Tag: Private Legal Counsel

The Limits of Government Authority: Prior Approval for Legal Services

The Supreme Court ruled that government agencies must secure prior written approval from both the Solicitor General and the Commission on Audit (COA) before hiring private legal counsel. The Department of Social Welfare and Development (DSWD) failed to obtain this prior approval when it rehired a private lawyer, leading the COA to deny concurrence. This decision underscores the importance of adhering to procedural requirements in government contracts and ensures accountability in the use of public funds, affecting how government agencies contract legal services.

Late to the Party: Why DSWD’s Legal Hire Missed the Mark

The case of Department of Social Welfare and Development vs. Commission on Audit, G.R. No. 254871, revolves around DSWD’s attempt to retroactively justify hiring a private legal retainer without securing the necessary prior approvals. DSWD sought to rehire Atty. Melanie D. Ortiz-Rosete to represent its Field Office No. 10 (FO) in civil cases for the year 2017. While the Solicitor General eventually granted approval, DSWD only requested COA concurrence after the contract period had already expired, leading to the denial of the request. The central legal question is whether COA properly denied concurrence due to DSWD’s failure to obtain prior written conformities from both the Solicitor General and COA, as required by existing regulations.

The Supreme Court emphasized that government entities are generally prohibited from hiring private legal counsel. The Office of the Solicitor General (OSG) is the primary legal representative of the government, its agencies, and its officials. This exclusivity is enshrined in Section 35, Chapter 12, Title III, Book IV of Executive Order No. 292, also known as the Administrative Code of 1987, which vests in the OSG “the exclusive authority to represent the Philippine government, its agencies and instrumentalities and its officials and agents in any litigation, proceeding, investigation or matter requiring the services of a lawyer.”

However, an exception exists under specific circumstances. Government agencies can engage private lawyers if they comply with applicable rules and regulations, specifically COA Circular No. 86-255, as amended by COA Circular No. 95-011. These circulars explicitly state that:

[P]ublic funds shall not be utilized for payment of the services of a private legal counsel or law film to represent government agencies in court or to render legal services for them. In the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm.

The key requirement is that both the Solicitor General’s conformity and COA’s concurrence must be secured before hiring a private lawyer. This requirement ensures transparency and accountability in the use of public funds.

In this case, DSWD failed to meet both the timeliness and completeness requirements for obtaining the necessary approvals. The timeline of events clearly demonstrates DSWD’s non-compliance:

Event	Date
Execution of Contract	November 2, 2016
Letter-Request to Solicitor General	December 5, 2016
Solicitor General’s Approval	May 22, 2017
Request for COA Concurrence	January 5, 2018

DSWD finalized the agreement to rehire Atty. Ortiz-Rosete before seeking the required approvals. By the time DSWD requested COA concurrence, the contract period for 2017 had already ended, rendering the request untimely.

Even though the Solicitor General eventually granted approval, this did not excuse DSWD’s non-compliance. The approval was issued after the contract was already in effect, and the COA ultimately withheld its concurrence, highlighting the incompleteness of DSWD’s attempts to comply with the rules. A COA Director’s favorable recommendation cannot substitute for the required COA concurrence, as only the COA Proper is authorized to issue such approval.

An exception to the prior approval requirement exists when the COA is guilty of inordinate delay in acting on a request for concurrence. The Supreme Court addressed this in Power Sector Assets and Liabilities Management Corp. v. Commission on Audit, G.R. No. 247924, where the Court reversed the COA’s denial of concurrence due to the COA’s unreasonable delay in processing PSALM’s request. The Power Sector Assets and Liabilities Management Corp. (PSALM) case shows a situation where COA took 404 days to make an initial evaluation and another 416 days before issuing a resolution of denial.

The PSALM ruling emphasizes that government entities should not be penalized for COA’s own delays. However, DSWD’s case differs significantly. DSWD executed and completed the contract without even requesting COA conformity, demonstrating a proactive disregard for the rules rather than a reaction to COA’s delay. DSWD’s noncompliance was evident from the moment the agreement was made, throughout the contract period, and even after its expiration.

The COA has since recognized the potential for delays caused by the prior written concurrence requirement and issued COA Circular No. 2021-003, which exempts certain government agencies from this requirement under specific conditions. However, this circular, which took effect on August 12, 2021, does not retroactively apply to DSWD’s case, nor does it excuse DSWD’s failure to comply with the rules in effect at the time of the contract.

DSWD argued that the COA concurrences obtained for Atty. Ortiz-Rosete’s contracts in 2015 and 2016 should dispense with the concurrence requirement for 2017. However, no law or issuance provides for such an exemption, and the prior written concurrence requirement remains the general rule. The Court viewed DSWD’s attempts to comply as mere afterthoughts to mend the irregular rehiring of Atty. Ortiz-Rosete. The absence of the Solicitor General and COA’s approvals when DSWD entered into the agreement rendered the contract premature and unauthorized.

