
As part of Fraport’s due diligence prior to investing in PIATCO, KPMG informed Fraport that PIATCO had only 1.5 billion pesos of paid-in equity.75 Local counsel Quisumbing Torres warned Fraport about the need to consider nationality requirements applicable to any equity investment.76
109.
In July 1999, Fraport made its equity investment in PIATCO through a stock purchase agreement.77
110.
Fraport and PIATCO’s other shareholders entered into a series of shareholder agreements starting in 1999.78 As part of the agreements entered into in July 1999, the company Philippines Airport and Ground Services Terminals, Inc. ("PTI") was created79 with the view to enter into an operations and maintenance agreement with PIATCO, and through which PTI would have become the facility operator of Terminal 3.80
111.
Fraport’s description of its acquisitions is as follows:

39. Fraport’s indirect investment in PIATCO by means of interests in cascade companies allowed Fraport to make equity investments required by its agreements with its fellow project participants all of which comply with Philippine laws requiring control of public utilities by Philippine nationals. The following is an overview of Fraport’s acquisition of its direct and indirect interests in PIATCO:

(a) Under four agreements dated July 6, 1999 (the "1999 Share Purchase Agreements and Share Subscription Agreements"), Fraport acquired 25% of PIATCO, 40% of PTI and 40% of PTH, and PTI acquired 11% of PIATCO.

(b) Fraport’s shareholdings were increased pursuant to two agreements dated May 5, 2000 (the "2000 Share Purchase Agreements"). Under these two agreements Fraport acquired an additional 5% of PIATCO, and PTI acquired another 24% of PIATCO.

(c) In 2001, Fraport acquired a 40% stake in PAGS. PAGS holds a 10% direct shareholding in PIATCO. PAGS also has 12.6% indirect shareholding in PIATCO as a result of PAGS’s 60% shareholding in PTH and PTH’s 60% shareholding in PTI, which owns 35% of PIATCO. This results in Fraport having an additional 9.04% indirect interest in PIATCO.

40. Accordingly, Fraport owns directly 30% of PIATCO; Fraport owns indirectly through its direct investment in PTI 14% of PIATCO; Fraport owns indirectly through its direct investment in PTH 8.4% of PIATCO, and Fraport owns indirectly through its direct investment in PAGS 9.04% of PIATCO. The result is Fraport’s 61.44% direct and indirect ownership in PIATCO.81

112.
Fraport describes PIATCO shareholding structure as follows:82
113.
One of the 1999 agreements at stake is the so-called "Pooling Agreement."83 Collectively, the parties to this agreement owned a 51% stake in PIATCO. Article 2 of the Pooling Agreement provided that Fraport, PTI, PAIRCARGO, and PAGS - and their nominees on PIATCO’s board - were to vote together as a block, with common positions to be determined through discussion. If such discussions did not lead to unanimity, Section 2.02 provided that the parties were to consult FAG/Fraport on issues within its area of expertise (i.e., terminal operations and management) and that the "Shareholders shall thereafter act upon the recommendations of FAG." Section 2.05, in contrast, required the parties "to adopt and vote strictly in accordance with the position taken by PAGS" when its business operations - ground services (e.g., baggage handling, catering, refueling) - are affected and, likewise, to "adopt and vote strictly in accordance with" the positions of PAGS or PAIRCARGO in their respective areas of operations (i.e., airline services for PAGS and cargo services for PAIRCARGO).
114.
Fraport claims that the Pooling Agreement was only in effect until August 23, 2001, when it was amended by another agreement.84 Whether the Pooling Agreement complied with local Anti-Dummy Law is debated between the Parties.
115.
Under a Memorandum of Agreement dated July 7, 1999,85 Fraport was to lead in obtaining international financing for the Project, becoming the "finance arranger." Fraport secured a Senior Loan Agreement on July 27, 2001, subject to condition precedents, as explained below.86
116.
Fraport proceeded to provide loans to the Chengs, the main shareholders of PAGS as of July 6, 199987 and appointed Fraport’s officials to serve in PIATCO and PTI’s boards. The Parties disagree as to the extent and the legality of such appointments.
117.
In January 2001, President Arroyo replaced President Estrada.
118.
In January-June 2001, Fraport (with PIATCO allegedly on the brink of insolvency as a result of having not obtained the necessary external financing while needing to pay Takenaka on the EPC Contract) provided a further US $409 million in loans and loan guarantees and further pledges of equity contributions. Fraport begun making payments on the guarantees to Takenaka in August 2001.
119.
In June 2001, opponents to PIATCO’s Terminal 3 Concession - in particular, MASO (the MIAA-NAIA Association of Service Providers, a group associated with PAL and concessionaires at NAIA Terminals 1 and 2 who, according to Claimant,88 stood to lose out from the terms of the Terminal 3 Concession) - started publicly campaign against PIATCO and Fraport. These efforts would intensify even more after the September 11th terrorist attacks, which had a significant negative effect on PAL’s business.
120.
In June 2001, PIATCO (and Fraport according to the Respondent) retained Mr. Alberto Liongson as a "marketing and government relations" consultant to assist in obtaining crucial government agreements that would enable PIATCO to make use of the conditional Senior Loan Agreement (which would be executed the following month). The Liongson’s contract provided for payments of US $200,000 up front, US $200,000 per month, and a total of US $1.8 million in milestone payments upon obtaining each agreement. The Parties are at odds as to the effects and legality of such consultancy; each Party claiming that it had been the victim of corruption for Respondent or of a kickback scheme for Claimant.89
121.
As indicated above, on July 27, 2001, Fraport and the Senior Lenders executed an agreement establishing a US $440 million financing facility for the Terminal 3 Project, with availability of the funds subject to a number of conditions precedent, including:90

• Approval of the Project, the ARCA, and the three ARCA Supplements by the ICC;

• Confirmation of the DOTC’s authority to enter into agreements such as the ARCA on behalf of the Philippine Government;

• Legal opinions from the Philippine DOJ and SEC as to the legality of the ARCA and its Supplements and PIATCO’s shareholding structure, respectively; and

• Approval of a direct agreement between the Government and Senior Lenders applicable in case of PIATCO’s insolvency, as called for in the ARCA.

122.
On August 23, 2001, Fraport and other shareholders amended the 1999 Pooling Agreement to remove Fraport’s right to make recommendations to the other PIATCO shareholders.91 According to Fraport, some of the 1999 agreements between Fraport and PIATCO’s other shareholders were amended in August 200192 to take into account the Senior Lenders’ suggestions in order to secure the loan and to receive the satisfaction notice under the escrow arrangements with the Lenders.93 For Respondent, this amendment was made because it desperately needed long term financing.

C. Attempts to Renegotiate Terminal 3 Concession Agreement

123.
In December 2001, Secretary Climaco,94 Presidential Adviser for Strategic Projects since November 2001, tasked with renegotiating the Terminal 3 Concession, met95 with Fraport and PIATCO to discuss financial and legal issues with the Terminal 3 Project, beginning eight months of negotiations. Climaco insisted on changes to the Terminal 3 concession agreements.
124.
The Parties disagree about the reasons for the negotiations with Climaco. Respondent alleges that Fraport was seeking assistance from the Government to obtain approvals necessary to begin drawing upon the Senior Loan Facility, given the Project’s financial straits.96 Claimant alleges that Climaco was directed to seek renegotiation of the Concession to make it more favorable to well-connected business interests associated with PAL and that she wanted the Chengs out.97
125.
A second review by the House Committee on Transportation and Communications found in December 2001 that the Terminal 3 Concession was awarded properly and the Concession Agreement, as amended, was valid.98
126.
In January 2002, Climaco proposed a Fifth ARCA Supplement to bring the ARCA in line with the original Bid documents and eliminate the alleged governmental guarantee and other legal infirmities.99
127.
In March 2002, the Ombudsman rejected a petition from a Graft Investigation Officer, Edgard Navales, alleging corruption on the part of DOTC Secretary Alvarez and others in awarding the Terminal 3 Concession to PIATCO.100
128.
In April 2002, in the face of growing financial concerns with the Terminal 3 Project, Fraport replaced its representatives in Manila, especially replacing Mr. Bemd Struck by Mr. Peter Engel as chairman of PIATCO.
129.
Further to various meetings and exchanges of letters throughout the first part of 2002, in August 2002, Fraport and Respondent nearly reached an agreement for the Philippines to buy-out the Terminal 3 Concession.101 Claimant argues that Climaco abandoned her own plan after it became public and the press criticized it as evidence of bad governance and self-dealing.102 Respondent argues that the agreement fell apart because the Chengs insisted on an unreasonably high price for the buy-out.103
130.
In September 2002, with relations between Fraport and the Chengs having deteriorated (for disputed reasons), Fraport attempted but failed to restructure PIATCO.104 Fraport decided to not provide further bridge financing for PIATCO.105

D. Nullification of the Terminal 3 Concession

131.
The Senate Blue Ribbon Committee held hearings as of the end of August 2002 further to a petition filed in 2001 by a number of Senators calling for the investigation of the Project. The Committee issued a report on December 10, 2002.
132.
In parallel, representatives of MASO, employees of MIAA and Members of Congress106 filed petitions at the Supreme Court for a writ of prohibition to keep the Philippines from enforcing the concession agreements and allowing Terminal 3 to come into service. (Three of these petitions Agan, Baterina and Lopez would be consolidated into the Agan case against PIATCO.)
133.
In response to these petitions, on September 9, 2002, President Arroyo established an interagency Cabinet Review Committee to formulate the Government’s position vis-à-vis the Terminal 3 Concession. The committee, in turn, established a Technical Working Group to review the commercial and legal issues with the Terminal 3 Concession.107
134.
The Technical Working Group issued an initial report on September 25, 2002, to which Climaco objected on the basis that it "presumed" the validity of the ARCA.108 The Technical Working Group thus recommended that the DOJ, the SEC, and the Office of Government Corporate Counsel ("OGCC") formulated the official Government position on the legality of the Terminal 3 Concession.109
135.
On September 26, 2002, Secretary Climaco submitted a memorandum to the Senate Blue Ribbon Committee expressing the view that the Terminal 3 concession contracts were "intrinsically void" and that a declaration of nullity should be obtained.110 The memorandum also detailed lack of government planning in awarding the Terminal 3 Concession and financial repercussions to the Government for failing to achieve renegotiation and argued that PIATCO lacked the necessary financial qualification at the time it was awarded the Concession. Climaco also recommended that President Arroyo seek to nullify the Terminal 3 Concession.
136.
On September 30, 2002, in response to a separate request from the MIAA as to whether the 1997 Agreement, the ARCA and the three Supplements were valid, the OGCC issued a report upholding the validity of the concession agreements, but stating that the onerous provisions, if any, should be negotiated/re-negotiated.111 The OGCC further stated that the Government could not seek to nullify the agreements, as it had already accepted benefits derived from them.112
137.
On October 2, 2002, the Ombudsman rejected a petition filed against PBAC members for awarding the Terminal 3 Concession to PIATCO and found no irregularity in the pre-qualification bidding and awarding of the Concession Agreement.113
138.
From the end of October 2002 onwards, steps were taken for the Terminal 3 to open as PIATCO intended to open it by mid of December 2002.114
139.
On November 7, 2002, under a newly appointed Corporate Counsel, the OGCC argued to the Supreme Court that the original Concession Agreement be declared valid and binding but that the ARCA and its Supplements were void insofar as they deviated from the provisions of the original Concession Agreement.115
140.
On November 11, 2002, the newly appointed Philippine Solicitor General, Alfredo Benipayo, filed a brief before the Supreme Court in another case against PIATCO seeking to reinstate the terms of the original Concession Agreement and Bid documents.116
141.
On November 18, 2002, the Philippine Solicitor General, in a further filing argued that all of the concession agreements were void because the deviations from the Bid documents were not publicly bid in accordance with the BOT law, as well the existence of a direct government guarantee in the ARCA.117
142.
On November 28, 2002, the DOJ, under the freshly appointed Secretary Merceditas Gutierrez,118 issued an official position that the Terminal 3 Concession was void because the deviations from the original Bid documents, combined with the failure to allow AEDC to match the terms of PIATCO’s bid, unlawfully placed PIATCO in a more favorable position than other project bidders.119 The DOJ also found that the ARCA and its Supplements were further void because they contained additional deviations from the Bid documents.
143.
On November 29, 2002, a month before Terminal 3 was scheduled to enter into commercial operations,120 President Arroyo announced that the Terminal 3 concession agreements were null and void and would not be honored.121 President Arroyo also promised compensation for the funds expended in constructing Terminal 3 until that point and further directed the DOJ and the Presidential Anti-Graft Commission ("PAGC") to investigate and prosecute any criminal violations associated with the Concession.
144.
On the same day, Takenaka, the EPC contractor, stopped working on Terminal 3.
145.
On December 9, 2002, the Solicitor General filed a supplemental brief before the Supreme Court, arguing that the award of the Terminal 3 Concession was void because the PAIRCARGO Consortium did not meet the financial qualifications at the time of the award.122
146.
On December 10, 2002, the Senate Blue Ribbon Committee issued its final report,123 concluding that (1) the Terminal 3 Concession Agreement was intrinsically void because six required signatures from ICC members were not obtained, (2) the concession agreements were void because of deviations from the Bid documents, (3) the concession agreements contained onerous provisions that were contrary to public policy and the BOT law, (4) improper payments had been made to Liongson, (5) the Concession provided for a prohibited direct Government guarantee, and (6) the condition of the Terminal raised serious security concerns.
147.
The same day, the Supreme Court held a hearing en banc in the cases of Baterina and Agan et al. v. PIATCO et al.124
148.
On December 11, 2002, the Committee on Good Government of the House of Representatives issued a report whereby it concluded that the grant of a franchisee to PIATCO was "in general" in accordance with the Constitution and the IRR, but recommended that the provisions of the ARCA be clarified.125
149.
In January 2003, Secretary Climaco made a presentation to President Arroyo in connection with a possible Government buy-out of the Terminal 3 for US $400 million.126
150.
On January 9, 2003, the OGCC, in a Supreme Court filing made jointly with the Solicitor General, modified its views and requested a declaratory judgment that all Terminal 3 related concession agreements were void for violation of the BOT law and the IRR.127 Fraport and Respondent disagree as to whether OGCC also found constitutional issues with PIATCO’s operation of Terminal 3.
151.
On February 14, 2003, Fraport issued a notice of dispute under the BIT.128 PIATCO also initiated ICC arbitration against Respondent, pursuant to an arbitration clause in the ARCA.
152.
According to Fraport, early March 2003, some last efforts were made to find a consensual resolution of the dispute with Climaco, to no avail.129
153.
On March 13, 2003, the PAGC made a recommendation to dismiss charges for lack of merits for 7 officials and referring cases of 12 other former Government employees to the Ombudsman.130 Respondent submits that "the PAGC made no finding with respect to the legality or constitutionality of the Concession Agreements in deference to the ongoing cases before the Supreme Court" but found that charges could have been brought against 7 officials.131
154.
On May 5, 2003, the Philippine Supreme Court issued the Agan decision,132 declaring Terminal 3 Concession null and void ah initio on the following grounds:

