February 27, 2020

MR. REED
Chief Operating Officer
Reed Oil Company

Dear Mr. Reed,

Hope this letter finds you well.

This is in response to the inquiry you have sent our office last
February 21, 2020.

Facts

To recall, you shared that your company has been receiving reports
of fishermen complaining about your pipeline operations which
traverse from your refinery to the Boayan Islands. The fisherman
have also invited you to an arbitration proceeding before the Pollution
Adjudication Board (PAB) in connection with their claim for
compensation due to the alleged leaks in your pipeline facility which
has contributed to the decrease in their fish catch. Your company
also received a Cease and Desist Order from the Regional Director of
the Department of Natural Resources (DENR) without any notice and
hearing which was to take effect immediately.

Issues

Your company has reach out to our office for a legal opinion on the
following questions:

I. Can the Pollution Adjudication Board arbitrate the matter? If

so, what are the conditions, if any, and should you undergo
arbitration proceedings, what are the possible exposures to
your company?
II. Considering that you were penalized without notice and
hearing by the Cease and Desist Order, is it valid under
applicable rules and regulations?
III. What are the remedy/remedies available to your company
against the Cease and Desist Order?

Legal Opinion

Below is our opinion on each issue.

1
 I.

The Pollution Adjudication Board can

arbitrate the demand for compensation
by the fishermen

The Pollution Adjudication Board can arbitrate the matter.

Section 6(j) of Presidential Decree No. 984, otherwise known as the

National Pollution Control Decree, provides:

SECTION 6. Powers and Functions. — The Commission shall

have the following powers and functions:
(j) Serve as arbitrator for the determination of reparations, or
restitution of the damages and losses resulting from
pollution.

The term “Commission” in the above-cited provision refers to the

National Pollution Control Commission, which has been replaced by
the Pollution Adjudication Board by virtue of Executive Order 1921.

Section 1 of Rule XVI of the Pollution Adjudication Board (PAB)

Resolution No. 001-10, otherwise known as the “Revised Rules of
the Pollution Adjudication Board (PAB) on Pleading, Practice, and
Procedure in Pollution Cases”, further provides:

SECTION 1. Arbitration. — Any claim for reparation or

restitution of damages and losses resulting from the
pollution of water, air or land resources may be brought
before the Board or the Regional Office for voluntary
arbitration.

Applying the above-stated provisions of law, we are of the opinion

that the Pollution Adjudication Board can take cognizance of the
fishermen’s demand for compensation through arbitration. The facts
reveal that the claim of the fishermen is for reparation or restitution of
damages on account of the decline of their overall fish catch which
they contend to be the result of water pollution allegedly caused by
the leaks in your company’s pipeline operations. Such claim clearly
falls within the ambit of the above-cited Arbitration Clause which may
be brought before the Board for voluntary arbitration.

Section 1(y) of the same Resolution likewise provides:

"Pollution" shall mean any alteration of the physical, chemical

or biological properties of any water, air and/or land resources
of the Philippines, or any discharge or emission thereto of
1
Section 19, Executive Order 192

2
 any liquid, gaseous or solid wastes as will be likely to create
or to render such water, air and land resources harmful,
detrimental or injurious to public health, safety or welfare
or which will adversely affect their utilization for domestic,
commercial, industrial, agricultural, recreational or other
legitimate purposes.

Further, in the case of Shell Philippines Exploration B.V. v. Efren

Jalos2, our Supreme Court succinctly ruled that:

Although the complaint of Jalos, et al., does not use the word
"pollution" in describing the cause of the alleged fish decline in
the Mindoro Sea, it is unmistakable based on their allegations
that Shell's pipeline produced some kind of poison or emission
that drove the fish away from the coastal areas. While the
complaint did not specifically attribute to Shell any specific act
of "pollution," it alleged that "the pipeline greatly affected
biogenically hard-structured communities such as coral reefs
and led [to] stress to the marine life in the Mindoro Sea." This
constitutes "pollution" as defined by law.

Applying the above-cited provision and ruling, though the demand for
compensation by the fishermen did not ascribe any specific act of
“pollution” to your company relative to your pipeline facility, they
already alleged that “there are leaks in the pipeline which has
contributed to the decline of the fishermen’s overall fish catch”. Such
constitutes “pollution” as defined by the PAB Resolution.