FAQs

What was the key issue in this case?	The key issue was whether the Commission on Audit (COA) properly denied concurrence to the Department of Social Welfare and Development’s (DSWD) contract for a private legal retainer due to DSWD’s failure to obtain prior written approvals.
What is the general rule regarding government agencies hiring private lawyers?	Generally, government agencies are prohibited from hiring private legal counsel; the Office of the Solicitor General (OSG) is the primary legal representative.
Under what conditions can a government agency hire a private lawyer?	A government agency can hire a private lawyer if it secures prior written conformity from the Solicitor General and prior written concurrence from the Commission on Audit (COA), demonstrating extraordinary or exceptional circumstances.
What is the significance of COA Circular No. 86-255?	COA Circular No. 86-255, as amended by COA Circular No. 95-011, prohibits the use of public funds to pay for private legal counsel unless prior written conformity from the Solicitor General and concurrence from COA are obtained.
What was DSWD’s primary failure in this case?	DSWD failed to obtain the required prior written approvals from the Solicitor General and the COA before entering into the contract with the private legal retainer.
Did the Solicitor General’s eventual approval excuse DSWD’s non-compliance?	No, the Solicitor General’s approval did not excuse DSWD’s non-compliance because the approval was granted after the contract was already in effect, and the COA ultimately withheld its concurrence.
Can a COA Director’s favorable recommendation substitute for COA concurrence?	No, a COA Director’s favorable recommendation cannot substitute for COA concurrence, as only the COA Proper is authorized to issue a written concurrence in the hiring of a legal retainer.
What is the exception to the prior approval requirement?	An exception exists when the COA is guilty of inordinate delay in acting on a request for concurrence, as highlighted in the case of Power Sector Assets and Liabilities Management Corp. v. Commission on Audit.
What is the effect of COA Circular No. 2021-003?	COA Circular No. 2021-003 exempts certain government agencies from the prior written COA concurrence requirement under specific conditions, but it does not retroactively apply to cases like DSWD’s.

This case serves as a crucial reminder for government agencies to strictly adhere to procedural requirements when engaging private legal services. Failing to obtain prior written approvals can result in the disallowance of payments and potential liability for the approving officials. Moving forward, government agencies should ensure they have a clear understanding of the applicable rules and regulations and implement robust processes to secure the necessary approvals before entering into any contracts.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Department of Social Welfare and Development vs. Commission on Audit, G.R. No. 254871, December 06, 2022

December 6, 2022

Prior Approval is Paramount: DSWD’s Contract Faces Scrutiny Over COA Concurrence

The Supreme Court affirmed the Commission on Audit’s (COA) denial of the Department of Social Welfare and Development’s (DSWD) request for concurrence regarding a private legal retainer contract. The ruling underscores the critical importance of obtaining prior written approval from both the Solicitor General and the COA before hiring private legal counsel for government entities. This decision highlights the need for strict adherence to procedural requirements to prevent irregular expenditures, ensuring accountability and proper use of public funds. Government agencies must prioritize timely compliance to avoid personal liability for unauthorized contracts.

Outsourcing Justice: Did DSWD Jump the Gun on Hiring a Private Lawyer?

The heart of this case involves the Department of Social Welfare and Development’s (DSWD) decision to hire Atty. Melanie D. Ortiz-Rosete as a private legal retainer for its Field Office No. 10 (FO). This decision, made without securing the Commission on Audit’s (COA) concurrence before the contract took effect, became the focal point of legal contention. The COA ultimately denied DSWD’s request for concurrence, citing the agency’s failure to adhere to established procedures. This sparked a legal battle that reached the Supreme Court, raising crucial questions about the balance between agency autonomy and fiscal responsibility.

The factual backdrop reveals a series of actions taken by the DSWD. Initially, in 2015 and 2016, the DSWD successfully engaged Atty. Ortiz-Rosete with the approval of the Solicitor General and the concurrence of the COA. However, for the 2017 contract, DSWD executed the agreement first and then sought approval afterward. DSWD argued that rehiring Atty. Ortiz-Rosete was justified due to the central office’s limited legal manpower, the trust developed through prior services, the Solicitor General’s approval, a COA Director’s favorable recommendation, and the COA’s prior concurrences. However, these justifications failed to sway the COA, which emphasized the necessity of prior approval.

The COA’s decision was rooted in established regulations, particularly COA Circular No. 86-255, as amended by COA Circular No. 95-011. This circular explicitly states that public funds cannot be used to pay for private legal counsel unless the Solicitor General and the COA provide written concurrence before the hiring. The COA underscored that expenditures made without these prior approvals are considered irregular. The COA Proper also noted that the DSWD did not provide a sufficient reason to excuse its belated filing for concurrence.