• The PAIRCARGO Consortium lacked the initial financial qualifications and PBAC had erred in calculating the basis for the consortium’s financial prequalification.

• Post-award modifications to the 1997 Concession Agreement provided financial advantages to PIATCO that were not available during the bidding process and required the government to provide a "form of security" for loans to PIATCO. Therefore, the Agreement was void as contrary to public policy.

• The ARCA provided for a direct guarantee by the Government, in the event of PIATCO’s default, which was prohibited by the BOT law.

• A provision requiring that the Government pay compensation to PIATCO if it temporary took over the terminal in a time of war hampered the Government’s exercise of its police powers and contravened the Philippine Constitution.

• The provisions in the 1997 Concession Agreement and the ARCA granting PIATCO exclusive rights to control service provider concessions at Terminal 3 and requiring the Government to terminate existing NAIA service provider contracts were impermissible.

155.
According to Fraport, at the time of the Agan decision, Terminal 3 was more than 90% complete,133 which is disputed by Respondent.
156.
On June 25, 2003, President Arroyo established a Cabinet Oversight Committee on Terminal 3 to find a final and comprehensive solution. No agreement was found and the Committee was dissolved in March 2004.134
157.
In September 2003, Fraport initiated the first ICSID arbitration under the BIT.

E. Further 2003/2004 Proceedings

158.
In October 2003, the Philippine National Bureau of Investigation begun criminal investigations into ADL violations by Fraport officials, on the basis of evidence of Fraport’s shareholdings in PIATCO and the cascade companies contained in Fraport’s ICSID submissions, as opposed to the "interference" grounds for the violation alleged in this arbitration.
159.
From October 2003 to September 2004, private civil and criminal libel complaints were filed against Fraport executives and its Philippine counsel by President Arroyo’s personal lawyer, Arthur Villaraza, and Secretary Climaco, based on statements from Fraport’s ICSID first request for arbitration that were published in Philippine newspapers.135
160.
In December 2003, German law enforcement searched Fraport’s offices in Frankfurt in connection with an ongoing German criminal investigation regarding bribery and corruption in the Terminal 3 Project. (No charges were ever filed in Germany.) The Philippines Solicitor General and chief arbitration counsel made a mutual legal assistance request of Germany for evidence of corruption.136
161.
In August 2004, a German prosecutor requested that the Philippines provided details of the alleged offender, acts, and criminal violations in support of its legal assistance request.137
162.
On September 16, 2004, upon AEDC’s request, the Ombusdman for Luzon recommended to indict numerous current or former Government officials, including Pantaleon Alvarez, together with PIATCO and Fraport officials and Alfonson Liongson with respect to the Terminal 3 Project.138

F. The Government’s Taking of NAIA Terminal 3

163.
On January and February 2004, PIATCO was denied its motions for reconsideration of the Agan Decision.139
164.
In May 2004, President Arroyo was elected for her second term (she stepped down in 2010).
165.
On December 21, 2004, with PIATCO and the Philippines failing to reach a settlement over the ownership of Terminal 3 (and Fraport, as a minority shareholder, unable to settle separately),140 the Philippine Solicitor General applied for and received an ex parte court order - a Writ of Possession - authorizing the expropriation (i.e., exercise of eminent domain) of Terminal 3.141
166.
On the same day, the Philippine armed forces took control of Terminal 3.
167.
By orders of January 4 and 7, 2005, the Regional Trial Court (aka, the expropriation court) ordered the payment of the proffered value of US $62 million to PIATCO and appointed, pursuant to statutory procedures, an independent board of commissioners to conduct a valuation of the expropriated property.142
168.
Under Philippine law, following an order of expropriation, the expropriation court determines the amount of compensation due, under the Philippine law standard of "replacement value." The procedure in such cases involves up-front payment of "proffered value" with subsequent judicial determination within 60 days as to whether additional "just compensation is owed.143
169.
On January 13, 2005, Respondent filed criminal charges against governmental, PIATCO, and Fraport officials involved in the Terminal 3 concession award and subsequent supplemental agreements.144
170.
In September 2005, the Philippines resubmitted its request for legal assistance to the German prosecutor, on the basis of the rights it would have as a victim of the corruption charged in January 2005.145
171.
On December 13, 2005, a German prosecutor granted the Philippines access to seized files under Germany’s civil victim statute.146 The Parties dispute whether the German prosecutor was aware of the Government’s intention to use the files in the ICSID arbitration or whether the Government misled the prosecutor.147
172.
On the same day, Fraport obtained an order from a German court to prevent the release of the documents.148
173.
On December 19, 2005, upon the Philippines’ appeal of the expropriation court’s order of January 2005 regarding the amount of proffered value, the Supreme Court held the Writ of Possession in abeyance until the Philippines paid the amount determined by the Supreme Court to be appropriate as proffered value.149
174.
In December 2005, libel charges, carrying threat of arrest, were filed against Fraport’s local counsel weeks before the jurisdiction/liability hearing to be held in first ICSID arbitration.150
175.
On August 23, 2006, the ICC arbitral Tribunal ordered that the Philippines return Terminal 3 to PIATCO, unless it obtained a valid Writ of Possession.151
176.
On September 11, 2006, further to the Supreme Court decision of December 2005, the Philippines paid PIATCO the equivalent of US $53 million as proffered value, approximately half of which was transferred to Fraport,152 as a condition of receiving the Writ of Possession for Terminal 3.
177.
Between September 2006 and February 2007, corruption charges were dismissed by a Philippine court.
178.
In December 2006, the DOJ rejected a recommendation to charge various Fraport officials and its international counsel with ADL violations, concluding that the "Grandfather Rule" no longer applied and that the Agan decision made the ADL inapplicable to Fraport and PIATCO.153
179.
On March 15, 2007, the DOJ reversed position and decided to file criminal charges for violations of the ADL against Fraport officials and outside counsel, include Fraport’s official, Peter Henkel, Dietrich Stiller, Hans Arthur Vogel, Sanim Aydin, and PIATCO’s Cheng Yong.154
180.
On August 16, 2007, the first ICSID Tribunal issues its Award in favor of Respondent.155 The Tribunal declared that it had no jurisdiction ratione materiae because "Fraport knowingly and intentionally circumvented the ADL by means of secret shareholders agreements"156 and "Fraport’s ostensible purchase of shares in the Terminal 3 Project, which concealed a different type of unlawful investment, is not an ‘investment’" made in accordance with Philippines law.157 Dr. Bernardo Cremades dissented, stating in short that Fraport’s shareholdings constituted an investment under the BIT, that whether there was a breach of the ADL was an issue for the merits and that Respondent had not demonstrated in any event a violation by PIATCO of the ADL, nor by Fraport as an accomplice.158
181.
On November 2007, the criminal respondents (i.e., Fraport officials and counsel) petitioned the DOJ Secretary for review of the ADL charges of March 2007. The petitions remained pending until January 2011.159
182.
On January 8, 2008, Fraport’s application for the annulment of the ICSID Award was registered.
183.
Since mid-2008, according to Fraport, the Philippines started to operate the Terminal 3.
184.
In January 2009, the DOJ officially resolved to file libel charges against Fraport’s local arbitration counsel.160
185.
In August 2009, the Philippines admitted to the ad hoc annulment Committee that "all [criminal] investigations had been completed."161
186.
On July 22, 2010, the ICC Tribunal dismissed PIATCO’s claims as inadmissible, given PIATCO’s violations of the Philippine ADL.162 According to Fraport, the Philippines misled the ICC tribunal into believing that its involvement in PIATCO violated the ADL.163
187.
On December 23, 2010, the ICSID 1 Award was annulled in its entirety by the ad hoc Committee.164 The Committee found that the ICSID 1 Tribunal had seriously departed from a fundamental rule of procedure, prejudicing Fraport.165 The ICSID 1 Tribunal was found not to have interrupted its deliberations, closing the proceedings and refusing to reopen them as well as using in the Award, documents, tendered after the closure of the proceedings, which had been produced in the DOJ’s Prosecutor investigation, including drawing factual inference and a negative inference that the Prosecutor’s decision in December 2006 may have been different had he been in possession of the Pooling Agreement, without hearing both parties on the adequacy and the effect of the record before the Prosecutor and the construction of the ADL, leading the Tribunal to dismiss Fraport’s claims.
188.
In January 2011, weeks after the ICSID Annulment Decision was issued, the DOJ denied the November 2007 petitions for review and directed prosecutor to indict Fraport officials for ADL violations arising out the investigations initiated in 2003 following Fraport’s first ICSID request for arbitration.166
189.
In March 2011, the board of commissioners appointed by the expropriation court determined that the replacement cost for Terminal 3 was US $376 million plus 12% interest from the time of the expropriation.167
190.
On March 30, 2011, Fraport filed a new request for arbitration with ICSID, which was registered on April 27, 2011.
191.
On May 10, 2011, the ICC Tribunal rendered its final award on costs ordering PIATCO to pay Respondent about US $6 million towards its arbitration costs.168
192.
On May 23, 2011, the expropriation court found that the compensation owed to PIATCO was only approximately US $176 million inclusive of costs (less the previously paid US $53 million), due to structural defects and PIATCO’s failure to prove certain costs.169
193.
PIATCO and Takenaka appealed this determination in May and June 2011.170 The Philippines filed a motion for partial reconsideration in June 2011 praying for the deletion of US $26 million of attendant costs; this was rejected on July 14, 2011, and on July 28, 2011, the Philippines filed an appeal against the May 2011 decision.171 Fraport declined to become a party to the domestic expropriation proceedings.
194.
On July 8, 2011, the Philippines indicated to the expropriation court that it was ready to pay in full the amount provided it be deposited in escrow.172
195.
On October 11, 2011, the expropriation court approved the Philippines’s request to exercise full rights of ownership over Terminal 3, upon placing the remaining US $116 million due as compensation in escrow, with such funds to be released only if PIATCO assumed all responsibility for claims related to the Terminal 3 facilities and transferred full title, free from all liens and encumbrances, to the Philippines.173
196.
On March 12, 2012, the DOTC and Takenaka entered into a Memorandum of Understanding to complete Terminal 3 for US $40 million.174
197.
In April 2012, MIAA made the escrow payment.175
198.
In 2012, according to Fraport, Terminal 3 handled 13.6 million passengers176 and generated more than US $234 million in duty free sales.177 The Parties disagree as to the state-of-the-art quality of Terminal 3. Respondent claims that 85% of the passengers are domestic and that Terminal 3 cannot handle international passengers as it was designed to and actually operates at a loss.178
199.
On May 6, 2013, a new information was filed by the National Bureau of Investigation Anti-Fraud and Computer Crimes Division of the DOJ recommending indictments against five of Fraport’s employees and Fraport’s legal counsel further to the DOJ’s resolution of March and October 2007.179
200.
In July 2013, the German State prosecutor pursued his investigation and confiscated various assets.180
201.
On August 7, 2013, the Court of Appeals of Manila modified the May 23, 2011 decision and fixed just compensation at US $300 million, less US $59 million already paid in September 2006, i.e. US $240 million with legal interest at 6%.181 It ordered the Philippines to pay PIATCO US $371 million as of July 31, 2013. The Court of Appeals confirmed this decision in a Resolution of October 29, 2013.182 Appeals against the August 2013 and October 2013 resolutions are still pending.183
202.
On February 17, 2014, the trial court issued an order directing indefinite suspension of the proceedings pending resolution by the DOJ of the various motions for reconsideration.184
203.
On March 25, 2014, the Supreme Court issued a decision in the case of People v. Henry Go, PIATCO’s President and Chairman, upon AEDC’s complaint,185 whereby the Supreme Court directed the court below to proceed ahead with criminal charges. Claimant considers for its part that this decision does not relate to bribery or corruption but to the execution of the 1997 Concession Agreement which pre-dates Fraport’s investment, and that a motion for reconsideration had been filed against it.186
204.
On March 26, 2014, the Supreme Court issued a Notice where it consolidated the petitions for review of the August 22, 2013 decision of the Court of Appeal in expropriation cases of PIATCO and Takenaka and referred them to the Court en banc.187
205.
As of November 2014, to the knowledge of the Tribunal, also on the basis of the record, there had been no convictions or indictments of Government officials for having accepted bribes. Nor have there been any firm conviction for ADL violations or corruption in the Philippines, nor convictions in Germany. Except for the pending-suspended ADL charges and the case against Henry Go, all criminal investigations relating to Terminal 3 have been dismissed in the Philippines.

