Freedom from Debt Coalition vs. MWSS

Certiorari and prohibition will not lie where a plain, speedy, and adequate remedy is available in the ordinary course of law, such as the statutory recourse before the National Water Resources Board (formerly the Public Service Commission) under Section 12 of the MWSS Charter for contests over water and sewerage rates; nor will the writ issue where indispensable parties are not impleaded or where the doctrine of hierarchy of courts is disregarded without exceptional or compelling circumstances.

MWSS is a government corporation created in 1971 under Republic Act No. 6234, owning and controlling waterworks and sewerage systems in Metro Manila, Rizal, and Cavite. In 1995, the government privatized MWSS's operations through concession arrangements, dividing Metro Manila into Service Area East (awarded to Manila Water Company, Inc.) and Service Area West (awarded to Maynilad Water Services, Inc.). On February 21, 1997, MWSS executed separate 25-year Concession Agreements with both concessionaires, under which the concessionaires act as contractors and agents of MWSS while ownership of existing facilities remains with MWSS. Section 12 of the MWSS Charter caps the system's rate of net return at 12% on a rate base of revalued assets in operation plus two months' operating capital, and vests exclusive original jurisdiction over rate contests in the Public Service Commission (now the National Water Resources Board).

MWSS was created in 1971 under Republic Act No. 6234 for the purpose of owning and controlling all waterworks and sewerage systems in Metro Manila and the provinces of Rizal and Cavite. In 1995, the government embarked upon the privatization of MWSS's waterworks and sewerage system through concession arrangements, dividing Metro Manila into Service Area East and Service Area West. After a process of public bidding and selection, Service Area East was awarded to Manila Water Company, Inc., while Service Area West was awarded to Maynilad Water Services, Inc.

On February 21, 1997, MWSS executed separate 25-year Concession Agreements with both concessionaires, effective from August 1, 1997 to May 6, 2022. Under the agreements, the concessionaires act as contractors performing certain functions and as agents exercising certain rights for the operation of the waterworks and sewerage system, while ownership of existing facilities and movable properties remains with MWSS. The concessionaires are required to expand water coverage, provide uninterrupted supply, and increase water pressure during the concession period. In consideration, the concessionaires may charge and collect rates adjustable from time to time, subject to the limitation that their rate of net return shall not exceed 12% per annum as mandated by Section 12 of the MWSS Charter.

On August 3, 2000, the MWSS Board of Trustees passed Resolution No. 277-2000 directing the Commission on Audit (COA) to conduct a rate audit of the concessionaires' operations to ensure compliance with the 12% return cap. On September 15 and December 2, 2003, COA submitted two audit reports covering the period January 1 to December 31, 1999. The reports found that Maynilad had a net rate of return of 7.71% on invested capital of ₱3.999 billion — 4.29% below the allowable 12% — while Manila Water had a rate of return of 40.92% on invested capital of ₱971.93 million — 28.92% above the allowable ceiling. COA noted that only properties acquired, owned, and actually used in the operation of the concessionaires were included in the computation of invested capital.

On March 31, 2004, the MWSS Regulatory Office issued a Notice of Extraordinary Price Adjustment (NEPA) to both concessionaires, invoking Article 9.3.1 of the Concession Agreements and citing a "change in law, government regulation, rule or order or interpretation thereof" affecting the concessionaires' cash flow. The NEPA identified the change as the Supreme Court's April 9, 2003 Resolution in Republic vs. Manila Electric Company (MERALCO), which held that income tax payments of a utility are not expenses contributing to the production of profit. The concessionaires opposed the NEPA, arguing that they are not public utilities but mere agents and contractors of MWSS, that their income tax payments are expenditures under the Concession Agreements, that the MWSS Regulatory Office had previously approved Manila Water's Business Plan treating income tax as expenditures, and that the MERALCO ruling does not involve the extraordinary price adjustment contemplated in the Concession Agreements.

On June 2, 2004, the MWSS Board directed the creation of a Technical Working Group (TWG) to discuss the issues and find a mutually acceptable resolution to avoid arbitration. The TWG, composed of representatives from the MWSS Regulatory Office, the concessionaires, and the MWSS Corporate Office, invited resource persons — including former DPWH Secretary Gregorio Vigilar, former MWSS Administrator Dr. Angel Lazaro III, former DPWH Chief of Staff Mark Dumol, and Atty. Eusebio Tan of ACCRA Law Office — to shed light on the status of MWSS and the concessionaires under the privatization program. On July 27, 2004, the TWG submitted its report finding, inter alia, that the intent of the Concession Agreements was for MWSS to remain the public utility while the concessionaires are its agents and contractors, that only MWSS holds the legislative franchise, that the concessionaires bid on the representation that MWSS would retain its public utility status, and that the MERALCO ruling has no relevance to the concessionaires' situation.