In its defense, DSWD cited several factors, including the scarcity of lawyers at the DSWD Central Office, the injustice of not compensating Atty. Ortiz-Rosete for services rendered, and the trust developed over time. They also pointed to the Solicitor General’s deputization of Atty. Ortiz-Rosete as private legal counsel and a favorable recommendation from a COA Director. However, the COA Proper found these reasons insufficient to override the procedural requirements. These justifications did not relate to the core issue of non-compliance with the rules requiring prior approval; they merely explained the agency’s reasoning for wanting to hire a private lawyer in the first place.

The Supreme Court, in its analysis, emphasized that its review of COA decisions is limited to jurisdictional errors or grave abuse of discretion. The Court found that DSWD failed to establish a prima facie case of grave abuse, as its arguments pointed to mere errors of judgment rather than unauthorized, whimsical, or capricious acts by the COA. This highlights the high threshold required to overturn COA decisions, emphasizing the judiciary’s deference to the COA’s expertise in auditing government expenditures.

The Court further underscored the general prohibition against government entities securing private legal counsel, citing the exclusive authority of the Office of the Solicitor General (OSG) to represent the government. This principle reinforces the idea that the OSG is the primary legal arm of the government, and its services should be utilized first and foremost. Exceptions to this rule require strict adherence to the prescribed procedure to ensure accountability and prevent the misuse of public funds. According to the Court, government agencies may be allowed to engage a private lawyer, provided that they first comply with applicable rules and regulations. The prior written conformity and concurrence of the Solicitor General and COA, respectively, are indispensable. There must be strict compliance: it must be timely (i.e., obtained prior to the hiring or employment of private lawyer) and complete (i.e., approval/concurrence of both the Solicitor General and COA). Otherwise, the engagement of a private lawyer is deemed unauthorized.

The Supreme Court highlighted two critical shortcomings in DSWD’s actions: the lack of timeliness and completeness in securing the required approvals. The Court stated:

As to timeliness. The attempts to secure the required approvals were post facto. DSWD decided to secure the required approvals only after it already finalized its agreement to rehire Atty. Ortiz-Rosete. Its request for COA concurrence was overdue, so much so that the Contract period (i.e., 2017) had already ended by the time DSWD sent out its application to the COA.

Even the Solicitor General’s eventual approval did not rectify the situation, as it was granted after the contract had already become executory. Furthermore, the Court clarified that a COA Director’s favorable recommendation could not substitute for the required COA concurrence, which only the COA Proper is authorized to issue. This distinction is crucial, as it emphasizes the hierarchical structure within the COA and the specific authority vested in the COA Proper for decisions of this nature.

The Supreme Court addressed potential exemptions to the prior approval requirement, particularly in cases of inordinate delay by the COA. However, it distinguished the present case from situations where the government instrumentality had filed a timely request, but the COA’s inaction caused the delay. In DSWD’s case, the agency’s failure to seek approval before executing the contract was the primary issue, not any delay on the part of the COA. The Court distinguished it with this explanation:

In contrast, DSWD’s glaring misstep here lies in having executed and completed the Contract without even requesting for the COA’s conformity. Even its letter-request to the Solicitor General was sent only after it had already finalized the Contract.

The Court noted the COA’s recent recognition of the need to expedite the approval process, as evidenced by COA Circular No. 2021-003, which exempts certain agencies from the prior written concurrence requirement under specific conditions. However, this circular was not applicable to the present case, as DSWD’s actions did not meet the conditions for exemption, and the circular took effect after the events in question.

Finally, the Supreme Court clarified that its decision did not constitute a disallowance case, meaning it did not determine the validity of payments made to Atty. Ortiz-Rosete or assign liability for such payments. This distinction is important, as it leaves open the possibility of future proceedings to address the financial aspects of the unauthorized contract. The Court’s focus was solely on the procedural irregularity of DSWD’s actions and the COA’s authority to enforce compliance with established regulations.

FAQs

What was the key issue in this case?	The central issue was whether the DSWD violated regulations by hiring a private legal retainer without prior written concurrence from the Solicitor General and the COA. The Supreme Court upheld the COA’s decision, emphasizing the importance of obtaining prior approval.
What is COA Circular No. 86-255?	COA Circular No. 86-255, as amended, prohibits the use of public funds to pay for private legal counsel unless prior written conformity and concurrence from the Solicitor General and COA are secured. This regulation aims to ensure proper use of government resources.
Why did the COA deny DSWD’s request?	The COA denied DSWD’s request because DSWD sought concurrence after the contract with the private legal retainer had already been executed and was in effect. This violated the requirement for prior approval.
Can a COA Director’s recommendation substitute for COA concurrence?	No, a COA Director’s recommendation is merely advisory and cannot substitute for the required written concurrence from the COA Proper. Only the COA Proper has the authority to issue such concurrence.
What happens if a government agency hires a private lawyer without prior approval?	Expenditures arising from the hiring of private lawyers without prior written conformity from the Solicitor General and concurrence from the COA are considered irregular. The officials who approved or authorized the contract may be held personally liable.
Did the Supreme Court address the payments made to the private lawyer?	No, the Supreme Court clarified that its decision was not a disallowance case and did not determine the validity of payments made to the private lawyer or assign liability for such payments. This aspect may be subject to future proceedings.
What is the role of the Office of the Solicitor General in these cases?	The Office of the Solicitor General (OSG) is the primary legal arm of the government and has the exclusive authority to represent the government, its agencies, and its officials in legal matters. Government agencies must seek OSG’s approval before hiring private legal counsel.
Are there any exceptions to the prior approval requirement?	One exception is when the COA is guilty of inordinate delay in acting on a request for concurrence. In such cases, the government instrumentality may be excused from strict compliance. However, this exception did not apply to DSWD’s case.
What is COA Circular No. 2021-003?	COA Circular No. 2021-003 exempts national government agencies and government-owned or -controlled corporations from the prior written COA concurrence requirement subject to certain conditions.