V. SUMMARY OF THE PARTIES’ POSITIONS

206.
The Tribunal will now provide a summary of the Parties’ positions, starting with Respondent’s objections to jurisdiction and admissibility, followed by Fraport’s claims and Respondent’s counterclaims. To the extent relevant or useful, additional arguments will be discussed in the Tribunal’s analysis below.

V.I RESPONDENT’S OBJECTIONS TO JURISDICTION AND ADMISSIBILITY

207.
Respondent objects to the jurisdiction of the Tribunal and to the admissibility of Fraport’s claims because it argues that Fraport is in violation of Philippine law, based on Fraport’s alleged ADL violations, Fraport’s alleged corruption, and failure to sufficiently substantiate the ultimate use of its claimed investment in the Terminal 3.

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

208.
According to Respondent, the BIT does not apply to investments made in violation of Philippine law. Article 1(1) of the BIT defines "investment" as "any kind of asset accepted in accordance with the respective laws and regulations of either Contracting State [...]." Thus, Fraport must demonstrate that it has "an investment" that complied with Philippines law and regulations.188 This is a legality requirement, which is supported by the remainder of the BIT and its Protocol.189 Not only Fraport’s investment was illegal for the alleged reasons that the Tribunal will examine below, but it was not "accepted" by the Philippines.190
209.
Even without taking the terms of Article 1(1) of the BIT into account, for Respondent, all BITs contain a tacit jurisdictional requirement of legality191 and the Tribunal has no jurisdiction over disputes involving investment made in violation of host State law.192
210.
In addition, Respondent argues that "regardless of whether Fraport’s unlawful investment is considered to satisfy the BIT’s definition of an investment,"193 its claims are inadmissible on the basis of the doctrine of clean hands and the requirement of good faith, relying mainly on Bin Cheng and World Duty Free v. Kenya, because Fraport invested in violation of Philippine law and international public policy, and that its investment was illegal.194
211.
Fraport considers that the BIT does not contain a legality requirement, and certainly not a de facto continuous one,195 but rather that Article 1(1) was designed as an admittance clause, as supported by the travaux préparatoires.196
212.
Fraport further argues that the concept of admissibility based on clean hands does not apply here as Respondent has not shown corruption and "should not be able to use its own illegal acts of extortion and corruption in order to take operational Terminal without compensation."197 It considers that the allegations of corruption have nothing to do with Fraport’s investment, or the legality of such investment, either in time or facts, pointing out for instance that the acquisition of shares has never been illegal.198 Respondent replies that there is no temporal limitation for the doctrine of admissibility.199
213.
In any event, Fraport also counter-argues that all its discrete and multiple investments are entitled to the protection of the BIT.200 Respondent dismisses this theory based on the "unity of investment" doctrine and argues that corruption taints the entirety of an investment.201

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

214.
According to Respondent, the clean hands doctrine applies to render inadmissible claims relating to an investment that was procured through fraudulent misrepresentations.202 PIATCO made material misrepresentations regarding its financial capacity and technical qualifications to PBAC. PAIRCARGO misrepresented its proposed annual guaranteed payments. Fraport is said to have joined in with this fraudulent conduct because it knew before it made its own investment that PIATCO has secured the Terminal 3 Concession under false pretenses.203
215.
Fraport also knew that the concessions agreements were in violation of the BOT law, including an unlawful direct Government guarantee in Section 4.04(c)(iv) of the ARCA, the lack of NEDA’s approval of the Concession Agreement or the ARCA, and were missing critical approvals of the DOTC and the Minister of Finance that could not be legally obtained.204
216.
Fraport denies those allegations and claims that it had every reason to believe that PIATCO achieved the award and concession agreements through legitimate means, which in any event turns to be the case.205

C. Fraport Violated the Anti-Dummy Law

217.
Respondent alleges that Fraport’s investment in PIATCO violated the 1936 ADL, as Fraport deliberately assisted, aided and/or abetted in the "planning ' of an ADL violation, which deprives the Tribunal of jurisdiction over Fraport’s claims and renders such claims inadmissible.206

1. The Philippine Anti-Dummy Law

218.
The Philippine Constitution restricts operation of a public utility (which the Parties agree includes Terminal 3) to Philippine citizens or corporations established under Philippine law at least 60% of whose capital is owned by Philippine citizens. The ADL, designed to prevent circumvention of such nationality requirements, prohibits in Section 2-A "interven[tion] in the management, operation, administration, or control" of, inter alia, public utilities by persons who do not meet the nationality requirements.
219.
According to Respondent, Section 2-A of the ADL imposes two general restrictions: (i) it prohibits Philippine entities from allowing an unqualified person to intervene into the management, operation, or control of a public utility, and (ii) it prohibits any person, including foreigners, from knowingly aiding, assisting or abetting in the planning, consummation, or perpetration of an ADL violation.207
220.
Respondent submits that the fact that there was no finding of an ADL violation in local proceedings is irrelevant because the DOJ investigations are focused on different facts and claims.208 For Respondent, "[t]he DOJ proceeding is focused on Fraport’s violation of the 60/40 Philippine nationality requirement and the method to calculate a corporation’s nationality. In contrast, the claims in this arbitration are focused on Fraport’s intervention into the management, operation, administration or control of public utility corporations in circumvention of those Philippine nationality requirements."209
221.
Fraport considers that the ADL is an (old) criminal law (hence subject to strict construction)210 applied inconsistently by Philippines agencies with little judicial guidance on what it proscribes.211 It contends that at the time of its investment, the control test was to apply in determining the nationality and not the computation of equity interest (so called Grandfather Rule) as claimed by Respondent.212 It points out that any violation can be cured,213 and dismisses any wrongdoing.

2. Fraport’s Alleged ADL Violations

222.
Respondent argues that Fraport violated the ADL in five ways,214 relying on expert legal opinions from Dean Concepcion and former Chief Justice Puno. Fraport allegedly violated the ADL by:

(i) having a right of recommendation under the Pooling Agreement;

(ii) being the Financial Arranger in the Project;

(iii) placing non-Filipino officials in management roles at PIATCO and PTI;

(iv) having a veto power over PTI’s corporate decisions; and

(v) having a right to appoint PIATCO board members in excess of limitations.215

223.
Fraport, relying on expert legal opinions from former Justice Melo, former Secretary of Justice Tuquero, and Dean Pangalangan (jointly), and former Justice Vitug, argues that it has always complied with the applicable legal regulations, and that Fraport did not aid or abet in any ADL violation, failing for Respondent to have identified the principal offender and for the violation to be consummated.216 It claims to have amended in 2001 the contractual arrangements curing any potential violation, leading Respondent to admit in the first arbitration that it resulted in a "lawful Shareholder Structure."217 It further points out that ADL investigations have commenced in 2003, further to Fraport’s first request for arbitration.
224.
Fraport also makes the following cross-cutting responses to Respondent’s charges:

• The nationality requirement apply to the "operation of a public utility" (rather than the pre-operation construction phase), so that Fraport could not have violated Section 2-A of the ADL prior to Terminal 3 entering into service (which did not occur prior to the expropriation).218

• Section 2-A of the ADL does not apply to shareholder conduct.219

• Fraport never controlled PIATCO, the Chengs did.220

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

225.
Respondent submits that Fraport was involved in or aware of corruption and fraud in implementing the Terminal 3 Project, which makes Fraport’s claims inadmissible.221
226.
According to Respondent, the Tribunal may rely on recognized "red-flags" and presumption in assessing Respondent’s prima facie evidence of corruption.222 Respondent’s evidence is sufficient to prove the corruption and Fraport was unable to offer rebuttal evidence.223 Fraport replies that Respondent has failed to meet the high burden of proof, i.e. "clear and convincing evidence," that corruption allegations require.224
227.
In particular, Respondent alleges that Fraport participated in bribing various Philippine officials - mainly via Alfonso Liongson and a kickback scheme involving politically-connected subcontractors - to obtain various government approvals (e.g., amendments to the Concession Agreement) necessary to the Project.

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

228.
Respondent alleges that PIATCO (with Fraport’s involvement) paid more than US $10.6 million to the Chengs - the Philippine family that owned the controlling share of PIATCO - and "Top Victory Investments Ltd." (whose ownership is unknown) through offshore banking accounts belonging to Alfonso Liongson - who purportedly was a marketing and government relations consultant to PIATCO, despite his alleged lack of public relations experience - and others, including Hi Kian Yu (aka "Shoehorn"), the president of a company whose major shareholder was the brother of the Executive Secretary of then-Philippine President Estrada.225 Liongson was retained by a special committee of PIATCO’s board that included two Fraport officials.226
229.
According to Respondent, these payments were used to secure various Government approvals related to the Terminal 3 Concession. Specifically:

• US $2.6 million in payments were made to the Chengs and Top Victory’s accounts within 23 days of DOTC’s approval of the Second Supplement to ARCA. The Second Supplement added demolition of below-ground structures to PIATCO’s responsibilities, thus allegedly allowing it to enter into a kickback scheme with a subcontractor, Wintrack (described infra)227

• US $2.3 million in payments were made to the Chengs over the four months surrounding the approval by DOTC Secretary Pantaleon Alvarez (who allegedly had close connections to the Chengs) of PIATCO’s request to relax the required 70:30 debt-equity financing ratio for to the Terminal 3 Concession. This approval was required to continue to fund the construction of Terminal 3, as PIATCO’s Philippine shareholders could not or would not increase their equity investment and Fraport was not legally allowed to do SO .228

• US $4.9 million in payments were made to the Chengs and Top Victory in the weeks prior to and after DOTC’s approval of PTI as the contractor-operator of Terminal 3 and of the Third Supplement to the ARCA. The Third Supplement changed the terms of the agreement with respect to the construction of a road, which allegedly provided the opportunity for further corruption.229

• US $850,000 in payments were made to the Chengs in the weeks following DOTC’s approval of Fraport’s purchase of additional shares in PAGS, one of the cascade companies.230

230.
Respondent relies on its experts - Messrs. Silverstone, Pieth, Pingle, and Kaczmarek - to argue that the nature of these payments, the structure of PIATCO’s contract with Liongson, Liongson’s lack of qualifications to perform the public relations services for which he was purportedly hired, and an allegedly extraordinarily high level of Project "soft costs"231 are indicative of bribery, which should shift the burden of proof to Fraport to show that PIATCO did not procure these government approvals through bribery.232

2. The EPC Contract Schedule 7 Kickback Scheme

231.
Under Schedule 7 of the EPC Contract between PIATCO and Takenaka, PIATCO’s preferred subcontractors were provided the opportunity to match the lowest bid for a subcontract, in which case the contractor was required to use PIATCO’s preferred subcontractor.233 Respondent explains that this provides the opportunity for inferior subcontractors to obtain subcontracts through corruption, as was the case with a GE subsidiary, which was found (according to charges filed by the US SEC) to have bribed a Philippine government official to obtain a subcontract for explosive detection devices.234
232.
According to Respondent, subcontractors would underprice the works to be performed and kick back the difference between the cost and the amount budgeted under the EPC to PIATCO, which then used those funds to bribe Philippine officials.235 Respondent claims that Fraport can be held responsible for these schemes because two members of the four-person EPC Committee of PIATCO’s board, which oversaw the EPC, were Fraport officials.236
233.
Respondent focuses on Wintrack,237 a subcontractor responsible for clearing below-ground debris, pursuant to the work awarded through the Second Supplement to the ARCA. Wintrack was owned by the wife of Congressman (and, later, DOTC Secretary) Pantaleon Alvarez. According to Respondent, Wintrack greatly inflated its invoices, the cost of which was passed on the Philippine government, allegedly with the knowledge of Fraport.238

