Germany-Philippines relations not affected by Fraport case, by José Ángel Rueda

Official statements and news reports published during the last five days indicate that Germany reaffirms that the so-called Fraport case is not an obstacle for the deepening of trade and investment relations with the Philippines.

Such conclusion is the outcome of the official visit that German Foreign Minister Dr. Guido Westerwelle paid to the Philippines on 7-8 February 2013 where he met President Benigno Aquino and Foreign Secretary Alberto del Rosario.[1]

During a press conference with his Filipino counterpart Dr. Westerwelle was quoted as saying: “This [Fraport issue] shouldn’t be an obstacle for our economic collaboration,” and that, “we see a lot of potentials between our two countries, and it is on us now to pursue this opportunity.”[2]

At the same time, Mr. del Rosario emphasised that, “this single case should not prevent German companies from working with their Filipino partners to exploit opportunities in the energy, manufacturing, BPO, tourism and other infrastructure projects under the PPP and other schemes.”[3]

Both declarations follow similar statements made during Mr. del Rosario’s reciprocal visit to Berlin in December 2011.[4]

It is necessary to briefly recall what is at stake in this case, which has been a nightmare for Philippine politics for more than 10 years.[5]

German company Fraport held a majority stake in PIATCO, a Philippine-based consortium that gained a tender to build and operate Terminal 3 of Manila’s Ninoy Aquino International Airport. However, things went wrong when the concession contract was nullified by then President Gloria-Macapagal Arroyo on 30 November 2002 on the grounds of violations of a local statute (the ‘anti-Dummy law’ or ADL) aimed at preventing foreign companies from taking majority stakes in public utilities through Filipino dummies. As a result, a multi-fora legal battled broke out. We will examine just two of the initiatives taken by PIATCO and Fraport.

a)       ICSID claim by Fraport

On the one hand, Fraport filed a request for arbitration with ICSID on 9 October 2003 under the Germany-Philippines BIT.[6]

  • The initial arbitral tribunal[7] held on 16 August 2007[8] that it had no jurisdiction to hear the claim on the basis that the investment had not been made in accordance with the laws of the Philippines, i.e., the tribunal held that a breach of a local statute bars an investor from pursuing an international claim against the State under the BIT.[9]
  • However, Fraport-appointed arbitrator Bernardo Cremades issued a strong dissenting opinion[10] to state that the tribunal did have jurisdiction and that it should have allowed the arbitration to proceed to the merits phase[11] where the question of the alleged illegality of the investment should have been addressed by the tribunal.
  • At Fraport’s request the award was annulled in its entirety by an ad hoc Committee[12] on 23 December 2010[13].
  • Despite Mr. Cremades’ Dissenting Opinion, the Committee rejected that the original tribunal “had manifestly exceeded its powers when it declared the Centre without jurisdiction and itself without competence to hear the dispute and resolve it[14] as the Committee was “of the view that it would trespass the limits of its annulment powers, transforming itself in an organe d’appel, if it were to uphold Fraport’s claim that the Tribunal manifestly exceeded its powers.”[15] In addition, it also held that “there was no lack of reasoning or contradictions in the reasoning of the Tribunal. Accordingly, the conditions for annulment of the Award under Article 52(1)(e) of the Convention are not present in the case at hand.”[16]
  • Nonetheless, the Committee did uphold Fraport’s argument that there had been a serious departure from a fundamental rule of procedure.[17] The Committee considered that the manner in which the tribunal proceeded in relation to new evidence produced after the oral hearing and the closure of the arbitral proceeding violated Fraport’s right to be heard and, as a consequence, there was a serious departure from the fundamental rule of procedure entitling the parties to be heard.[18]
  • The claim was then resubmitted to ICSID by Fraport where it is still pending.[19]

b)       ICC claim by PIATCO

On the other hand, PIATCO filed ICC proceedings under the concession contract (with Singapore as the place of arbitration).[20]

  • On 22 July 2010 the ICC arbitral tribunal[21] reportedly decided in favour of the Philippines’ position on jurisdiction, thus dismissing PIATCO’s claims for specific performance and damages and lost profits.[22]
  • An appeal by PIATCO was later dismissed by Singapore’s High Court on 15 November 2011.[23]

Now it remains to be seen how the new ICSID tribunal adjudicates the case after the decisions taken by the ICC tribunal and local courts in the Philippines (including the indictment of PIATCO and Fraport executives).

Turning to the affectation of German-Philippine relations, we have seen that all statements and reports published around Dr. Westerwelle’s visit to Manila underline that Germany is the Philippines’s EU Member State main trade partner ($3.1bn of bilateral trade in 2011) and a continuous source of investment flows ($21m in 2011), tourists and official development assistance for the Philippines. However, despite current statements by both governments, it is clear that for years the Fraport case has somehow affected bilateral relations between both countries and that Germany has neither forgotten not forgiven it.