In conclusion, the Supreme Court’s decision reinforces the principle that government agencies must strictly adhere to established procedures when engaging private legal counsel. The requirement for prior written approval from both the Solicitor General and the COA serves as a safeguard against irregular expenditures and ensures accountability in the use of public funds. This case serves as a reminder to government agencies to prioritize compliance with these regulations to avoid potential legal and financial repercussions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

December 6, 2022

Navigating Government Contracts: Securing COA Concurrence in Hiring Private Counsel

This case clarifies the necessity of obtaining prior written concurrence from the Commission on Audit (COA) before government-owned and controlled corporations (GOCCs) engage private legal counsel. While acknowledging potential exceptional circumstances that might warrant after-the-fact approval, the Supreme Court ultimately remands the case back to the COA for a determination of whether the PNOC-EC qualified for exemption from the prior approval requirement considering the COA’s new circular. This ruling underscores the importance of adhering to established procedures for government contracts, especially those involving the expenditure of public funds. The decision highlights the COA’s role as guardian of these funds, entrusted with ensuring regularity and prudence in government spending and the need for GOCC’s to carefully navigate the requirements to ensure compliance.

PNOC-EC’s Legal Recourse: When International Arbitration Required Swift Action

The central question in PNOC-Exploration Corporation v. Commission on Audit revolves around whether the Commission on Audit (COA) gravely abused its discretion when it denied PNOC-EC’s request for written concurrence in hiring a private law firm, Baker Botts LLP. The issue stemmed from PNOC-EC’s failure to secure prior written concurrence from the COA before engaging Baker Botts to represent it in an international arbitration case in Singapore. The case arose after a contractual dispute when Wilson claimed demurrage charges and losses against PNOC-EC amounting to US$1,392,064.53.

PNOC-EC argued that the urgency of the situation—needing a counsel experienced in International Chamber of Commerce (ICC) arbitration, qualified in English Law, and authorized to practice in Singapore—justified their failure to obtain prior COA approval. This urgent need meant they had to find an international legal counsel to represent them. Faced with a strict 30-day deadline to respond to the arbitration notice, PNOC-EC sought approval from the Office of the Government Corporate Counsel (OGCC), which gave its “authority in principle.” The OGCC then approved, ratified, and confirmed Baker Botts’ engagement. However, COA regulations require prior written concurrence for hiring private counsel, leading to a Notice of Suspension (NS) for the legal fees paid to Baker Botts. COA denied PNOC-EC’s subsequent request for concurrence, prompting a legal challenge.

The Supreme Court acknowledged the general prohibition against GOCCs hiring private counsel, emphasizing that the Government Corporate Counsel is designated as the principal law officer for all GOCCs. This prohibition aims to prevent unnecessary expenditures on legal services that the OGCC could provide. However, the Court also recognized that exceptional circumstances might necessitate private counsel. Historically, the government allowed GOCCs to hire private lawyers under certain conditions, including securing written conformity from the OGCC and prior written concurrence from the COA. These rules are enshrined in COA Circular No. 86-255, later amended by Circular No. 95-011, and Office of the President Memorandum Circular No. 9.

The Court reiterated that before a GOCC can hire a private lawyer, three indispensable conditions must be met: (1) the hiring must be an exceptional case; (2) the OGCC must provide written conformity and acquiescence; and (3) the COA must provide prior written concurrence. A pivotal point in the decision is the Court’s citation of COA Circular No. 2021-003, issued on July 16, 2021, which addresses situations like PNOC-EC’s. Circular No. 2021-003 acknowledges that the primary reason for requiring COA concurrence is to ensure the reasonableness of legal fees. Recognizing the potential for delays in urgent cases, the new circular exempts GOCCs from prior COA concurrence under certain conditions. These include engagement via contract of service or job order, OGCC approval, duties similar to those of government lawyers, and adherence to civil service eligibility standards.