3. Improper Receipt of Funds by Fraport Officials

234.
Respondent also alleges that three Fraport officials improperly received money in the course of the Terminal 3 Concession, which they deposited into offshore accounts.239

4. Fraport’s Responses

235.
Fraport rejects Respondent’s allegations, arguing that Respondent’s corruption claims are not credible or relevant and unsupported by evidence. In particular, Fraport makes the following overarching points:

• Respondent has not produced any evidence of bribery, relying solely on the inferences of its experts.240 Fraport strongly objects to Respondent’s expert witness Juval Aviv, calling him a "complete fraud."241

• Moreover, Respondent has not shown how allegedly corrupt officials were responsible for the five Government approvals that it specifically alleges were procured through bribery, given the number of other officials involved; ignores the other 33 Government approvals that PIATCO received; and has "wild inconsistencies" in the timing between the allegedly corrupt payments and the approvals allegedly procured thereby, including a number made after President Arroyo’s announcement that the Philippines would not honor the Concession Agreement.242

• The Philippines has not indicted or convicted a single Government official for receiving bribes in connection with the Terminal 3 concession, nor are there any ongoing investigations.243 The only indictment of Fraport officials (but not the Government officials involved) was in 2005 for signing the Third Supplement to the ARCA which was alleged to have been illegally advantageous to PIATCO.244 Moreover, every investigation into corruption with respect to the Terminal 3 Concession has been dismissed.245

• Respondent has not alleged any corruption with respect to the award of the Terminal 3 Concession or Fraport’s making of its investment.246

• Many of the witnesses relied upon by Respondent for its allegations have previously contradicted their statements or claimed no knowledge or any corruption on the part of Fraport.247

• Liongson, in fact, did provide public relations services.248

• The Wintrack contract was made more than 3 years after the award of the Project. Everyone involved in the Wintrack contract was exonerated.249

• Schedule 7 did not set forth a process for the awarding of contracts to subcontractors, but only allowed Schedule 7 sub-contractors to be considered in the rating of the bids by Takenaka.250

• Respondent conflates PIATCO’s and Fraport’s actions.251

• If Respondent’s allegations demonstrate any wrongdoing, the evidence shows that Fraport may have been the victim of an embezzlement scheme by the Chengs.252

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

236.
Finally, in relation to bribery, fraud and corruption, Respondent argues that Fraport has not sufficiently substantiated the ultimate use of its claimed investment in the Terminal 3 Project, which also includes questionable payments and unexplained uses of funds.253
237.
Respondent submits that Fraport failed to produce evidence that demonstrates "the ultimate use" of its investment, indicating further fraud and corruption.254 According to Respondent, Fraport cannot prove it spent US $565 million on the Project and cannot evidence their use in the Project. In other words, according to Respondent, Fraport failed to establish any "legitimate purpose" for 93% of its payments.255 Soft costs in an amount of US $123 million would be another indicator of fraud,256 as well as payment of US $4 million to Datacenta, a consultant, for a contract of an unknown nature,257 which Respondent claims to be a sham for payments to President Estrada and the Zamoras family.258
238.
Fraport considers that its investments have translated into an indirect economic interest in the concession agreements and the Terminal.
239.
As for the outgoing payments, they are detailed in PricewaterhouseCoopers ("PwC") five reports spanning both arbitrations. As of July 2012, Fraport’s financial contributions amount to US $510,639,079 excluding interest. According to Fraport, Respondent does not dispute that Fraport made the payments that make up these contributions, such as payment to Takenaka (US $192 million from Fraport259 and US $83 million from PIATCO).260 Indeed, Respondent’s own expert Mr. Silverstone confirmed the same amount of Fraport’s nearly US $400 million in outgoing payments as PwC.261
240.
Fraport contends that the "ultimate use" concept is a creation of the Philippines, is unsupported in the legal literature, and is fundamentally flawed. It argues that (i) Fraport’s documentation is consistent with its role in the Project as a minority shareholder, lender and guarantor, but Fraport is not the Project company (PIATCO) or the construction company (Takenaka) and therefore cannot be expected to have in its possession documentation for every single expense those companies have incurred, (ii) the ultimate use of 88% (or US $369.4 million) of Fraport’s investment has been conclusively established: US $266.7 was paid to the EPC contractors (as the value of the EPC Contract was US $323 million) as documented by Interim Payment Certificates, (iii) Respondent was an active participant in the construction process.262 As to soft costs, they typically range from a low of 20% to a high of 43%.263
241.
According to Claimant, the size of Fraport’s financial contributions, although substantial, has no bearing on whether Fraport has a legal or proven investment. Respondent insisted on a bifurcated arbitration and the precise value of the Terminal should be an issue for the quantum phase, not the jurisdiction and merits phase.264

V.II SUMMARY OF FRAPORT’S CLAIMS AND RELIEFS

242.
Fraport considers that the Arroyo’s administration destroyed its investment in the Terminal 3 Project. More specifically, it claims that the Arroyo administration, with the action of Secretary Climaco, sought to remove the key fundamentals of the Project (Terminal 3 was to handle exclusively all international flights and all duty free operations at NAIA), to favor President Arroyo’s "cronies," and more specifically Lucio Tan, through PAL and MASO that were to suffer financially from such an exclusivity. Failing to renegotiate the concession agreements, the Administration declared the Concession null and void, a decision endorsed by the Supreme Court. Since, it is argued that Respondent has failed to pay compensation.
243.
Fraport claims that the Philippines has (i) unlawfully expropriated its investment in violation of Article 4(2) of the BIT on expropriation, (ii) failed to accord Fraport and its investment fair and equitable treatment under Article 2(1) of the BIT, (iii) subjected Fraport and its investments to arbitrary treatment in violation of Article 2(2) of the BIT, (iv) subjected Fraport and its investments to discriminatory treatment in violation of Article 2(2) of the BIT, (v) failed to afford Fraport full protection and security in violation of Article 4(1) of the BIT, and (vi) breached Article 3(5) of the BIT—the umbrella clause—in breaching the express terms of the concession agreements.

A. Fraport’s Claims for Expropriation

1. The Alleged Acts of Expropriation

244.
Fraport alleges that Respondent expropriated its investment in the Terminal 3 Project (i.e., its economic interest in the concession agreements, in the Terminal 3 building and its loans and shares),265 in violation of Article 4(2) of the BIT, through the cumulative effects of following actions:

• President Arroyo’s declaration that the Terminal 3 Concession would not be honored;

• The DOJ’s declaration that the 1997 Concession Agreement and the ARCA were void;

• The "coercion" applied to Fraport by Secretary Climaco and others to renegotiate the concession agreements;

• Respondent’s alleged refusal to perform duties under the concession agreements necessary to bring Terminal 3 into commercial operation, such as installing immigration and customs facilities and requiring PAL and other carriers to move their international operations to Terminal 3;

• The Supreme Court’s Agan decision nullifying the Terminal 3 concession; and

• The taking of physical possession of Terminal 3 by Philippine armed forces.266

245.
Respondent acknowledges that its taking physical possession of Terminal 3 in December 2004 was an expropriation, but argues that none of the prior actions constituted an expropriation and that it did not expropriate either the concession agreements, which were legally declared null and void, or Fraport’s investment in PIATCO267 which it retains as shareholder and creditor.268

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

246.
The central portion of Respondent’s substantive defense is its arguments that (i) its executive branch and judiciary properly determined that the Terminal 3 concession agreements were null and void ab initio, and (ii) Fraport was aware of these legal risks when it invested.
247.
As noted above, the Government determined that the Terminal 3 Concession was void due to:

• deviations from the original Bid documents, combined with the failure to allow AEDC to match the terms of PIATCO’s bid, placed PIATCO in a more favorable position than other project bidders, in contravention of the BOT law;269 and

• the PAIRCARGO Consortium did not meet the financial qualifications at the time the Concession was awarded.

248.
In the Agan decision, the Supreme Court additionally relied on the following grounds in finding the Terminal 3 concession to be void:

• Post-award modifications to the 1997 Concession Agreement provided financial advantages to PIATCO that were not available during the bidding process and required the Government to provide a "form of security" for loans to PIATCO. Therefore, the Agreement was void as contrary to public policy.

• The ARCA provided for a direct guarantee by the Government, in the event of PIATCO’s default, which was prohibited by the BOT law.

249.
Respondent, relying on a legal opinion from former Associate Justice Vincente Mendoza,270 argues that the Agan decision (and the related conclusions by the DOJ), were proper applications of Philippine law. Consequently, because the Concession was null and void ab initio - that is, as a legal matter, never existed-A could not be expropriated.271
250.
Furthermore, Respondent argues that Fraport knew or should have known of the existence of the grounds for invalidating the Concession at the time it invested:

• Respondent claims that Fraport knew that PIATCO had "misrepresented its qualifications" and "was not financially qualified."

• Respondent argues that Fraport should have been aware that the 1997 Concession Agreement and the ARCA both contained an illegal Government guarantee in the event PIATCO defaults on its payments to the creditors financing the Terminal 3 Project.272

251.
In response, Fraport takes issue with the reasoning in Agan, both as to the grounds for invalidating the Concession and as to the remedy of declaring the Concession void ab initio, relying on legal opinions from Professor Merlin Magallona.273 According to Professor Magallona:

• Negotiated contracts based on unsolicited BOT proposals (as is the case here) and amendments thereto are not required to conform to public bidding requirements.274

• The determination of whether the PAIRCARGO Consortium met the financial pre-qualification requirements to bid on the Concession is within the discretion of PBAC, which had already found that it did.275

• The BOT law does not prohibit certain Government guarantees; regardless, the concession agreements do not carry such guarantees.276

252.
According to Fraport, as confirmed by Professor Odoni, the terms of the Concession Agreement, ARCA and the 3 Supplements were in line with modern airport practices and did not place unwarranted or excessive burden on the Government.277 None of the Governmental officials had considered that the ARCA was disadvantageous to the Government at the time of the execution or afterwards.
253.
Fraport also argues that it did not have knowledge of the alleged BOT violations that served as grounds for voiding the Concession,278 and, moreover, it relied on multiple, repeated Government assurances of the legality of its investment and other expressions of approval, as detailed in Annex A to its Reply,279 including a Warranty of Legality in the ARCA.280
254.
The other main issues of contention between the Parties related to the expropriation claims are set out below.

3. Failure to Pay Compensation

255.
Fraport asserts that Respondent’s failure to provide compensation for the physical taking of the Terminal is not in accordance with the BIT, as much as for the amount than for the delay in paying. Fraport was entitled to prompt compensation, the determination and the payment of which were to be made at the time of the taking. In addition, through the MFN clause in the BIT, it was entitled to "prompt, adequate and effective" compensation as included in the Danish BIT, "without due delay."281
256.
Fraport complains that it has only received a "small fraction" of the compensation to which it is due, US $29 million to date.
257.
In the event of a government taking, Philippine law provides for initial payment of the "proffered value" of the expropriated property. If the owner contests the amount of compensation, a court is supposed to determine the additional amount due, if any, within 60 days.
258.
Fraport argues that the Philippines made significant efforts to avoid payment of the proffered value, refusing first to apply the correct law Act No. 8974 until the Supreme Court ruled in the Gingoyon decision282 in December 2005 that Republic Act No. 8974 was the correct law to apply. That decision further directed the expropriation court to determine just compensation within 60 days of the decision, i.e., by March 17, 2006.
259.
The Philippines are said to have only made a proffered value payment of US $53 million to PIATCO in September 2006 (US $29 million of which was transferred to Fraport) - 21 months after the acknowledged expropriation - after the ICC Tribunal threatened to require Respondent to return Terminal 3 to PIATCO in August 2006.283
260.
Fraport also argues that Respondent has repeatedly and successfully sought to delay the proceedings in the expropriation court to determine the amount of compensation due.284 Despite findings by an independent board of commissioners appointed by the expropriation court that the replacement cost of Terminal 3 was approximately US $376 million (excluding interest at 12%), the expropriation court unreasonably determined the value to be US $175 million (with no interest due), yet ultimately awarded compensation of only US $149 million in May 2011.285
261.
Moreover, Respondent has continued to contest the amount and conditions of the payment of compensation to PIATCO,286 the Philippines placed US $116 million in an escrow account in October 2011, which Fraport refers to as "shell game"287 because the holding banks are owned by Respondent and that the escrow agreements require approval of 3 conditions from Respondent’s executive branch before any money is released. The latest decision ordering payment of US $300 million in August 2013 and confirmed in October 2013 will not be paid, as there is no final judgment of the Supreme Court yet.288
262.
In any event, Fraport submits that the court unvalued the costs by excluding large parts of the facility, such as the shopping facilities, excluding other facilities and improvement by PIATCO and Takenaka, deducting costs for alleged deterioration and depreciation, not including interest.289 The compensation model is also flawed as it is premised on a "replacement cost,"290 and fails to take into account (i) the investments made by Fraport and other participants in the construction, and (ii) the right acquired by PIATCO under the Concession to operate the Terminal and generate revenues.291
263.
Fraport further argues that the compensation required under Philippine law - which the Supreme Court has established in this case means payment of "replacement cost" - does not meet the BIT standard for compensation, requiring at the minimum the fair market value for the asset expropriated.292
264.
Respondent responds that Fraport’s interests in PIATCO have not been deprived of all their value.293 It has made the proffered value as required by Philippine law, which is consistent with the requirements of international law, and that it maintains its commitment to pay compensation as required by its courts.294 Moreover, Respondent argues that PIATCO and others - but not it - are responsible for the delays in the expropriation proceedings, as set out at length in Annex E to its Counter-Memorial.295