On July 30, 2004, the MWSS Regulatory Office issued Resolution No. 04-006-CA, approving and adopting the TWG's findings. The resolution declared that the concessionaires are mere agents and contractors of MWSS, which remains the public utility; held the MERALCO decision inapplicable to the concessionaires; rendered the NEPA without further force and effect; and established guidelines for the conduct of rate audits consistent with the 12% rate-of-return limit. On the same day, the MWSS Board of Trustees issued Resolution No. 2004-201 approving the Regulatory Office resolution.

On June 29, 2006, the petitioners — Freedom from Debt Coalition, Akbayan Citizens' Action Party, Alliance of Progressive Labor, and several individuals — filed the present petition for certiorari and prohibition, alleging they received copies of the two assailed resolutions only on May 25, 2006. They contended that respondents acted with grave abuse of discretion in classifying the concessionaires as mere agents and contractors, which would exclude their rates from the 12% rate-of-return limitation in Section 12 of the MWSS Charter and result in increased water rates charged to subscribers.

• Grave Abuse of Discretion: Petitioners alleged that respondents, in issuing the assailed resolutions, acted with grave abuse of discretion amounting to lack or excess of jurisdiction.
• Exclusion from Rate-of-Return Limit: Petitioners maintained that the finding classifying the concessionaires as mere agents and contractors of MWSS has the effect of excluding the rates set by such concessionaires from the limitation in Section 12 of R.A. No. 6234, which will in turn have the effect of increasing the rates that can be charged against subscribers to the water service.
• Constitutional and Statutory Violation: Petitioners claimed that the assailed resolutions are in flagrant violation of the Constitution and statutory provisions defining public utilities, though they failed to cite any specific constitutional provision being violated.

• Lack of Merit: Respondents prayed for the dismissal of the petition for lack of merit.

• Appropriate Remedy: Whether petitioners properly resorted to certiorari and prohibition instead of availing of the statutory remedy under Section 12 of the MWSS Charter.
• Indispensable Parties: Whether the petition is defective for failure to implead the two concessionaires as indispensable parties.
• Hierarchy of Courts: Whether the petition is barred by the doctrine of hierarchy of courts, given that it was filed directly with the Supreme Court and raises factual issues.

• Appropriate Remedy: No. Petitioners have a plain and speedy remedy in the ordinary course of law under Section 12 of the MWSS Charter, which vests exclusive original jurisdiction over rate contests in the Public Service Commission (now the National Water Resources Board). Certiorari cannot substitute for that statutory recourse.
• Indispensable Parties: No. The petition is defective for failure to implead the two concessionaires, who are indispensable parties whose rights would certainly be affected by any adjudication of the controversy.
• Hierarchy of Courts: No. The petition is barred by the doctrine of hierarchy of courts, as petitioners filed directly with the Supreme Court despite the availability of lower tribunals exercising concurrent original jurisdiction, and the petition raises factual issues beyond the Court's function as trier of facts.

• Appropriate Remedy: Under Section 12 of the MWSS Charter, the (now defunct) Public Service Commission — succeeded by the National Water Resources Board — had exclusive original jurisdiction over all cases contesting the rates or fees of water and sewerage services. The writ of certiorari and prohibition under Section 1, Rule 65 of the 1997 Rules of Civil Procedure may be availed of only when there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Because petitioners had a specific statutory recourse before the NWRB to contest the rates, they cannot use certiorari as a substitute for that plain and speedy recourse. The existence of an adequate administrative or quasi-judicial remedy precludes the extraordinary writ.

• Indispensable Parties: Indispensable parties are those with such interest in the controversy that a final adjudication would certainly affect their rights, so that the court cannot proceed without their presence. The two concessionaires — Manila Water Company, Inc. and Maynilad Water Services, Inc. — are indispensable because the assailed resolutions directly determine their legal status (as agents and contractors rather than public utilities), the applicability of the MERALCO ruling to their operations, and the framework for rate audits affecting their rate-setting. Their non-inclusion in the petition renders it defective, as any ruling would necessarily affect their rights and obligations under the Concession Agreements.

• Hierarchy of Courts: While the Supreme Court has concurrent original jurisdiction with the Regional Trial Court and the Court of Appeals for the extraordinary writs of certiorari and prohibition, petitioners do not have complete liberty to file directly with the Court when relief is available in lower tribunals. In the absence of special reasons, disregard of the hierarchy of courts cannot be countenanced. Moreover, the petition raises factual issues — such as the intention of MWSS and the concessionaires during the bidding process, negotiation, and execution of the Concession Agreements, and the complicated technical computation of the current rate of return — which require presentation and evaluation of evidence beyond the Court's function as trier of facts. Petitioners' claim that the assailed resolutions could authorize rate increases beyond the 12% limit is speculative and would require factual determination. Their assertion of constitutional violation was unaccompanied by citation of any specific provision. Relying on Santiago vs. Vasquez, the Court reiterated the judicial policy against direct resort unless redress cannot be obtained in appropriate courts or exceptional and compelling circumstances justify it.