Conditions for Voluntary Arbitration Proceedings

before the Pollution Adjudication Board

The Resolution provides for the following conditions that must be

observed in any arbitration proceedings before the Board:

Mutual Consent

Such arbitration proceedings must be upon the consent of both

parties, as can be evinced by the use of the terms “may” and
“voluntary”.

Basis for the claim

The claim for restitution or reparation shall take into account 3:

1. the gravity and duration of the pollution; and

2
G.R. No. 179918. September 8, 2010
3
Section 1(1), Rule XVI, PAB Resolution No. 001-10

3
 2. the extent and reasonable value of the damage and losses,
based on the evidence of the parties.
Excess of the compensation recovered

Any amount recovered in excess of the compensation due the

aggrieved parties shall accrue to the General Fund of the
Government4.

Death of fish or aquatic life or destruction of the natural habitat

resulting from the pollution

If the pollution results in the death of fish or aquatic life or destruction

of the natural habitat necessary for the propagation of fish or other
aquatic life, the person foundo to be responsible for the pollution shall
pay the Government for damages for fish or aquatic life destroyed 5.

Summary of the proceedings in writing

A summary of the arbitration proceedings, and any settlement arrived

at, shall be reduced to writing, duly attested by the Board Secretary
or Hearing Officer6.

Assistance of Experts

On the matter of Assistance of Experts, the same may be sought on

any technical matter or issue material to the subject of the arbitration
proceedings upon motion of either party or at the discretion of the
Board or Hearing Officer7.

Arbitration Award or Resolution

An award or resolution submitted for arbitration shall become final

and executory fifteen (15) days after receipt by the parties 8. Awards
of the Board in arbitration proceedings shall likewise be enforced and
executed in the same manner as orders, resolutions, and decisions of
the Board9. Also, any payments made in favor of private parties in
satisfaction of any liability for loss or damages shall be without
prejudice to the imposition by the Board of the appropriate fines and
penalties pursuant to applicable laws, rules and orders 10.

Referral from the DENR Regional Office to the Board

4
Ibid
5
Section 1(2), Rule XVI, PAB Resolution No. 001-10
6
Section 2, Rule XVI, PAB Resolution No. 001-10
7
Section 3, Rule XVI, PAB Resolution No. 001-10
8
Section 5, Rule XVI, PAB Resolution No. 001-10
9
Section 6, Rule XVI, PAB Resolution No. 001-10
10
Section 7, Rule XVI, PAB Resolution No. 001-10

4
A claim for damages may be brought before the Regional Office of
the DENR at first instance. In the event that the parties to the
arbitration proceedings at the DENR Regional Office level fail to
arrive at an amicable settlement, the Hearing Officer within fifteen
(15) days from the termination of the proceedings shall forward the
entire records of the case, together with his certified report and
recommendation, to the Board for final resolution 11.

Possible exposures to the company

Should your company decide to accept the invitation of the fishermen

and undergo arbitration proceedings, we are of the opinion that such
will require you to divulge company practices and procedures relative
to pipeline operations, some of which might be considered trade
secrets. As provided by the arbitration clause in the Resolution, the
gravity of the pollution and the reasonable value of the damage
should be based on the evidence presented by both parties 12. We
believe this provision entails full disclosure on the part of the
company of the processes and protocols being observed in the
operation of your pipeline facility to prove that there are no leaks
whatsoever that contribute to or cause the decline in the fishermen’s
catch. This disclosure could likewise lead to possible public and
media scrutiny which might greatly affect the image and reputation of
your company.

We also believe that undergoing arbitration proceedings can reveal

the possible lapses or gaps of your company with respect to
compliance with applicable standards in the operation of the pipeline
facility even without an adverse ruling. Section 6 of PD 984 provides:

SECTION 6. Powers and Functions. — The Commission shall

have the following powers and functions:
(a)Determine the location, magnitude, extent, severity,
causes, effects and other pertinent information
regarding pollution of the water, air and land resources of
the country; take such measures, using available
methods and technologies, as it shall deem best to
prevent or abate such pollution; and conduct continuing
researches and studies on the effective means for the
control and abatement of pollution.
xxx
(b)Issue standards, rules and regulations to govern the
approval of plans and specifications for sewage works and