4. Public Purpose

265.
Fraport also argues that the expropriation was not for a public purpose; rather it was motivated by President Arroyo’s alleged interest in developing a different international airport (Clark; later, Diosdado Macapagal International Airport ("DMIA")) in her home province that she had named after her father (the development of which was restricted per the Terminal 3 Concession Agreement), the effects of the Concession on allegedly favored economic interests, such as PAL and the airport service operators, and Respondent’s own financial considerations.296
266.
For Respondent, Clark was a non-issue. Respondent argues that Fraport’s investment in the Terminal 3 Project was a commercial failure, in particular that Takenaka ceased construction of Terminal 3 in November 2002 because of past-due invoices from PIATCO, rather than President Arroyo’s decision not to honor the Concession.297
267.
While commercial failure was not given as a reason for either the November 2002 decision not to honor the Concession or the May 2003 Agan decision declaring the Concession agreement null and void, Respondent argues (assuming the physical terminal was the only asset expropriated) that the public purpose of the expropriation was to obtain a needed terminal that PIATCO was unable to complete298, and was carried with due process.299

B. Unfair and Inequitable Treatment

268.
Fraport alleges that Respondent has subjected Fraport’s investments to unfair and inequitable treatment in violation of Article 2(1) of the BIT through (1) contravention of Fraport’s legitimate expectations, (2) acting in bad faith, (3) denial of justice, and (4) acting without transparency.300
269.
Respondent, as a general matter, argue that an investor who acts corruptly, in violation of host State law, and fails to honor its obligations is not protected by the FET standard.301 It further contends that Fraport "chose an incompetent local partner with a bad reputation that was engaged in corruption"302 and that it made a series of bad business decision based on faulty assumptions.303

1. Legitimate Expectations

270.
Fraport argues that Respondent contravened its legitimate expectations by "abruptly and unjustifiably" reversing its long-standing support for Fraport’s investment in the Terminal 3 Project304 and voiding the Concession when the Terminal was 98% complete.305 Fraport submits that its investment was sound and followed an extensive financial (with KPMG) and legal (with QT) due diligence.306
271.
Among the bases that Fraport identifies for its expectation that the Government welcomed the investment and would "honor its commitments" and continue to support the Terminal 3 Project are:

• Representations by Philippine authorities that the requirements of the original bid process - including financial prequalification - had been duly observed;307

• The warranty of validity contained in the ARCA;308 and

• Memoranda of support from President Ramos and President Estrada.309

272.
Respondent responds that Fraport’s expectations were not legitimate because it knew the Concession Agreement was legally defective.310 Moreover, the ARCA warranty was invalid because of deficiencies in the process for approving it and because it was declared void ab initio and, thus, like the rest of the ARCA never existed as a legal matter. Furthermore, Fraport could not rely on PBAC’s representations because they were made to a third party, and not to its benefit, and, regardless, were made with allegedly-corrupt official Pantaleon Alvarez’s involvement. Nor could it rely on the presidential memoranda, which were directed at the Terminal 3 Project in general, rather than PIATCO’s Concession or Fraport’s investment, and pre-dated knowledge of Fraport’s alleged wrongdoing.311

2. Bad Faith

273.
Fraport argues that Respondent has acted in bad faith by means of "coercion and harassment" of Fraport’s officials and counsel, including:

• Fabricating charges of corruption against individuals associated with Fraport, when no Philippine official has been charged;

• Reviving of baseless ADL charges after many years’ delay, in response to the annulment of the ICSID 1 Award in order to manufacture a defense for this arbitration;

• Persecuting Fraport’s local arbitration counsel with charges based on statements made during the ICSID 1 arbitration;

• Attempting to coerce Fraport into renegotiating the terms of its investment, demanding to oust the Chengs, and pretending to negotiate with Fraport in good faith, via Secretary Climaco, while planning to seek the nullification of the Concession;

• Misusing police and prosecutorial resources to harass Fraport and manufacture a defense for this arbitration, rather that bona fide criminal investigations;

• Failing to pay compensation due for the expropriation of Terminal 3;

• Mischaracterizing the failure of its requests of Germany for mutual legal assistance to the ICSID 1 Tribunal, suggesting that Fraport was at fault and had something to hide.312

• And generally, "misusing its sovereign power by prosecuting Fraport’s employees and international counsel for the express purpose of gaining an advantage in the arbitration as well as Philippine counsel."313

274.
Fraport also claims that Respondent through Secretary Climaco treated Fraport unfairly and inequitably.314
275.
Respondent responds that:

• Its inability to achieve corruption convictions does not indicate that the charges were fabricated and, in particular, it was hampered from using the evidence available to it by confidentiality agreements from the first ICSID proceedings and the ICC arbitration.

• The timing of ADL charges was dictated by private complainants and, regardless, Fraport violated the ADL.

• The libel complaints were filed by private parties, whose actions cannot be attributed to Respondent.

• Respondent did not mislead German authorities in its requests for mutual legal assistance and, therefore, property characterized these requests to the ICSID 1 Tribunal.

• Fraport has not shown that Climaco was planning to seek nullification of the concession, nor that it was bullied into terminating its investment, which it lost because of its own illegality.

• Respondent has never denied its obligation to pay compensation due, once properly determined.315

3. Denial of Justice

276.
Fraport argues that the Supreme Court’s decision in Agan constitutes a procedural and substantive denial of justice. It alleges that the proceedings suffered from the following procedural infirmities:

• The Court had no basis for its exercise of jurisdiction. According to Fraport, Section 2 of Rule 65 of the Philippine Rules of Court, relied upon by the Agan petitioners, provides for the court to prohibit further proceedings, which was not actually the relief sought (or ordered).

• Petitioners’ allegations rested upon issues of fact, whereas Rules 65 may only be invoked to decide issues of law or grave abuses of discretion related to the lack of jurisdiction.

• The Supreme Court decided, improperly and without any legal basis, that it had original jurisdiction over the matter due to "extraordinary circumstances," when the validity of contracts are normally issues to be addressed at the trial court level.

• The Supreme Court improperly decided to waive requirements of standing, despite recognizing that the petitioners lacked standing to bring a case,

• President Arroyo publicly announced the decision not to honor the Terminal 3 Concession 10 days before oral arguments, thus improperly exerting political pressure on the judiciary.316

277.
Fraport further alleges that the Agan decision is substantively unjust for the following reasons:

• The Court improperly reversed the DOTC Prequalification, Bids, and Award Committee’s earlier determination that PIATCO was qualified to be awarded the Terminal 3 Concession without extending it any deference, discussing the factual circumstances considered, or articulating a standard of judicial review to PBAC’s fact finding or application of the law to those facts, which is inconsistent with the requirements of Philippine law.

• The Court failed to consider the doctrine of estoppel as applied to Fraport and PIATCO’s reliance on the assurances of Philippine officials.317

278.
Fraport further claims that failure to remit compensation for expropriation after nearly 11 years constitute a denial of justice.
279.
Respondent responds both that Fraport’s allegations fail to rise to the level of denial of justice and, regardless, the Agan proceedings and decision was proper, relying on Justice Mendoza’s opinion.318

4. Lack of Transparency

280.
Fraport argues that Respondent has failed to act transparently in withdrawing its support for the Terminal 3 Project for improper and idiosyncratic reasons,319 as well as by shifting its legal positions on the validity of the concession agreements in a manner that Fraport could not have predicted.320
281.
Respondent responds that its withdrawal of support was due to the various legitimate grounds that formed the basis for the DOJ’s position and the Agan decision. Similarly, Fraport should have known of the Government’s interest in developing Clark Airport/DMIA, which was referenced in the original Bid documents, and improperly excluded the from Terminal 3 concession agreements.321

C. Impairment by Arbitrary and Discriminatory Measures

282.
Fraport alleges that Respondent’s reversal of support for the Terminal 3 Concession and the changes of position in regard to the validity of the concession agreements,322 followed by the Agan decision also constituted impairment through arbitrary measures in breach of Article 2(2) of the BIT.323 Fraport further alleges that the Government’s reversal of support - motivated in part by a preference for local interests, including PAL and MASO -and the digression from established procedural rules in Agan constituted impairment by discriminatory measures.324
283.
It also alleges persecution and harassment by Respondent since the filing of the 2003 first ICSID request for arbitration.325
284.
Respondent argues that the complained of acts were proper - and, therefore, not arbitrary or discriminatory, but grounded in law326 - for the same reasons discussed elsewhere. Likewise, Fraport has also not shown that it was discriminated against because of its status as a foreign investor.327

D. Failure to Afford Full Protection and Security

285.
Fraport argues that Respondent had the objective obligation to afford full protection and security under Article 4(1) of the BIT, and not to invoke its own legislation to detract from such an obligation.328 Interference of the Executive with the Judiciary violates a State’s obligation. Such an obligation applies to non-physical harm, such as economic and legal protection, and to harm caused by the State itself.329
286.
For Respondent, to the extent that full protection and security would differ from FET, it only applies to physical harm caused by a third party or to failure to provide legal protection through domestic courts.330 In this case, none of the acts complained of are due to any alleged failure by Respondent to exercise due diligence to protect Fraport’s investment against harm caused by a third party (domestic proceedings having been initiated by private parties). It further contends that Fraport does not complain that the Philippine judicial system was not available331, and while it could have, it declined to participate in the Agan and the expropriation proceedings.

E. Breach of Umbrella Clause

287.
Fraport further alleges that Respondent breached its obligation to honor the Terminal 3 concession agreements with PIATCO, which Fraport is entitled to see respected (as a shareholder of PIATCO and based on its interest in the concession agreements) through the umbrella clause under Article 3(5) of the BIT,332 and should be estopped from denying the validity of the agreements.333
288.
Respondent argues that Fraport may not invoke the umbrella clause, as it was not a party to the contracts at issue. Moreover, as a result of the Agan decision, there was no valid contract for Respondent to observe.334
289.
As to estoppel, Respondent argues that it does not apply under either Philippine or international law.335 Regardless, Respondent argues that it did not induce Fraport’s investment and that any reliance on governmental representations were not reasonable, because Fraport’s due diligence did or should have put it on notice of the legal problems with the Terminal 3 Concession.336

F. Compensation under Theories of Unjust Enrichment and Quantum Meruit

290.
Fraport also argues that, in the event that the Tribunal determines that it did not suffer an unlawful expropriation, it should still be awarded compensation under the general principles of unjust enrichment and quantum meruit337
291.
Respondent replies that these are not grounds for recovery in international law and, regardless, Fraport’s claims are precluded by its "unclean hands."338

V.III THE PHILIPPINES’ COUNTERCLAIMS

292.
Respondent makes twelve separate counterclaims against Fraport,339 many premised on the theory that the inability of Terminal 3 to become operational by the end of 2002 is attributable to Fraport (or PIATCO):

• Counterclaims Nos. 1 through 3 involve various costs associated with completing or remediating aspects of Terminal 3 in accordance with the original Bid documents.

• Counterclaim No. 4 is for lease payments and real-estate taxes for the land where Terminal 3 is located incurred by Respondent for which PIATCO would have been responsible upon the Terminal becoming operational.

• Counterclaim No. 5 is for the tax benefits that Fraport received from Terminal 3’s Special Economic Zone status, which was intended to benefit only "legitimate investment."

• Counterclaim No. 6 is for all costs associated with administering PIATCO’s bid and the Concession, including costs associated with challenges to PIATCO’s pre-qualification.

• Counterclaims Nos. 7 and 8 are for lost revenue and other "economic and social opportunities" caused by the failure of the Terminal to become operational as of January 1999.

• Counterclaims No. 9 through 11 are for set-offs against any Award rendered in favor of Fraport by (i) the amounts owed to Respondent under the above counterclaims, (ii) the amount of bribes paid by Fraport, any fines or penalties imposed by Philippine courts against Fraport, and the amount of Fraport’s "ill-gotten gains," and (iii) the amount of compensation awarded to PIATCO by the Philippine expropriation court.

