City of Batangas vs. Philippine Shell Petroleum Corporation

Local government units exercise delegated police power as agents of the State and must act in conformity with the State's will; therefore, ordinances enacted under the general welfare clause cannot contravene national statutes on matters of statewide concern, such as the control and regulation of water resources which is exclusively vested in the National Water Resources Board under the Water Code.

Batangas City enacted Ordinance No. 3, s. 2001 requiring heavy industries operating along portions of Batangas Bay within its territorial jurisdiction to construct desalination plants to use seawater as coolant for their industrial facilities, and prohibiting the use of underground fresh water for cooling systems and industrial purposes. Philippine Shell Petroleum Corporation (PSPC), which owns and operates a refinery in Tabangao, Batangas City using fresh groundwater under permits issued by the National Water Resources Board (NWRB), challenged the validity of the ordinance. Shell Philippines Exploration B.V. (SPEX), a foreign corporation licensed to do business in the Philippines and participant in the Malampaya Project requiring natural gas treatment at the Tabangao Refinery, intervened in the case.

• On May 28, 2001, the Sangguniang Panlungsod of Batangas City enacted Ordinance No. 3, s. 2001 requiring heavy industries along the Batangas City portion of Batangas Bay to construct desalination plants to facilitate the use of seawater as coolant for their industrial facilities.
• The ordinance prohibited the use of underground fresh water for cooling systems and industrial purposes, granted a five-year grace period for existing industries to comply, and authorized the City Mayor to grant exemptions under specific conditions including public hearings and environmental impact assessments.
• Section 8 of the ordinance empowered the City Mayor to issue cease and desist orders for violations without prior notice and hearing, while Section 9 imposed administrative fines of P5,000.00 per day of violation.
• PSPC owns and operates the Tabangao Refinery in Batangas City, which utilizes fresh groundwater from the Tabangao-Malitam watershed under water permits issued by the NWRB.
• SPEX is a participant in the Malampaya Project, which involves transporting natural gas from offshore Palawan to the Tabangao Refinery for treatment, requiring the use of cooling systems.
• PSPC presented a hydrogeology study conducted by Engineer Joeffrey Caranto showing that the natural recharge rate of the Tabangao-Malitam groundwater system exceeded current demand, water levels had not lowered significantly over three decades, and chloride levels indicated no saltwater intrusion was occurring.
• Barangay captains from Tabangao Aplaya and Pinamucan testified before the RTC that wells in their areas had dried up or begun producing salt water due to industrial activities.
• The RTC gave credence to PSPC's scientific evidence over the anecdotal testimonies of the barangay captains, finding no threat of groundwater depletion.

• Batangas City has the authority under Section 16 of the Local Government Code (general welfare clause) to enact ordinances exercising police power to protect local aquifers and promote the general welfare of its inhabitants.
• The ordinance has sufficient factual basis as evidenced by the testimonies of barangay captains regarding the drying up of wells and saltwater intrusion, which constitute "actual facts and experience" of inhabitants.
• The ordinance is a valid regulation rather than an absolute prohibition, and provisions with regulatory or prohibitive effect may be severed without impairing the ordinance's validity.
• The ordinance was published in Dyaryo Veritas, a newspaper of general circulation, and joint public hearings were conducted by the Sangguniang Panlungsod and Sangguniang Panlalawigan with PSPC's participation.
• The requirement to forward ordinances to the Sangguniang Panlalawigan under Section 56 of the LGC applies only to tax and revenue measures, not to environmental regulations.
• PSPC and SPEX should have first referred their grievances to the NWRB for adjudication regarding the threatened revocation of their water permits.

• The ordinance constitutes an invalid exercise of police power because it contravenes Presidential Decree No. 1067 (Water Code) and encroaches upon the NWRB's exclusive authority to regulate and control water resources.
• There is no sufficient factual or technical basis for the ordinance; PSPC's hydrogeology study demonstrates that the natural recharge rate exceeds demand and there is no threat of groundwater depletion or saltwater intrusion in the Tabangao-Malitam watershed.
• The ordinance unduly singles out heavy industries without scientific basis, resulting in arbitrary deprivation of property rights without due process of law.
• Section 8 of the ordinance, which grants the City Mayor power to issue cease and desist orders without prior notice and hearing, violates the due process clause of the Constitution.
• The ordinance was not properly posted or published in a newspaper of general circulation, and no records show it was forwarded to the Sangguniang Panlalawigan as required by Section 56 of the LGC.
• The filing of separate appeals by Batangas City and the Sangguniang Panlungsod constitutes forum shopping or violates the principle of judicial stability in light of the CA Fourth Division's Joint Decision.

• Procedural Issues:
  • Whether the Supreme Court should allow the amendment of the petition to correct the inadvertent error in citing the Joint Decision of the CA Fourth Division (resolving the JG Summit and First Gas appeals) instead of the Decision of the CA Tenth Division (resolving the PSPC appeal).
• Substantive Issues:
  • Whether City Ordinance No. 3, s. 2001 is a valid exercise of police power by Batangas City under the general welfare clause of the Local Government Code.
  • Whether the ordinance contravenes the Water Code and encroaches upon the exclusive authority of the National Water Resources Board to regulate water resources.
  • Whether the ordinance has sufficient factual basis to justify its enactment and withstand the presumption of validity.