In light of these developments, the Supreme Court found it appropriate to remand the case back to the COA. This directive allows the COA to determine whether PNOC-EC’s situation qualifies for exemption from the prior written concurrence requirement, especially given the new COA Circular No. 2021-003. The determination hinges on evaluating factual and evidentiary matters beyond the purview of judicial review. The Court emphasized that it is not their role to make such determinations, as their task in certiorari proceedings is limited to reviewing whether the COA acted with grave abuse of discretion. Giving deference to the COA’s expertise and constitutional prerogatives, the Court underscored that the COA is best positioned to apply its own regulations, particularly the relatively new Circular No. 2021-003.

Concerning PNOC-EC’s argument about unjust enrichment if the concurrence request is denied, the Court deemed it premature to delve into the matter. The Court noted that COA Chairperson Aguinaldo had already directed a post-audit to determine the proper amount of disallowance and liabilities based on quantum meruit. This approach aligns with prevailing jurisprudence, ensuring fairness in assessing liabilities. The Court clarified that compliance with the COA’s written concurrence requirement is not the sole determinant of whether legal fees should be disallowed or liabilities imposed. Factors such as extraordinary circumstances, the parties’ contract, and existing laws all play a role in determining whether expenses were irregular, excessive, or unreasonable. Transactions not in accordance with law or established rules may result in disallowance, potentially holding participants civilly liable. However, principles like solutio indebiti, unjust enrichment, and good faith should be considered when determining liability.

Ultimately, the Supreme Court dismissed the petition, emphasizing that the dismissal does not prejudice the COA’s authority to determine whether PNOC-EC qualifies for exemption from the written concurrence requirement. Moreover, the COA is tasked with conducting a post-audit per COA Circular No. 2021-003. The decision affirms the COA’s crucial role in safeguarding public funds while acknowledging the need for flexibility in extraordinary circumstances.

FAQs

What was the central issue in this case?	The key issue was whether the COA committed grave abuse of discretion by denying PNOC-EC’s request for written concurrence in hiring a private law firm after the fact. This denial was based on PNOC-EC’s failure to obtain prior written concurrence as required by COA regulations.
Why did PNOC-EC hire a private law firm without prior COA approval?	PNOC-EC argued that it faced an urgent situation involving international arbitration in Singapore, requiring a counsel with specific expertise in ICC arbitration and English law. They claimed the strict 30-day deadline to respond to the arbitration notice justified their actions.
What are the usual requirements for GOCCs to hire private counsel?	Generally, GOCCs must meet three conditions: the hiring must be an exceptional case, the OGCC must provide written conformity, and the COA must provide prior written concurrence. These requirements are outlined in COA Circulars No. 86-255 and 95-011, and Office of the President Memorandum Circular No. 9.
What is COA Circular No. 2021-003, and how does it affect this case?	COA Circular No. 2021-003 provides exemptions from the prior COA concurrence requirement under certain conditions, particularly in urgent or extraordinary circumstances. The Supreme Court remanded the case to the COA to determine if PNOC-EC qualifies for this exemption.
What does it mean for the COA to conduct a post-audit in this case?	A post-audit means the COA will review the legal fees paid to Baker Botts to determine if they were reasonable and justified, even without prior concurrence. This review will consider factors such as the complexity of the case, the counsel’s expertise, and the prevailing rates for similar services.
*What is the concept of quantum meruit, and how does it apply here?*	Quantum meruit is a legal principle that allows a party to be compensated for the reasonable value of services rendered, even if there was no formal contract. In this case, it means Baker Botts could be entitled to payment for the services they provided to PNOC-EC, regardless of the lack of prior COA concurrence.
Will PNOC-EC officers be held personally liable for the legal fees?	The liability of PNOC-EC officers will depend on the COA’s findings during the post-audit. If the fees are deemed unreasonable or unjustified, the officers who approved the payments may be held liable, taking into account principles like good faith and the solidary nature of their liability.
What is the significance of the Supreme Court remanding the case to the COA?	Remanding the case signifies the Court’s deference to the COA’s expertise in interpreting and applying its own regulations. It also recognizes that the determination of whether PNOC-EC qualifies for exemption under Circular No. 2021-003 involves factual and evidentiary matters best evaluated by the COA.

In conclusion, the Supreme Court’s decision reinforces the importance of adhering to established procedures for government contracts while acknowledging the need for flexibility in exceptional circumstances. The case highlights the COA’s critical role in safeguarding public funds and ensuring accountability in government spending and the need for GOCC’s to carefully navigate the requirements to ensure compliance.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PNOC – EXPLORATION CORPORATION v. COMMISSION ON AUDIT, G.R. No. 244461, September 28, 2021

September 28, 2021

Liability for Unauthorized Legal Services: When is a Public Official Personally Liable?

The Supreme Court held that public officials can be held personally liable for the unauthorized disbursement of public funds for private legal services if they fail to secure the necessary authorizations. While securing the legal services of a private lawyer, Dr. Oñate, President of Camarines Norte State College (CNSC), did not obtain the prior written concurrence of the Commission on Audit (COA). This case clarifies the responsibilities of public officials in ensuring compliance with auditing regulations when engaging external legal counsel and underscores the importance of securing proper authorization to avoid personal liability for disallowed expenses.