• Counterclaim No. 12 is a request for costs and legal expenses.

293.
Respondent argues that the Parties consented to arbitrate the counterclaims under Article 9 of the BIT which refers to "all kinds of divergencies [...] concerning an investment,"340 and that that the close factual connection between the original claim and the counterclaims make them arising directly out of the subject matter of the dispute for the purpose of Arbitration Rule 40(1).341
294.
Fraport, in response, argues that the Tribunal lacks jurisdiction over these counterclaims, as it did not consent to arbitrate those counterclaims under the BIT which only extends to claims advanced by the investors.342 It further submits that the counterclaims do not arise directly out of the subject-matter of the dispute, and arise only under Philippine law and not the BIT.343 It further considers that it is not the proper party against whom to bring the counterclaims, that certain of the counterclaims are not properly counterclaims, that Respondent is re-litigating claims it lost in the ICC arbitration against PIATCO, and that all of the counterclaims fail on the merits.344

VI. JURISDICTION

A. Governing Law and Burden of Proof

295.
Having duly considered the Parties’ position regarding "governing law" and "burden of proof,"345 the following principles shall be applied by the Tribunal in order to determine whether it has jurisdiction, considering that only jurisdiction ratione materiae, not the one ratione personae or ratione temporis, is in dispute.
296.
In this case, there is no disagreement between the Parties with respect to the nationality of the investor, or that, as a general matter, the BIT contains Respondent’s consent to the submission of disputes over "investments" to ICSID arbitration. Respondent, however, objects that the Tribunal lacks jurisdiction over the dispute because Fraport allegedly acted unlawfully in making and implementing its investment.
297.
The notion of "investment" is central to the determination of jurisdiction ratione materiae. Article 25(1) of the ICSID Convention provides:

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

In the absence of any definition of "investment" under the ICSID Convention, the BIT and international law, as the law governing the BIT, assume relevance to establish jurisdiction ratione materiae.

298.
The BIT refers to "investment" in Article 1 (Definition of Terms) as follows:

For the purpose of this Agreement:

1. [T]he term "investment" shall mean any kind of asset accepted in accordance with the respective laws and regulations of either Contracting State, and more particularly, though not exclusively:

(a) movable and immovable property as well as other rights in rem, such as mortgages, liens, ledges, usufructs and similar rights;

(b) shares of stocks and debentures of companies or interest in the property of such companies;

(c) claims to money utilized for the purpose of creating an economic value or to any performance having an economic value;

(d) intellectual property rights, in particular copyrights, patents, utility-model patents, registered designs, trade-marks, trade-names, trade and business secrets, technical processes, know-how, and goodwill;

(e) business concessions conferred by law or under contact, including concessions to search for, extracts or exploit natural resources;

any alteration of the form in which assets are invested shall not affect their classification as an investment [...].

In addition, the Tribunal shall apply provisions of Philippine law to the extent the latter establishes conditions that are relevant for determining its jurisdiction, whether or not the BIT makes reference to such provisions.

B. The "Investment" under the BIT

1. The Parties’ Positions

1.1 Respondent’s Position

300.
The essence of Respondent’s jurisdictional objections is that the BIT contains an explicit or implicit requirement that the investor comply with the laws and regulations of the host State with respect to its investment and that Fraport failed to do so. The BIT is limited in its application to investments accepted in accordance with host State law. Since Claimant’s investment was made in violation of the Philippine ADL and because its investment was in an enterprise that had been awarded concession agreements in violation of the Philippine BOT law, its investment falls outside of the BIT’s protection also as a result of Fraport’s corruption and fraud.348
301.
In essence, Respondent contends that Claimant’s investment was not "accepted" in accordance with the laws of the Philippines under Article 1(1) of the BIT. Article 1(1) defines an "investment" as "any kind of asset accepted in accordance with the respective laws and regulations of either Contracting State [...]." Therefore, according to Respondent in order to benefit from the BIT’s protection Claimant must demonstrate that its investment complied with Philippines law and regulations.349
302.
According to Respondent, a legality restriction is provided by other provisions of the BIT.350 Thus, with regard to "Promotion and Acceptance" of investments, Article 2(1) provides that "[e]ach Contracting State shall promote as far as possible investments in its territory [...] and admit such investments in accordance with its Constitution, laws and regulations as referred to in Article 1 paragraph 1. [...]" Likewise, Article 3(3) provides that each Contracting State shall apply the most favored nation treatment regarding investments "which are made in accordance with the legislation of that Contracting State."
303.
When parties to the BIT wished to refer to registration requirements they did so specifically, as in Article 5(1) requiring the host State to guarantee free transfer of payment regarding investments "which have been duly registered by its appropriate government agencies if so required." Additional references to legality requirements are contained in the Protocol to the BIT, which "forms an integral part" of the BIT,351 while other Articles of the Protocol refer to registration requirements, which reference would be redundant if Article 1(1) only referred to a registration regime as suggested by Claimant.352
304.
According to Respondent, even if the BIT did not expressly require that investments comply with host State law to qualify for treaty protection, the Tribunal should decline jurisdiction on account of illegality of the investment. It refers to the legal opinion of Professor Dolzer, who observes that the fundamental aim of the ICSID Convention "is to promote the rule of law in the area of foreign investment"353 so that "unlawful investment will not be enforced by an international tribunal even if the relevant BIT contains no clause on domestic conformity."354 The same view is expressed by Professor Schreuer,355 another legal expert for Respondent.
305.
In Respondent’s view, other tribunals have confirmed that claims based on illegal investments cannot be protected even in the absence of a specific clause of the relevant treaty requiring compliance with host State’s law. Reference is made by Respondent to Phoenix Action v. Czech Republic, holding that "States cannot be deemed to offer access to the ICSID dispute settlement mechanism to investments made in violation of their law," and to Homester v. Ghana holding the same with reference to Phoenix.356 Fraport’s reference to EDF International and others v. Argentina is wrong since this case stands for the opposite proposition by holding that "the requirement of not having engaged in a serious violation of the legal regime is a tacit condition inherent in every BIT [..,]"357
306.
Fraport’s argument that Article 1(1) does not create a legality requirement as it contains the word "accepted" rather than "made"358 is flawed as it assumes that an investment "made" in violation of host State law can nevertheless be "accepted in accordance with the respective laws and regulations" of that State.359 Contrary to Fraport’s view that the object and purpose of the BIT is "enshrined in its preamble," having therefore regard to the promotion of investment with no new barriers to BIT protection,360 the promotion of investment in such object and purpose must consider the entirety of the BIT provisions.361
307.
In conclusion, since according to Respondent Article 1(1) requires covered investments to comply with host State law, the Tribunal should decline jurisdiction over Claimant’s claims because "Fraport’s investment was a violation of the Philippine Anti-Dummy Law and was an investment in an enterprise that obtained its concession in violation of the Philippine law."362

1.2 Claimant’s Position

308.
According to Claimant, contrary to Respondent’s afterthought argument contrived to evade its compensation obligations, the investments made by it meet at all times the requirements of the BIT, are legal under Philippine law and were accepted, indeed encouraged, by the Philippine Government.363
309.
According to Article 31(1) of the Vienna Convention on the Law of Treaties (the "VCLT"), to which both Germany and the Philippines are parties, Article 1(1) of the BIT must be interpreted "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."364
310.
The ordinary meaning of the term "accepted," when modified by "in accordance with the respective laws and regulations," means permission to the Philippines to put in place laws and regulations to regulate its acceptance of assets as investments.365 This meaning is consistent with the object and purpose of the BIT, which is the encouragement and protection of investments, as made clear by the Preamble.366 It is also consistent with the context of the BIT, which provides for specific narrow reservation in the Protocol that did not apply to Claimant’s investment.367
311.
Other articles of the BIT confirm that Ad Article 1(1) is concerned only with the admission of investments, such as Article 2(1) which was included at the instigation of the German Government to reflect that all investments that have been admitted are protected investments.368 Likewise, Article 5(a) of the Protocol expressly envisages an acceptance and registration regime by providing that "it is understood that duly registered investments are assets of any kind as defined in Article 1, admitted in accordance with Article 2(1) and reported to competent governmental agencies at the time the investment was made."369
312.
An acceptance regime is provided by other treaties concluded by the Philippines using the same wording of Article 1 of the BIT, such as the Italy-Philippines BIT.370 By contrast, other treaties concluded by the Philippines expressly provide for the requirement of compliance with Philippine law as a condition to jurisdiction.371
313.
Also the travaux préparatoires, considered by Respondent to be "often unreliable,"372 confirm that the treaty language of Article 1(1) was meant to be an admittance requirement, not a legality requirement, as shown by the exchange of Notes Verbale (sic) between the two Governments in the course of 1995.373
314.
Respondent’s attempt to read into the BIT a legality requirement that is not there has been rejected by other tribunals, for example, in EDF International and others v. Argentina where the tribunal agreed with the claimant that where a BIT does not explicitly provide that an investment must be made "in accordance with the laws" of the host State no legality clause may be read into the treaty for purpose of admission of an investment.374
315.
Neither of the cases referred to by Respondent dealt with provisions similar to or relevant for an interpretation of the meaning of Article 1(1) of the BIT.375
316.
According to Claimant, the only possible requirement that may be imposed on an investor for purposes of jurisdiction is that its investment "is reported to competent governmental agencies" at the time it is made, as provided by Ad Article 5(a) of the BIT Protocol.376
317.
Article 3(3) of the BIT imposes on the investors rather than the Contracting State an obligation of conformity with the host State’s legislation of investments made by them as a condition for an investor to be eligible for MFN treatment. According to Claimant, this position is instructive for two reasons. First, because it confirms the conscious use of the word "accepted" instead of "made" in Article 1(1), which is instrumental to its interpretation. Second, since the legality of the investment is required for the MFN protection this means that in any other respects protection of the treaty is granted if the investment is accepted.377 Article 8 of the BIT provides confirming context when requiring conformity with host State’s legislation only for BIT protection of "investments made prior to its entry into force."378
318.
In conclusion, Claimant contends that an investment will not receive the BIT protection under Article 1(1) either if it was not accepted by the host State or if the State’s acceptance was not in accordance with its "respective laws and regulations." This is not the case in the present dispute considering that Claimant’s investments "were accepted by the highest levels of the Philippine Government"379 and that such acceptance was in accordance with all relevant laws and regulations, considering that Respondent does not impose specific admittance or registration requirements on investments in shares or in the form of loans or guarantees."380

2. The Tribunal’s Analysis

319.
The overview of the Parties’ position regarding the issue of jurisdiction conducted so far, although not meant to be exhaustive of the respective arguments, is sufficient to evidence their fundamental disagreement on the scope of Article 1(1) of the BIT and the consequence for the Tribunal’s jurisdiction.
320.
According to Claimant, Article 1(1) was intended by both parties to the Treaty to be an admittance clause, with the consequence that since its investments had complied with any registration or admission requirement under the laws and regulations of the Philippines, the Tribunal has jurisdiction to hear the case.381 According to Respondent, Article 1(1) is a legality requirement, with the consequence that since Claimant’s investment were made in violations of the host State’s law the Tribunal lacks jurisdiction ratione materiae should such violation be established.
321.
Turning to Article 1(1) of the BIT, which is at the core of the Parties’ disagreement, the Tribunal’s analysis must be conducted applying the rules for treaty interpretation under the VCLT. According to Article 31(1) of the VCLT

A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

323.
Regarding the "ordinary meaning" of the term "accepted" in Article 1(1), the Tribunal concurs with Respondent’s reference to the meaning of the term according to the Oxford Dictionary as "satisfactory," "acceptable" and "generally recognized as correct or valid."382 However, any forms of acceptance, to be valid, must be "in accordance with the laws and regulations" of the host State and this supports the interpretation of Article 1(1) favoring the requirement that investments, to be accepted, must comply with the host State’s law. In other words, the reading of the whole sentence in Article 1(1) legitimates the interpretation that is not the act of acceptance that has to conform to the host State’s law but that the investment to be accepted must comply with such law.383
324.
Regarding the "context," other provisions of the BIT confirm the legality requirement for an investment to be accorded the BIT protection. Thus, Article 2(1) provides that each Contracting State, in addition to promoting investments in its territory, shall admit them "in accordance with its Constitution, laws and regulations, as referred to in Article 1 paragraph 1." Once again, to admit investments in accordance with the Constitution, laws and regulations may only be interpreted to mean that investments, to be admitted to the BIT protection, must conform to the host State’s law.384
325.
Reference to investments "made in accordance with" or "consistent with" the host State’s legislation is made by Article 3(3) and Article 8 of the BIT, respectively to grant MFN treatment to investment and to extend the BIT protection also to investments made prior to the BIT entry into force. Requiring compliance with host State’s law only limited to these two situations may be hardly reconciled with the repeated references in the BIT to the host State’s law, pointing rather to a general requirement of compliance with such law for an investment to be accorded the BIT protection.
326.
As mentioned by Respondent, investment registration is expressly required by the BIT in certain cases. This is the case of Article 5(1) for the "guarantee of free transfer of payments in connection with investments." This is also the case of Ad Article 5(a) of the Protocol defining, which are duly registered investments for the Philippines. In the Tribunal’s view, nothing would have prevented the Contracting States from using the same language in Article 1(1), had they intended that provision to be an admittance clause.
327.
The Tribunal also refers to the Philippines’ Instrument of Ratification to the BIT, which the Tribunal considers both States to have accepted "as an instrument related to the treaty" in the Protocol of Exchange of the Instruments of Ratifications of the BIT, and which therefore constitutes part of the "context" under Article 31(2)(b) of the VCLT. With relative clarity, that Instrument of Ratification states that the "Agreement shall be in areas allowed by and in accordance with the Constitution, laws and regulations of each of the Contracting Parties. "385
329.