• Certiorari Not a Substitute for an Adequate Remedy — The writ of certiorari and prohibition may be availed of only when there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Where a statute provides a specific administrative or quasi-judicial remedy for contesting rates — as Section 12 of the MWSS Charter does through the Public Service Commission (now NWRB) — that remedy must be exhausted before resort to certiorari. The Court applied this principle to hold that petitioners' statutory recourse before the NWRB precluded their petition for certiorari.

• Indispensable Parties — Indispensable parties are those with such interest in the controversy that a final adjudication of the case would certainly affect their rights, so that the court cannot proceed without their presence. Non-inclusion of indispensable parties in a petition for certiorari renders the petition defective. The Court found the two water concessionaires indispensable because the assailed resolutions directly determined their legal status and rate-setting framework under the Concession Agreements.

• Doctrine of Hierarchy of Courts — A structural aspect of the judicial system intended for the orderly administration of justice. While the Supreme Court has concurrent original jurisdiction with lower courts over extraordinary writs, litigants cannot disregard the hierarchy by seeking relief directly from the Court when the same is available in lower tribunals. Direct resort is allowed only when redress cannot be obtained in appropriate courts or where exceptional and compelling circumstances justify it. The Court applied this doctrine to dismiss the petition, emphasizing that the factual issues raised — requiring examination of bidding documents, memoranda, and testimonies — are beyond the Court's function as trier of facts.

• "They cannot avail of certiorari as a substitute for that plain and speedy recourse. The writ of certiorari and prohibition may be availed of only when 'there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law.'" — States the ratio decidendi on the first ground for dismissal: the availability of a statutory remedy under the MWSS Charter precludes resort to certiorari.

• "Indispensable parties are those which have such interest in the controversy that a final adjudication of the case would certainly affect their rights, so that the court cannot proceed without their presence." — Defines the doctrine of indispensable parties as applied to the non-impleader of the water concessionaires, constituting the second ground for dismissal.

• "We, therefore, reiterate the judicial policy that this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of our primary jurisdiction." — Articulates the doctrine of hierarchy of courts as a judicial policy against direct resort to the Supreme Court, quoted from Santiago vs. Vasquez and applied as the third ground for dismissal.

• Republic vs. Manila Electric Company (MERALCO), G.R. Nos. 141314 & 141369, April 9, 2003 — The Supreme Court resolution holding that income tax payments of a utility are not expenses contributing to the production of profit. This ruling was the "change in law" invoked in the NEPA issued by the MWSS Regulatory Office, but the TWG ultimately found it inapplicable to the concessionaires' situation under the Concession Agreements framework.

• Santiago vs. Vasquez, G.R. Nos. 99289-90, January 27, 1992 — Cited for the judicial policy that the Supreme Court will not entertain direct resort to it unless redress cannot be obtained in appropriate courts or where exceptional and compelling circumstances justify it. Applied to dismiss the petition for violation of the doctrine of hierarchy of courts.

• Amargo vs. Court of Appeals, No. L-31762, September 19, 1973 — Cited for the definition of indispensable parties and the rule that their non-inclusion in a certiorari petition renders it defective. Applied to hold that the two concessionaires were indispensable parties not impleaded by petitioners.

• Section 12, Republic Act No. 6234 (MWSS Charter) — Provides that the MWSS rate of net return shall not exceed 12% on a rate base of revalued assets in operation plus two months' operating capital, and vests exclusive original jurisdiction over rate contests in the Public Service Commission (now NWRB), requiring complaints within 30 days after effectivity of rates. The Court held this provision provides petitioners' plain and speedy remedy, precluding resort to certiorari.

• Section 1, Rule 65, 1997 Rules of Civil Procedure (as amended) — Provides that certiorari and prohibition may be availed of only when there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Applied to deny the petition on the first ground.

• Article 9 (particularly Articles 9.1, 9.3.1, and 9.4), Concession Agreements — Governs standard rates, extraordinary price adjustments, and general rate-setting policy. Article 9.1 subjects rate adjustments to the 12% limitation in Section 12 of the Charter. Article 9.3.1 was invoked in the NEPA citing a "change in law" as ground for extraordinary price adjustment. The TWG found the MERALCO ruling irrelevant to the concessionaires' situation under this framework.

• Article 12.1, Concession Agreements — Requires parties to use reasonable efforts to resolve disputes through mutual consultation and negotiation. Invoked by the MWSS Board to create the Technical Working Group.

• Article 13.2, Concession Agreements — Requires annual audits of the concessionaire's books and records by an independent auditor. Invoked by the MWSS Board to direct the COA rate audit.

Chief Justice Reynato S. Puno (Chairperson, on leave), Associate Justice Leonardo A. Quisumbing (on leave), Associate Justice Consuelo Ynares-Santiago, Associate Justice Antonio T. Carpio, Associate Justice Ma. Alicia Austria-Martinez, Associate Justice Renato C. Corona, Associate Justice Conchita Carpio Morales, Associate Justice Adolfo S. Azcuna, Associate Justice Dante O. Tinga, Associate Justice Minita V. Chico-Nazario, Associate Justice Presbitero J. Velasco Jr., Associate Justice Antonio Eduardo B. Nachura, Associate Justice Ruben T. Reyes.