11
Section 4, Rule XVI, PAB Resolution No. 001-10
12
Section 1, Rule XVI, PAB Resolution No. 001-10

5
 industrial waste disposal systems and the issuance of
permits in accordance with the provisions of this Decree.
Pursuant to these provisions, we believe that the Board, through the
award or a resolution in the arbitration proceedings, can direct your
company to comply with applicable guidelines and regulations relative
to the abatement of water pollution even without an adverse finding of
leakage in your pipeline facility. This will compel your company to
strictly adhere to standards and rules relative to the operation of the
pipeline system promulgated by the Board that might not have been
observed by your company even without having to pay the fishermen
compensation. This may be viewed as an opportunity for your
company to improve on its pipeline operations, but not without the
possibility of being sanctioned by the Board and, in addition, public
scrutiny.

Further, going through arbitration proceedings will entail expenses on

the part of your company. Even if no an award or resolution will be
issued by the Board in favor of the fishermen, your company will still
have to incur expenses in attending the actual proceedings,
producing the necessary evidence to prove compliance and refute the
alleged leakage, hiring legal counsels and technical experts to assist
in strengthening the company’s arguments, elevating the case to the
Board for final resolution in case the arbitration proceedings were
conducted in the Regional Office level and no amicable settlement
was reached thereat, among others. In case an award will be issued
in favor of the fishermen, your company will have to pay them the
compensation due and comply with the other fines and penalties
which may be additionally imposed by the board. This might
adversely affect the financial position of the company.

Lastly, undergoing arbitration proceedings may also result in the

allegation of leaks in your pipeline facility as claimed by the fishermen
being sufficiently proven by evidence. This would then result to
expenses and loss on the part of your company as you have to abide
by the award that will be rendered in favor of the fishermen and pay
the compensation due them for the damages they incurred.

II.

The issuance of the Cease and Desist Order

by the Regional Director of the DENR
was valid

The issuance of the Cease and Desist Order is valid. Section 8 of

Rule V of PAB Resolution No. 001-10, states that:

6
 SECTION 8. Issuance of Cease and Desist Order. — Where
there is prima facie evidence that the emission or
discharge of pollutants constitutes an immediate threat to
life, public health, safety or welfare, or to animal or plant
life, or greatly exceeds the allowable DENR Standards, as
provided in guidelines established by the Board, the Regional
Director may immediately issue an Interim CDO pursuant
to the provisions of the applicable law, which shall be
effective for a period not longer than seven (7) days. The
Interim CDO shall in all respects be considered as a regular
CDO if it is subsequently confirmed by the Board or the
Secretary, as the case may be. Such confirmation may only
be made prior to the lapse of the Interim CDO.

Applying the said Rule, the Regional Director of the DENR may
immediately issue an Interim Cease and Desist Order, provided that
there has been prima facie or apparent evidence which shows that
the discharge of pollutants constitutes an immediate threat to life,
public health, safety or welfare, or to animal or plant life, or exceeds
the allowable DENR Standards. Such will be effective for seven days,
unless confirmed by the Pollution Adjudication Board, in such case it
will become a regular CDO.

As regard to prima facie evidence, we can apply by analogy the case

of Pollution Adjudication Board v. Court of Appeals and Solar Textile
Finishing Corporation13, where the Court explained that:

“Where, however, the effluents or discharges have not yet

been the subject matter of allowable standards set by the
Commission, then the Board may act on an ex parte basis
when it finds at least prima facie proof that the wastewater or
material involved presents an "immediate threat to life, public
health, safety or welfare or to animal or plant life."

Since your company had already received reports regarding the

complains of some fishermen against your pipeline operations that
had traversed the Boayan Islands and the alleged leaks on the
pipeline, resulting to a possible discharge of pollutants, which has
contributed to the decline of the overall fish catch that will affect the
welfare of fishermen and the safety of fishes and other sea animals of
the Boayan Island, such occurrence is a prima facie evidence that
may cause an immediate issuance of an Interim Cease and Desist
Order by the Regional Director of the DENR. There is no more need
to prove that there are discharges of effluents from your pipeline
facility which exceed the allowable standards set forth by the DENR.

13
G.R. No. 93891. March 11, 1991

7
However, the Interim Cease and Desist Order will only be effective for
seven (7) days. It will only considered in effect until revoked after it
has been subsequently confirmed by the PAB or the DENR Secretary
before the lapse of seven-day period14.