Who Pays the Lawyer? State College Engagement Without Proper COA Approval

In 2009, Camarines Norte State College (CNSC), through its President Dr. Wenifredo T. Oñate, entered into a retainership contract with Atty. Alex A. Arejola to serve as its legal counsel. The agreement stipulated a monthly retainer fee and appearance fees for court hearings. The Office of the Solicitor General (OSG) granted deputation to Atty. Arejola as a special attorney authorized to represent CNSC, subject to existing rules and regulations of the Department of Budget and Management (DBM) and the Commission on Audit (COA). However, the COA subsequently denied Dr. Oñate’s request for written concurrence, citing violations of COA Circular No. 86-255, as amended by COA Circular No. 95-011, which prohibits the use of public funds to pay for private legal counsel without prior authorization. The COA then issued a Notice of Disallowance for the payments made to Atty. Arejola, holding Dr. Oñate and several other CNSC officials liable for the disallowed amount.

Dr. Oñate contested the disallowance, arguing that he had acted in good faith and with the approval of the CNSC Board of Trustees. The COA, however, affirmed its decision, relying on established jurisprudence that holds officials personally liable for securing and benefiting from unauthorized legal services. This prompted Dr. Oñate to file a petition for certiorari with the Supreme Court, seeking to overturn the COA’s ruling. This case brings to the forefront the critical issue of accountability in government spending and the extent to which public officials can be held personally liable for decisions made in their official capacity.

The Supreme Court granted the petition, albeit with modifications. The Court reiterated that as a chartered institution, CNSC is covered by Executive Order (E.O.) No. 292, or the Administrative Code of 1987, which mandates that only the OSG is authorized to represent government agencies in legal matters. Citing COA Circular No. 95-011, the Court emphasized that public funds cannot be used to pay for private legal counsel without the written conformity of the OSG or the Office of the Government Corporate Counsel (OGCC), and the written concurrence of the COA. It is important to note that the purpose of this prohibition is to prevent the unnecessary disbursement of public funds for services that the government legal offices are mandated to provide. The Court has consistently upheld this requirement across various government entities, including government-owned and/or controlled corporations, local government units, and state colleges.

COA Circular No. 95-011 stresses that public funds shall not be utilized for the payment of services of a private legal counsel or law firm to represent government agencies in court or to render legal services for them. Despite this, the same circular provides that in the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances, the written conformity and acquiescence of the OSG or the Office of the Government Corporate Counsel (OGCC), as the case may be, and the written concurrence of the COA shall first be secured before the hiring or employment of a private lawyer or law firm.

The Court noted that while Dr. Oñate obtained OSG authorization, the request for COA concurrence was made belatedly, just before the expiration of the contract. The Supreme Court emphasized that ignorance of the law is not a valid defense. However, the Court also recognized that Dr. Oñate had secured the approval of the CNSC Board of Trustees before engaging Atty. Arejola’s services. Building on this principle, the Court held that the members of the Board of Trustees who approved the engagement without requiring prior OSG conformity and COA concurrence should also be held liable.

In relation to Section 103 of Presidential Decree-No. 1445 (Government Auditing Code of the Philippines) as well as Section 52, Chapter 9, Title I-B, Book V and Section 43, Chapter V, Book VI of the Administrative Code, the board of trustees who approved Board Referendum No. 2, s. 2009 should also be held liable for the unauthorized disbursement of public funds. The relevant provision from the Government Auditing Code states:

SEC. 103. General liability for unlawful expenditures. – Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

The Court reasoned that when a government entity engages private legal services without the necessary authorization, its officials bind themselves to be personally liable for the costs. While Atty. Arejola was also deemed responsible for receiving the payments, the Court clarified that this was without prejudice to any action against those involved in the unlawful release of public funds. This ruling highlights the shared responsibility of those involved in authorizing and receiving unauthorized payments. The Supreme Court ultimately affirmed the COA decision with the modification that the CNSC Board of Trustees should also be held liable along with Dr. Oñate and other officials. The Court directed the COA to order the Board of Trustees to file a memorandum and/or call a hearing to allow the presentation of evidence that may exempt them from liability. This ensures that all parties involved are given an opportunity to present their case and that liability is fairly distributed.