Cognizant that the good faith interpretation of a treaty encompasses the principle of effet utile, however, the Tribunal does not regard it as appropriate to treat the term "accepted" as surplusage. Rather, recalling that the ordinary meaning of the term "accepted" includes "received," the Tribunal considers that "accepted" refers to the point in time when the investment is received in the host State, or, in other words, at the time the investment is made.

330.
This understanding is supported by the use of the term " zugelassen sind' in the German text of Article 1(1).389 As Claimant explained, "zugelassen sind" is the passive participle of the verb "ziilassen" meaning "to "accept" or "to admit."390 Thus, the German text is, at the very least, consistent with the Tribunal’s view that Article 1(1) refers to the admission of the investment, a well-known concept in international investment law. Indeed, the English text of the BIT also does not clearly differentiate between acceptance and admission. While Article 2 of the BIT is entitled "Promotion and Acceptance," the text of Article 2(1) refers instead to the "promot[ion]" and "admission]" of investments. In the German version of Article 2, the references to both "[a]cceptance" and "admission]" use forms of the verb "zulassen," the same term used for "accepted" in Article 1(1).

C. Respondent’s Jurisdictional Objections

1. Introduction

334.
Based on the foregoing conclusion regarding the requirement of legality of investments to found the Tribunal’s jurisdiction ratione materiae, the Tribunal shall now proceed to analyze the Parties’ arguments regarding Respondent’s jurisdictional objections. Before doing so, the following issues have to be determined, namely

(a) which of Claimant’s "investments" are to be considered for jurisdictional purposes;

(b) which are Respondent’s jurisdictional objections.

335.
Regarding issue (a), according to Claimant’s most recent submission on the subject

Fraport’s investments in the NAIA 1PT 3 Project span a period of several years, from 1999 and ending in 2002-2203. A report prepared by PricewaterhouseCoopers ("PWC") and submitted with the Memorial set forth the investment made by Fraport per years. Fraport made several types of investments, as defined under Article 1 of the BIT. The BIT states that investments include "shares of stock and debentures of companies or interest in the property of such companies". Fraport’s investments include (1) equity investments in PIATCO and in a "cascade" of Philippine companies that have ownership interests in PIATCO; (2) loans to PIATCO and the cascade companies; (3) payments to Takenaka and the Project lenders specifically for the construction of the Terminal (resulting, inter alia, in subrogation rights); and (4) services rendered. Fraport’s investments also include Fraport’s interest both in the concession and the Terminal building itself, as these constitute "interest in the property" of PIATCO.392

The list of investments indicated by Claimant being not disputed by Respondent, the Tribunal shall consider that Claimant’s investments are so identified.

336.
Regarding issue (b), based on Respondent’s most recent submission on the subject, three objections are raised regarding jurisdiction and admissibility by reason of Fraport’s violation of Philippine law in the making and/or implementation of its investment:393

(i) Fraport violated the Anti-Dummy Law394 (hereinafter "Jurisdictional Objection 1");

(ii) Fraport engaged in Corruption and Fraud395 (hereinafter "Jurisdictional Objection 2");

(iii) Fraport knew of PIATCO’s Misrepresentations to obtain the Concession Award396 (hereinafter "Jurisdictional Objection 3").

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

2.1 Introduction to the Anti-Dummy Law

339.
The Philippine Constitution restricts operation of a public utility (which the Parties agree includes Terminal 3) to Philippine citizens or corporations established under Philippine law of which at least 60% of whose capital is owned by Philippine citizens. Specifically, Article XII, Section 11 provides that:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. [...] The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.400

340.
The Anti-Dummy Law401 was originally enacted in 1936 and subsequently amended on multiple occasions. Formally titled "An Act to Punish Acts of Evasion of the Laws on the Nationalization of Certain Rights Franchises or Privileges," the ADL is designed to prevent circumvention of the constitutional and statutory nationality restrictions. Section 1 of the ADL establishes penalties for the violation of such nationality restrictions. Section 2 prohibits falsely simulating compliance with the minimum capital stock requirements.

2.2 The Parties’ Arguments

a) Respondent’s Position

341.
According to Respondent, on July 6, 1999, Fraport made its investment in a manner that violated the ADL and the Philippine Constitution by acquiring shares in PIATCO and the "cascade companies" while simultaneously establishing binding arrangements designed to ensure that Fraport could intervene in the management, operation, administration and control of PIATCO and PTI. This, through a series of contemporary agreements, including the Pooling Agreement and other agreements with PIATCO’s other shareholders and an interest-free Loan Agreement with PAGS, one of PIATCO’s shareholders. This, despite warning by the Philippine law firm of Quisumbing Torres ("QT") as early as January 1999 that "in view of the Anti-Dummy Law and provisions of the Philippine Constitution arrangements, other than mere equity investments between FAG [i.e., Fraport] and the Company [i.e., PIATCO], must be considered carefully."402
342.
Fraport’s top executives were fully aware that the manner in which Fraport was structuring its investment violated the ADL, as shown by a "Final Holding Report" of February 26, 1999, shared with its Supervisory Board. The Report detailed a plan to execute a series of agreements through which Fraport would have financial and operating control over the Terminal 3 Project, noting the availability of the Philippine shareholders of PIATCO to accept Fraport’s advice as ’’binding" while admitting that this arrangement "cannot be enforced legally because of local laws."403
343.
Despite knowing that its investment structure violated the Constitution and the ADL, Fraport proceeded to implement this unlawful scheme since the only way to ensure that the Project would be profitable was to secretly secure its management control.404 At least twelve agreements were executed to that effect, most on July 5-7, 1999.405 Due to the secret nature of the arrangements with the other shareholders of PIATCO, Respondent could not know whether Fraport’s investment was consistent with Philippine law until most of the 1999 agreements were produced few weeks before the oral hearing in ICSIDI.406
344.
The provisions of the Constitution and the ADL on nationality restrictions regarding public utility projects, like NAIA Terminal 3 Project, "are of great national significance as an expression of fundamental national economic and policy goals."407 The Constitutional nationality restrictions provide that (a) a foreign entity may not own more than 40% of a corporation authorized to operate a public utility, (b) a foreign investor may participate in the governing body of a public utility up to its proportionate share in capital and (c) all executive and managing officers of the corporation authorized to operate a public utility must be Philippine citizens.408
345.
Section 2-A of the ADL contains two sets of prohibitions, one applicable only to Philippine entities and the other to "any person," including non-Philippine entities. The former entities that control a business reserved to corporations that are 60% owned by Philippine citizens are prohibited permitting or allowing an unqualified person from intervening "in the management operation, administration or control of the right or franchise" held by the corporation. The non-Philippine entities are prohibited "from intervening in the management, operation, administration, or control of a public utility" and any such person "who knowingly aids, assists, or abets in the planning, consummation or perpetration of any of the prohibited acts listed above is subject to criminal and civil sanctions.409
346.
The most significant of the 1999 shareholders agreements showing how Fraport intervened in PIATCO and PTI in violation of the ADL is the Pooling Agreement by which control over the Terminal 3 operations, maintenance and management was achieved by Fraport through a block voting arrangement providing that in case of failure to reach unanimity the shareholders were required to "act upon the recommendation of FAG" [i.e., Fraport] in matters related to "the implementation of the O&M Agreement," "the operation, maintenance and management of the Terminal" and "the conduct of commercial operations within the Terminal Complex in the ordinary course of business."410
347.
Claimant’s reading of the reference in the Pooling Agreement that the other shareholders "shall thereafter act upon the recommendation of FAG" as non-binding411 is not credible, considering the mandatory character of the world "shall," as confirmed by the Philippine Supreme Court.412 All the evidence shows that Fraport fully intended to control the votes of 51% of PIATCO by requiring Philippine shareholders to follow its binding vote, this being the only reasonable understanding of the effect of the Pooling Agreement.413
348.
Fraport’s Internal communications after signing the Pooling Agreement, including an email from Dr. Stiller to Fraport in October 2000, indicate Fraport’s knowledge that according to QT "the pooling of voting rights of certain shareholders [...] is incompatible with the anti-dummy law."414
349.
According to Dean Concepcion, the language of the Pooling Agreement requiring 51% of the share capital to vote as a block and upon Fraport’s recommendations and stating that nominees or representatives who do not comply with the Pooling Agreement are immediately replaced shows that "PIATCO [...] permitted Fraport to intervene in its management, administration and control and that Fraport did so in violation of Section 2-A."415
350.
Both the ICC Tribunal and the ICSID 1 Tribunal reached the same conclusion.416 Relying on a QT’s letter of June 14, 1999, produced for the first time in this arbitration, Fraport argues that the language of Article 2.02(2)(a) of the Pooling Agreement was suggested by the local counsel. However, in October 2000 and on May 30, 2001, QT communicated exactly the contrary.417 The other agreements of July 1999 reinforce Fraport’s management and control of PIATCO in violation of Section 2-A of the ADL.418
351.
According to one of the agreements of July 7, 1999, the Memorandum of Agreement with FAG, PTI and PIATCO, Fraport was given the lead role in obtaining international financing for the Project. According to the First Addendum to the PIATCO’s Shareholders’ Agreement of July 6, 1999, this role was confirmed with "the exclusive authority to determine the financial arrangements for the Project," including nomination of the company’s financial advisers.419
352.
Fraport thus was not merely a financial adviser or consultant but had a central role in the management, administration and control of PIATCO.420 This role as Finance Arranger was consistently recognized to Fraport by the other shareholders and PIATCO’s President, Cheng Yong.
353.
In addition to its role as finance arranger, Fraport infused further equity, loans and guarantees to finance the entire Project. The first loan was made to the Chengs on July 6, 1999 to permit them to increase the share subscription by lending US $6,655,000 interest free, to be repaid out of dividends generated by the Project and secured by the shares in PIATCO.421 Fraport provided PIATCO with over US $50 million in loans, guaranteed another US$ 165 million in loans and provided over US $120 million in guarantees to the EPC contractors.422
354.
Several legal opinions by QT and others confirmed that Fraport’s role as Financial Arranger would violate the ADL. As indicated by Dean Concepcion, one of the indicators of dummyship is the fact that the foreign shareholder provides practically all the funds for the investment in a Philippine public utility with a local partner.423 As mentioned by Dean Concepcion, "the pervasive financial control over Terminal 3 Project that was willingly ceded to Fraport by PIATCO and the cascade companies shows that PIATCO and Fraport planned and executed a dummy relationship in violation of Section 2-A of the Anti-Dummy Law."424
355.
Fraport was aware as early as 1999 that the Philippine Constitution required that all executives and managing officers of a public utility corporation or association must be Philippines and that the ADL prohibits all interventions into management, operation, administration and control of a public utility, except for technical personnel as authorized by the Secretary of Justice.
356.
Fraport argues that its role as financial arranger was later "clarified" by a Special Shareholders Meeting Resolution in June 2001 noting that Fraport’s role was to make recommendations to PIATCO regarding financing.425 Even if so, ADL violations cannot in any case be cured. As noted by a DOJ Opinion, an ADL violation exists where a foreign national provides "practically all the funding" for a project, as it occurred in the present case.426
357.
Pursuant to July 6, 1999 Shareholders Agreement (the "PTI Shareholders Agreement") Fraport and PTH became shareholders of a newly created company, PTI, which would serve as the Contractor-Operator for the Terminal 3 Project. Fraport would have actual control over the operation and management of the Terminal through PTI. The PTI Shareholders Agreement ensured that Fraport would have ultimate decision-making authority in relation to Terminal-operations, a role that was relinquished by PIATCO.427
358.
The PTI Shareholders Agreement gave Fraport the authority to designate PTI Chairman and its Director in charge of finance, administration and commercial operation, the agreement permitting the Director of Finance to sign checks on behalf of PTI. In addition, Fraport placed foreign officials into key management positions. As noted by the minute of the PIATCO Board meeting of July 8, 1999, one of Fraport’s representatives was appointed as Director for Terminal Operations, Building Management & Personnel Affairs, another as Director of Finance, Administration and Commercial Operations. Messrs. Struck, Bauchspiess and Vogel had authority to sign banking documents on behalf of PIATCO.428
359.
Fraport’s claim that PIATCO’s status as a company registered under the Philippine Economic Zone Authority ("PEZA") law exempted PIATCO and PTI from the ADL prohibition of employment of foreign nationals is mistaken. The PEZA law cannot derogate to the Constitution and its implementing regulations require compliance with nationality restrictions and the ADL.429
360.
The PTI Shareholders Agreement provides that virtually all corporate decisions required a 75% vote of PTI’s shareholders, granting therefore a veto power to Fraport. This was, in addition to the requirement that at least one director nominated by Fraport was necessary to approve a corporate act of PTI.430 All these arrangements as to PTI were held by lenders’ counsel to be a violation of the ADL, requiring amendment of the supermajority provision. Violation of the ADL was confirmed also by Dean Concepcion: "Fraport planned and obtained ability to control PTI as terminal operator, and thereby violated the Anti-Dummy Law."431
361.
Under the Constitution, "the participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital." The ADL provides substantially the same.432 The allowable participation by a foreign minority shareholding is based on the actual shareholders. As holder of a 25% share participation in PIATCO, Fraport was entitled to appoint two directors to the PIATCO’s Board and one of PTI’s designated directors to the same Board through its share participation to PTI. In May 2001, the number of PIATCO’s directors was increased from eleven to thirteen and their allocation changed pursuant to the Second Addendum to PIATCO’s Shareholders Agreement. Having increased its shareholding to 30%, Fraport could nominate four directors plus two thanks to its participation to PTI. The total of six was equal to 46,15% of PIATCO’s Board, meaning that foreign investors controlled a majority of PIATCO’s Board, seven out thirteen, since also Nissho Iwai was entitled to appoint one director. This violated the Constitution and the ADL, as advised by QT.433 Violation was confirmed by lenders’ counsel434 and Dean Concepcion.435
362.
Fraport’s contention that its representation on the PIATCO’s Board has always been proportionate to its shareholding436 and the additional nomination rights through PTI lawful is wrong since it fails to account for Fraport’s indirect appointment rights through PTI and contradicts the requirement under the Pooling Agreement that PTI’s directors vote in accordance with Fraport’s recommendations as to operations and management.437
363.
It is not true that, as stated by Claimant, there cannot be a violation of Section 2-A of the ADL absent "an actual act of intervention in the management, administration, operation or control of a public utility that a Philippine national intentionally permitted." According to Dean Concepcion, this argument "is plainly contrary to the language of Section 2-A."438
364.
Claimant’s argument that the language of Section 2-A does not prohibit conduct by shareholders, fails to consider that Section 2-A "prohibits any person, i.e. including any non-Philippine citizen, from intervening in the management, operation, administration or control of a public utility" and that violations of the ADL "are not restricted to the means of alien control that are specifically mentioned in Section 2-A."439 Also Claimant’s argument that it is not possible for a minority shareholder to intervene in the management, operation, administration or control of a public utility fails to consider that even where the equity ownership complies with the 40% limit on foreign shareholding the latter may enter into arrangements in violation of the ADL.440
365.
Fraport’s argument that it acted in good faith and with the benefit of Philippine legal counsel in structuring its investment and that it cured the ADL violations by amending the disputed shareholders agreement two years later, when most of its investments was made,441 does not absolve it of liability for ADL violations. As explained by Dean Concepcion, under Philippine law there is no good faith defense to an ADL violation and the latter cannot be cured by subsequent action.442
366.
Respondent asserts that an ADL violation arose at the moment that Fraport planned and executed the Pooling Agreement even if Fraport did not exercise its right of control under Section 2.02. As concluded by a DOJ Opinion, it is sufficient that a minority foreign shareholder places itself in a position to intervene in the management, operation, administration or control of an entity subject to nationality restrictions.443 Further, the planning of a violation of the ADL is prohibited by Section 2-A, as indicated by the language of that provision referring to "planning."444
367.
Regarding PTI, Fraport’s argument that the ADL does not apply to PTI since the latter is only a future operator445 is mistaken since the prohibition of the ADL apply from the time a corporation applies for the right to operate a public utility which, in the case of PTI, occurred when it applied to become contractor-operator for the Terminal 3 Project. Fraport was advised by QT that PTI was subject to the ADL.446
368.
Any alleged advice of local counsel did not immunize Fraport from the ADL violations, contrary to Claimant’s contention that its "extensive communications with lawyers demonstrate its efforts to comply with the ADL and that the Pooling Agreement was drafted in consultation with QT."447 Good faith is not a defense to any ADL violations since they are mala prohibita and do not require proof of malicious intent.448 Fraport’s selective disclosure of requested documents and the incomplete nature of the record cast serious doubts on Fraport’s claims that it followed advice from local counsel. Further, QT has rejected any suggestion that it drafted the Pooling Agreement, reconfirming in July 2001 that the Pooling Agreement had "Anti-Dummy implications and may be void under Philippine law."449