  • First of all, it is interesting to note that the press release issued by the German Foreign Ministry contains no mention whatsoever to the Fraport issue,[24] if we compare it with the Philippines’ undisguised interest in highlighting Germany’s ‘pardon’.
  • Second, the statement on the bilateral relations between Germany and Philippines which is available at the German Foreign Ministry’s website still states as follows: “Economic relations between Germany and the Philippines were, however, marred by the Philippine government’s expropriation, in December 2004, of Manila Airport’s new international terminal, construction of which by a German-Philippine consortium was completed in December 2002.[25] It further states that, “So far, only a relatively small advance has been paid on the compensation sum.”[26] We are longing for knowing whether the Ministry will delete this assertion on the occasion of further updates of its website.

Investment treaty arbitration is becoming a popular method for resolving disputes between foreign investors and host States. However, home States tightly follow investment disputes involving their nationals and, although they do not (or cannot) embark on diplomatic protection to help them,[27] they still use diplomatic and economic weapons to oblige host States to accept international arbitration[28] or to pay awards.[29]

[3] Department of Foreign Affairs of the Republic of the Philippines, 7 February 2003, available at:

[5] Information about this case is plentiful. See, per omnia, Ben Kritz, “Fraport AG and the NAIA-3 Debacle: A Case Study”, at

[6] Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (ICSID Case No. ARB/03/25).

[7] L. Yves Fortier (Chair, Canada); Bernardo M. Cremades (Spain) and Professor W. Michael Reisman (United States of America).

[9] At para. 401: “Fraport knowingly and intentionally circumvented the ADL by means of secret shareholder agreements. As a consequence, it cannot claim to have made an investment “in accordance with law”. Nor can it claim that high officials of the Respondent subsequently waived the legal requirements and validated Fraport’s investment, for the Respondent’s officials could not have known of the violation. Because there is no “investment in accordance with law”, the Tribunal lacks jurisdiction ratione materiae.”

[10] Dissenting Opinion of Mr. Bernardo M. Cremades, available also at

[11] At para. 40: “As a matter of principle, even in such an extreme case the proper question is whether the kind of asset is legal under domestic law and, if so, the tribunal has jurisdiction and should move on to consider the merits. In a case of gross illegality the Host State will almost certainly have a defence on the merits, and the claim will be dismissed.” Furthermore, at para. 41: “For these reasons, I consider that the decision of the majority in this arbitration is not only contrary to the terms of Article 1(1) of the Philippines-Germany BIT, but it is also fundamentally wrong in its approach to illegality as a matter of principle.”

[12] Peter Tomka (Chair, Slovakia), Dominique Hascher (France) and Professor Campbell McLachlan (New Zealand).

[13] Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide, 23 December 2010, available at

[14] Ibidem, at para. 118. See Article 52(1)(b) of the ICSID Convention.

[15] Ibidem, at para. 118.

[16] Ibidem, at para. 280. See Article 52(1)(e) of the ICSID Convention.

[17] See Article 52(1)(d) of the ICSID Convention.

[18] See supra footnote 8, at para. 218.

[19] Albeit with a different case number: Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (ICSID Case No. ARB/11/12). Members of the arbitral tribunal: Piero Bernardini (Chair, Italy), Stanimir A. Alexandrov (Bulgaria) and Professor Albert Jan van den Berg (Netherlands).

[21] Composed of Michael Pryles (Chair, Australia), Judge Florenz Regelado (Philippines) and V. V. Veeder (United Kingdom).

[25] Notwithstanding Fraport, the German Foreign Ministry underlines that things are better now: “There have also been some markedly positive developments, however. Most recently, major additional investments have been made by Continental Temic, recent new German investments benefiting the IT-based service sector in particular. German companies such as Siemens, Deutsche Bank, Bosch, Henkel and Bertelsmann have in recent years outsourced internal business processes to the Philippines or opened their own call centres there. In the maritime and transport sectors, too, German companies see the Philippines as a future market. The German-Philippine Chamber of Commerce and Industry (GPCCI), which was set up in 2008, has since firmly established itself, demonstrating the importance German companies attach to the Philippines as a business destination. Germany remains one of the country’s largest foreign investors.

[27] See Article 27(1) of the ICSID Convention (first part): “No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention…

[28] See Compañía de Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica (ICSID Case No. ARB/96/1), Award, 17 February 2000, at paras. 24-25. Available at

[29] See Article 27(1) of the ICSID Convention (second part): “…, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.”