FAQs

What was the main issue in this case?	The main issue was whether Dr. Oñate, as President of CNSC, should be held personally liable for the disallowed payments to a private lawyer hired without the required COA concurrence.
Why was the COA concurrence required?	COA concurrence is required under COA Circular No. 95-011 to prevent the unauthorized and unnecessary disbursement of public funds for private legal services that should be provided by government legal offices.
Did Dr. Oñate obtain any authorization for hiring the private lawyer?	Yes, Dr. Oñate obtained authorization from the OSG, but the COA noted that he requested for the COA’s concurrence belatedly, which was less than a week prior to the expiration of the contract.
What was the Supreme Court’s ruling?	The Supreme Court affirmed the COA decision with modification, holding Dr. Oñate, the CNSC Board of Trustees, and other liable officials personally and solidarily liable for the disallowed amount.
Why were the members of the Board of Trustees also held liable?	The Board of Trustees were held liable because they approved the retainer’s contract without ensuring that the necessary OSG conformity and COA concurrence were obtained.
What does ‘solidarily liable’ mean in this context?	Solidarily liable means that each of the liable parties is individually responsible for the entire amount, and the COA can recover the full amount from any one of them.
What should government officials do to avoid similar liabilities?	Government officials should ensure that they obtain the necessary authorizations, including OSG conformity and COA concurrence, before engaging private legal services.
What was the effect of the Supreme Court’s order to the COA?	The Supreme Court directed the COA to order the Board of Trustees to file a memorandum and/or call a hearing to allow the presentation of evidence that may exempt them from any liability.

This case underscores the importance of due diligence and compliance with auditing regulations when engaging private legal services in government. Public officials must ensure that all necessary authorizations are obtained to avoid personal liability for disallowed expenses. The ruling serves as a reminder that ignorance of the law is not an excuse and that all parties involved in the disbursement of public funds have a responsibility to ensure compliance with applicable regulations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Dr. Wenifredo T. Oñate vs. Commission on Audit, G.R. No. 213660, July 05, 2016

July 5, 2016

The Limits of Private Counsel: When Can Government Corporations Hire Outside Lawyers?

The Supreme Court in PHIVIDEC Industrial Authority vs. Capitol Steel Corporation clarified the stringent requirements for government-owned and controlled corporations (GOCCs) to hire private legal counsel. The Court emphasized that GOCCs must primarily rely on the Office of the Government Corporate Counsel (OGCC) for legal representation, and can only hire private lawyers in exceptional cases with prior written consent from both the OGCC and the Commission on Audit (COA). This ruling underscores the government’s policy to reduce public expenditures and ensure fidelity to the government’s cause.

Hiring Hurdles: Can PHIVIDEC Side-Step Rules on Government Counsel for Expropriation?

This case originated from an expropriation complaint filed by PHIVIDEC Industrial Authority against Capitol Steel Corporation, represented by Atty. Cesilo Adaza, a private lawyer. The central legal issue revolved around whether Atty. Adaza had the proper authority to represent PHIVIDEC, considering the rules governing the engagement of private counsel by GOCCs. Capitol Steel questioned Atty. Adaza’s authority, arguing that PHIVIDEC had not complied with the requirements of securing prior written consent from the OGCC and COA. The Regional Trial Court initially denied Capitol Steel’s motion to dismiss, but the Court of Appeals later reversed this decision, leading to the Supreme Court review.

The Supreme Court delved into the history of laws governing the role of the OGCC, tracing it back to Republic Act No. 2327 in 1959, which established the position of Government Corporate Counsel. Subsequent amendments, particularly Republic Act No. 3838, solidified the OGCC as the principal law office for GOCCs, imposing restrictions on hiring private counsels. Initially, GOCCs could hire private lawyers with the written consent of the Government Corporate Counsel or the Secretary of Justice. However, Presidential Decree No. 1415 in 1978, eliminated this exception, mandating the OGCC as the exclusive legal representative for all GOCCs without exception.

Executive Order No. 292, the Administrative Code of 1987, later removed the phrase “without exception,” but retained the OGCC’s role as the principal law office. The Court explained that this amendment, coupled with the President’s executive and administrative powers, allowed for the issuance of rules governing the relationship between GOCCs and the OGCC. This led to Administrative Order No. 130, which reaffirmed the exclusive mandate of the OGCC, allowing the President to authorize only the Office of the Solicitor General to represent GOCCs in place of or in addition to the OGCC.

A pivotal point came with Memorandum Circular No. 9, issued in 1998, which provided a specific exception to the prohibition of hiring private lawyers. According to Section 3 of this Circular:

“GOCCs are likewise enjoined to refrain from hiring private lawyers or law firms to handle their cases and legal matters. But in exceptional cases, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm.”

The Supreme Court emphasized that this exception was subject to stringent conditions. First, hiring private counsel could only occur in exceptional cases. Second, the GOCC had to first secure written consent from the Solicitor General or the Government Corporate Counsel. Third, the written concurrence of the COA was also required before hiring. These requirements reflect a clear policy to curtail unnecessary public expenditures and ensure the fidelity of legal representation to the government’s interests.