b) Claimant’s Position

369.
Fraport’s acquisition of shares in PIATCO, PTI, PTH and PAGS was made in accordance with the foreign ownership restrictions under the Philippine Constitution which require that at least 60% of the capital of corporations engaged in the operation of a public utility be owned by Philippine nationals.450 At all relevant times Philippine nationals owned at least 60% of the shares in PIATCO, Fraport owning initially, in 1999, 25% and later on, since 2000, 30% of the shares in PIATCO.451 As set forth in the Joint Legal Opinion of Justices Melo, Tuquero and Dean Pangalangan, PIATCO’s shareholder structure was in full compliance with Philippine law.452
370.
Being also a minority shareholder of the "cascade companies" that own shares in PIATCO, Fraport has economic participation in PIATCO greater than 40%. This however is not in violation of Philippine law since under the Control Test a public utility corporation is considered to be of Philippine nationality if its shares are at least 60% owned by Philippine nationals,453 all cascade companies in which Fraport had a minority interest counting as Philippine nationals.
371.
Fraport’s investments are also in compliance with Section 2-A of the ADL. The majority of the ICSID 1 Tribunal held Fraport’s investments to have been made in violation of the ADL based on a 1999 Shareholders Agreement, particularly Section 2.02 of the Pooling Agreement, although neither member of such majority was an expert in Philippine law, citing only one DOJ Opinion not even part of the record.454
372.
To find a violation of Section 2-A of the ADL there must be an actual act of intervention in the management, administration, operation or control of a public utility that a Philippine national intentionally permitted.455 There is no evidence of such intervention. "Placing itself in a position to intervene," as stated by Dean Concepcion,456 is an impermissible extension of the requirement of actual intervention.457
373.
Under Article 2.02 of the Pooling Agreement, Fraport had the right to make recommendations to PIATCO’s other shareholders but recommendations are not obligatory, being only an "advice" or an "exhortation." Also the phrase "shall act upon" does not require the other shareholders to accept Fraport’s recommendation but only "to take an action, to do something as opposed to not doing anything."458 The language of this provision of the Pooling Agreement was drafted in consultation with the local counsel QT.459 In an effort to ensure compliance with Philippine law, Fraport sought advice from local counsel in structuring and implementing various contractual arrangements.460
374.
Under Philippine law, shareholders agreements do not bind the Board of Directors which must exercise independent judgment. Should the action decided under a shareholder agreement be illegal, such as a violation of the ADL under Philippine law, the directors should refrain from implementing it to avoid their responsibility.461
375.
The statutory requirement is that the intervention in violation of the ADL is committed by a non-qualifying national, as "an employee, officer or laborer," this being the express language of the ADL. The term "shareholder" is nowhere mentioned in the provisions of the ADL. Fraport could not have violated the ADL in its capacity as a shareholder. The majority of the ICSID 1 Tribunal was not authorized to extend the application of a criminal law in violation of the principle of nullum crimen sine lege. Under Philippine law shareholders agreements are not binding on the Board of Directors, which is why the law incriminates an intervention by an "officer, employee or laborer," not by a "shareholder."462
376.
The Pooling Agreement was entered into on July 6, 1999, simultaneously with Fraport’s initial acquisition of shares in PIATCO and the cascade companies. It was replaced by an August 23, 2001 Amended and Restated Pooling Agreement which would have governed PIATCO shareholders’ relations during the operative stage had the Government allowed the Project to proceed.463 Under Philippine law, as confirmed by the recent Supreme Court’s decision in the Gamboa Resolution, the amendment cures any prior violations, if any existed, if changes are made prior to the beginning of an investigation.464
377.
None of Fraport’s signatories of the original 1999 Shareholders Agreements were ever charged of any ADL violation. Individuals who entered the scene after said Agreements had been revised in a manner that Respondent concedes made them compliant with the ADL were included as respondents in proceedings that have been pending for almost 10 years.465 None of the lenders’ counsel opinions referred to by Respondent was produced by it. It is not surprising that such opinions differed from those of Fraport’s counsel since is known that lenders take conservative approaches on legal and business issues.466
378.
Respondent’s allegation that Fraport had management and control of the Terminal 3 Project in reliance on a contractual arrangement based on snippets of language is misplaced. As admitted by Respondent itself and witness statements. Fraport never exercised such control. Section 2-A of the ADL prohibits a foreigner to "intervene in the management, operation, administration or control" of a public utility while it is not prohibited to the foreigner to have some theoretical ability to intervene. Fraport never intervened and Respondent has repeatedly admitted that Fraport was not in control of PIATCO. Such control was exercised by the Chengs, not by Fraport,467 as confirmed by one of Respondent’s witnesses, Mr. Lôsch.468
379.
There could not have been any control by Fraport during the operations of the NAIA Terminal 3 since due to Respondent’s actions PIATCO was not allowed to operate the Terminal.469 There could be no malicious intent and no "planning" of a violation of the law when the person is soliciting and following advice provided by counsel.470
380.
Fraport’s role as Finance Arranger was within the permissible scope of Philippine law since it was to assist PIATCO in dealing with potential lenders and had nothing to do with the management, operation, administration or control of a corporation. Truly, Fraport provided substantial funds to the Terminal 3 Project but it did not exclusively bankroll the Project, the BOT law stating "the project proponents may obtain financing from foreign sources."471 Messrs. Vogel and Struck acting as co-signatory to PIATCO bank accounts jointly with the Chengs is not a management of bank accounts and is permitted by Philippine law.472
381.
Contrary to what asserted by Respondent, the interest free loan did not provide Claimant with the right to vote the mortgaged shares.473 Fraport’s exclusive authority under the First Addendum was clarified in the Special Shareholders’ Resolution of June 15, 2011, determining that Fraport’s role consisted only in "making recommendation with respect to the financing of the Project." Any possible violation was therefore cured.474
382.
Also the role of Fraport’s employees and representatives to PIACO’s Board was consistent with Philippine law and common practice. By definition the position of all directors is non-executive and non-managerial. The position of Director of Finance in PIATCO is not equivalent to the Chief Financial Officer.475 No foreigners were appointed for the years 1999-2003 as corporate officers of PIATCO and if done it was done under the PEZA law.476
383.
Respondent’s assertion that under the PTI Shareholders Agreement Fraport planned and got the ability to control PTI as Terminal operator, thereby violating the ADL, is untenable since the contract with PIATCO (the Operations & Maintenance Agreement, i.e., "O&M Agreement"477) never entered into force and the Terminal never experienced an in-service date. PTI should not be subject to nationality requirements before it assumed the status of facility operator.478
384.
Fraport’s representation on the PIATCO’s Board has always been in proportion to its shareholding, as confirmed by the Joint Legal Opinion of Justices Melo, Tuquero and Dean Pangalangan based on the review of the General Information Sheet filed by PIATCO with the SEC for years 1999-2003. Additional directors appointed by virtue of Fraport’s shareholding in PTI do not count since the control test applies.479
385.
The ADL violation is alleged only in this arbitration and is not supported by the facts and the Philippine jurisprudence. It is an invention for purpose of this dispute, as confirmed by the fact that both the Philippine Supreme Court’s nullification of the Concession Agreement and the taking over of Terminal 3 had nothing to do with the alleged ADL violation.480
386.
The theory on which the alleged violations are based, i.e. intervention under Section 2-A of the ADL, has never been pursued domestically. The reason that is given is that the DOJ prosecutors never had access to the same documents that Fraport was forced to produce in this arbitration. This is not true since the two agreements on which the ICSID 1 Tribunal and the ICC Tribunal respectively dismissed Fraport’s and PIATCO’s claims have been known to Respondent for years and the annulled award has been published.481
387.
Claimant further notes that the ADL is a law of 1936, implemented in connection with Article XII of the Constitution. It has been interpreted often inconsistently by numerous SEC and DOJ Opinions predating the BOT law and the 1991 Foreign Investment Act that govern foreign participation to the Philippine economy.482

2.3 The Tribunal’s Analysis

388.