• Procedural:
  • The Court allowed the amendment of the petition in the interest of substantial justice, finding that the error in citing the wrong Court of Appeals decision was inadvertent and not shown to result from anything more than inadvertence, and the nature of the issues involved warranted the correction.
• Substantive:
  • The ordinance is void for being ultra vires, contrary to existing law, and lacking factual basis.
  • Local government units exercise delegated police power as agents of the State and must act in conformity with the State's will; ordinances enacted under the general welfare clause cannot contravene national statutes on matters of statewide concern.
  • The Water Code places water resources under the exclusive control and regulation of the government through the NWRB, which has sole authority to grant, modify, suspend, cancel, or revoke water permits; the Assailed Ordinance arrogates unto Batangas City the power to control and regulate groundwater use, effectively nullifying existing water permits and usurping the NWRB's authority.
  • The ordinance lacks reasonable relation between its purpose (protecting aquifers) and the means employed (mandatory desalination plants); scientific evidence showed no substantial diminution of groundwater supply or saltwater intrusion in the Tabangao-Malitam watershed, and the testimonies of barangay captains were insufficient to justify the blanket application of the ordinance to all heavy industries without scientific standard.
  • The presumption of validity was overturned by documentary and testimonial evidence showing no threat of groundwater depletion, making it unnecessary to determine compliance with other substantive requirements such as due process in Section 8.

• Police Power of Local Government Units — Police power is the power to prescribe regulations to promote health, morals, peace, education, good order, safety, and general welfare. While LGUs exercise this power under Section 16 of the Local Government Code (general welfare clause), they do so as agents of the State and must conform to the State's will; therefore, they cannot enact ordinances that contravene national statutes or regulate conduct already covered by a general law of statewide application.
• Ultra Vires — An ordinance is void if it exceeds the powers granted to the LGU or is inconsistent with the laws or policy of the State; municipal ordinances are inferior in status and subordinate to state laws, and those in conflict with general laws of statewide application are universally held to be invalid.
• Presumption of Validity — The presumption of validity ascribed to an ordinance prevails only in the absence of some factual foundation of record sufficient to overthrow the assailed issuance; once factual evidence demonstrates the lack of basis for the ordinance, the presumption is overcome.

• "The policy of ensuring the autonomy of local governments was not intended to create an imperium in imperio and install intra-sovereign political subdivisions independent of the sovereign state."
• "As agents of the state, local governments should bear in mind that the police power devolved to them by law must be, at all times, exercised in a manner consistent with the will of their principal."
• "The police power of the Sangguniang Panglungsod is subordinate to the constitutional limitations that its exercise must be reasonable and for the public good."
• "Where the state legislature has made provision for the regulation of conduct, it has manifested its intention that the subject matter shall be fully covered by the statute, and that a municipality, under its general powers, cannot regulate the same conduct."
• "Arbitrary invasion of personal rights and those pertaining to private property will not be allowed even under the guise of protecting public interest."

• Batangas CATV, Inc. v. Court of Appeals — Controlling precedent establishing that LGUs cannot regulate conduct already covered by a general statute of statewide application; an ordinance in conflict with a state law is invalid because it is in excess of the powers granted to the municipal corporation.
• Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila — Cited for the doctrine that the presumption of validity ascribed to an ordinance prevails only in the absence of some factual foundation of record sufficient to overthrow the assailed issuance.
• Social Justice Society (SJS) v. Atienza, Jr. — Cited for enumerating the requisites for a valid ordinance, including that it must not contravene the Constitution or any statute, must not be unfair or oppressive, and must not be unreasonable.
• Acebedo Optical Company, Inc. v. Court of Appeals — Cited for the definition of police power and the principle that the national legislature delegated the exercise of police power to LGUs as agents of the State.
• De la Cruz vs. Paraz — Cited for the general rule that ordinances passed by virtue of the general welfare clause must not be inconsistent with the laws or policy of the State.

• Section 16, Local Government Code (Republic Act No. 7160) — The general welfare clause delegating police power to local government units to ensure and support, among other things, the preservation of a balanced ecology and the comfort and convenience of inhabitants.
• Section 56, Local Government Code — Provision requiring referral of certain ordinances to the Sangguniang Panlalawigan, interpreted by the Court as applicable only to tax and revenue measures in this context.
• Presidential Decree No. 1067 (Water Code of the Philippines), Articles 3, 13, 28, 29, and 30 — Provisions placing water resources under the control and regulation of the government through the NWRB, governing the grant and continuation of water permits, and vesting exclusive power to modify, suspend, cancel or revoke permits in the NWRB.
• Republic Act No. 5495 — Charter of Batangas City creating it as a municipal corporation endowed with specific powers.
• Presidential Decree No. 87 — Oil Exploration and Development decree under which SPEX operates Service Contract No. 38 for the Malampaya Project.