The Court noted the significant reasons behind this public policy. Minimizing the expenses of GOCCs, particularly the high costs associated with private legal fees, was a primary concern. The whereas clauses of Memorandum Circular No. 9 explicitly state the need to reduce government expenditures by minimizing the expenses of GOCCs:

WHEREAS, there is a need to reduce government expenditures by minimizing the expenses of government-owned or controlled corporations (GOCCs) which hire private lawyers and law firms, considering the high cost of retainers, fees and charges that are paid to said private lawyers and law firms;

WHEREAS, one way of realizing savings on the part of government-owned or controlled corporations (GOCCs) is to implement and enforce pertinent laws and regulations which prohibit GOCCs from hiring private retainers and law firms to handle their cases and legal matters, and those which direct GOCCs to refer their cases and legal matters to the Office of the Government Corporate Counsel (OGCC) for proper handling.

Furthermore, the policy recognized the stronger ties of OGCC lawyers to their client government corporations, fostering a deeper sense of fidelity and preserving the confidentiality of sensitive information. Given this framework, the Court scrutinized PHIVIDEC’s claim of compliance with these requirements.

The Supreme Court found that PHIVIDEC failed to meet the conditions set by Memorandum Circular No. 9. Atty. Adaza filed the expropriation suit on August 24, 1999, before PHIVIDEC secured the required written concurrences from the OGCC and the COA. The documents submitted by PHIVIDEC did not substantiate the claim that the requisite concurrences were obtained at all. The Court dismissed the COA Regional Office’s Indorsement as mere second-hand information and noted it was dated June 4, 2002, long after the case was filed. There was also no concrete proof of written concurrence from the Office of the Government Corporate Counsel. The Court referenced a letter from the OGCC suggesting changes to the retainer contract, but concluded that this could not serve as proof of concurrence.

The Court also mentioned COA Circular No. 86-255, which requires prior written concurrences from the OGCC or the Solicitor General and the COA before GOCCs hire private counsel. However, it clarified that the COA Circular does not grant or disallow the authority for GOCCs to hire private counsel, but rather governs the disbursement of public funds for retained lawyers. In conclusion, the Supreme Court determined that Atty. Adaza lacked the authority to file the expropriation case on behalf of PHIVIDEC. Citing analogous cases, the Court emphasized that such a lack of authority is sufficient grounds for dismissal.

Therefore, the Supreme Court upheld the Court of Appeals’ decision, ordering the dismissal of the case without prejudice to refiling by PHIVIDEC through a proper legal officer or counsel. The Court deemed it unnecessary to address the procedural issue raised in the petition, given the unauthorized engagement of Atty. Adaza. The decision underscores the importance of strict adherence to the rules governing the legal representation of GOCCs, reinforcing the policy of prioritizing the OGCC and minimizing unnecessary expenses.

FAQs

What was the key issue in this case?	The central issue was whether a private lawyer, Atty. Adaza, had the authority to represent PHIVIDEC, a government-owned corporation, in an expropriation case, given the regulations governing the hiring of private counsel by GOCCs. The court focused on the necessity of prior written consent from the OGCC and COA.
What is a GOCC?	A GOCC is a government-owned or controlled corporation. These are entities where the government owns the majority of shares or has significant control over their operations.
What is the role of the OGCC?	The Office of the Government Corporate Counsel (OGCC) is the principal law office for all government-owned and controlled corporations (GOCCs). It is primarily responsible for providing legal advice and representation to these entities.
Can GOCCs hire private lawyers?	Generally, GOCCs are expected to be represented by the OGCC. They can only hire private lawyers in exceptional cases, and only with prior written consent from both the OGCC and the Commission on Audit (COA).
What is Memorandum Circular No. 9?	Memorandum Circular No. 9, issued in 1998, outlines the conditions under which GOCCs can hire private lawyers. It requires that the hiring be for an exceptional case and that prior written consent from the OGCC (or Solicitor General) and COA be obtained.
Why are there restrictions on GOCCs hiring private lawyers?	The restrictions aim to reduce government expenditures by minimizing the legal fees paid to private lawyers. They also ensure that GOCCs are represented by counsel who are deeply committed to the government’s interests and maintaining confidentiality.
What happens if a private lawyer represents a GOCC without proper authorization?	If a private lawyer represents a GOCC without the required authorization, the actions taken by the lawyer on behalf of the GOCC may be deemed invalid. The case could be dismissed, as it was in this instance.
What does “without prejudice” mean in the court’s decision?	“Without prejudice” means that the case was dismissed, but PHIVIDEC is not barred from refiling the case. However, they must do so through a proper legal officer or counsel, ensuring compliance with the requirements for legal representation of GOCCs.

This case serves as a clear reminder of the strict regulations governing the engagement of private legal counsel by government-owned and controlled corporations. It emphasizes the importance of adhering to established procedures and securing the necessary approvals to ensure the validity of legal representation. This ruling reinforces the government’s commitment to fiscal responsibility and the integrity of legal processes within the public sector.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PHIVIDEC INDUSTRIAL AUTHORITY VS. CAPITOL STEEL CORPORATION, G.R. No. 155692, October 23, 2003

October 23, 2003