Section 4 of Rule X of the PAB Resolution No. 001-10 provides:

SECTION 4. Board Action on Interim Cease and Desist Order.

— Where an interim CDO effective for seven (7) days has been
issued by the Regional Director, the Board shall issue a
Cease and Desist Order or recommend to the Secretary the
issuance of a CDO, pursuant to the provisions of the
applicable law.

The second paragraph of Section 1 of Rule X of the same PAB

Resolution also provides:

The Cease and Desist Order (CDO) shall be immediately

executory and shall remain in force and effect until modified
or lifted by the Board or the DENR Secretary.

Applying the above provisions in relation to Section 8 of Rule V of the

same PAB Resolution, the Interim CDO issued by the Regional
Director is initially effective only for seven (7) days. Once it has been
confirmed by the PAB or DERN Secretary, it will then be regarded as
effective until otherwise revoked by the Board or the DENR
Secretary, as the case may be.

III.

The remedy is to contest the

Cease and Desist Order in a public
hearing before the Board

We are of the opinion that the remedy available to your company is to

contest the Cease and Desist Order in a public hearing before the
PAB once it is confirmed by the PAB or DENR Secretary.

In the case of Pollution Adjudication Board vs. Court of Appeals and

Solar Textile Finishing Corporation15, the Supreme Court ruled:

Where the establishment affected by an ex parte cease and

desist order contests the correctness of the prima facie
findings of the Board, the Board must hold a public
hearing where such establishment would have an opportunity
to controvert the basis of such ex parte order.
14
Section 8, Rule V of PAB Resolution No. 001-10
15
G.R. No. 93891. March 11, 1991

8
Sec. 5 of Rule X of PAB Resolution No. 001-10 likewise provides:

Remedy of Respondent. — The respondent may contest the

order by filing with the Board a motion to lift the CDO, with
proof of service of copies thereof on the Regional Office and
the parties concerned.

The Board shall direct the Regional Office which has

jurisdiction over the case and the parties concerned to file their
comment to the motion within five (5) days from receipt thereof,
copy-furnished the respondent. Thereafter, the motion shall
be set for hearing or calendared for the Board's
deliberation.

The filing of such motion shall not stay the enforcement and
execution of the CDO.

Applying the provisions above-cited, your company can file before the
PAB a motion to lift CDO contesting the correctness of the Cease and
Desist Order that was issued against your company. It is during the
hearing where the respondent may controvert the issuance of the
cease and desist order. Mr. Reed may present evidence that there
was no cause to issue the cease and desist order, showing that there
is in fact no discharge posing an “immediate threat to life, public
health, safety or welfare, or to animal or plant life,” or that such
discharge or wastes exceed “the allowable standards set by the
NPCC.”

If, however, the PAB or DENR Secretary fails to confirm and issue a
CDO within the 7-day period after the issuance of the Interim CDO by
the Regional Director, the CDO issued by the Regional Director will
die a natural death, and there will be no course of action required on
the part of your company.

Conclusion

In conclusion, we submit that accepting the invitation to an arbitration

proceeding from the fishermen will have possible adverse
repercussions on the part of your company, such as disclosure of
sensitive company information and unnecessary expenses. The
Cease and Desist Order issued by the DENR Regional Director
against your company is valid and consistent with existing rules and
regulations, but is only effective for a period of seven (7) days, unless
subsequently confirmed by the PAB or DENR Secretary. Finally, as a
remedy against the said CDO, your company may contest the
correctness of the same in a hearing by filing a motion to lift CDO
before the PAB.

9
We hope that our opinion would be of much assistance to your
company. Please do not hesitate to reach out to our firm again should
you have further queries or clarifications.

Thank you!

Respectfully,

ADRIAN DAINTLY CRISTORIA ABIGAIL DALUSUNG

Attorney-at-law Attorney-at-law

TRIXIA LOU DIAZ KIRK YNGWIE ENRIQUEZ

Attorney-at-law Attorney-at-law

WILSON LANCE IBONES ANNE FRANCES PATALINGHUG

Attorney-at-law Attorney-at-law

THEA MITCHELE LABUNOG AMIESTEVEN CLARKE LAO

Attorney-at-law Attorney-at-law

10