Philippine Charity Sweepstakes Office vs. De Leon

An applicant for a writ of preliminary injunction must show, by prima facie evidence, a clear and existing legal right that is materially threatened; a claim of exclusivity that terminates before the period covered by the challenged act — and that has been expressly repudiated by a final and confirmed arbitral award — cannot sustain the injunctive writ.

The Philippine Charity Sweepstakes Office and Philippine Gaming and Management Corporation were parties to an Equipment Lease Agreement executed in 1995 for an on-line lottery system in Luzon. The lease was amended several times, the final extension running until August 21, 2018. Disagreements arose over lease rates and exclusivity, prompting a Senate Blue Ribbon Committee investigation and multiple contempt petitions in the Regional Trial Court. The parties eventually agreed to submit the exclusivity question to an International Chamber of Commerce Arbitral Tribunal and to archive their pending court cases. As the extended lease approached its end, the Philippine Charity Sweepstakes Office initiated a competitive bidding for the Nationwide On-line Lottery System covering five years from August 2018. Philippine Gaming and Management Corporation applied for a temporary restraining order and writ of preliminary injunction in the archived Regional Trial Court cases to halt the bidding, claiming an exclusive right that would be violated.

• The Equipment Lease Agreement and Its Extensions: On January 25, 1995, the Philippine Charity Sweepstakes Office, as lessee, and Philippine Gaming and Management Corporation, as lessor, executed an Equipment Lease Agreement for the on-line lottery system in Luzon with an eight-year term ending in 2003. The agreement was amended on November 14, 1997 to reduce the number of terminals, and the term was effectively prolonged by litigation, pushing the end to 2007. On December 29, 2004, the parties executed the Amendments to Equipment Lease Agreement, extending the lease for another eight years from August 23, 2007 to August 22, 2015.
• Senate Investigation and Dispute over Rental Rates: In 2011, the Senate Blue Ribbon Committee investigated the lease as financially onerous because the Philippine Charity Sweepstakes Office was paying US$148,000,000 in rent rather than purchasing the equipment for US$25,000,000. The Committee recommended renegotiation of the rental fee. Pacific Online Systems Corporation, the operator for Visayas and Mindanao, agreed to reduce its rate to 7.85% of gross lotto sales. Philippine Gaming and Management Corporation declined to reduce its 10% rate. Consequently, the Philippine Charity Sweepstakes Office allowed Pacific Online to supply some lottery equipment in Luzon.
• Interim Settlement and Arbitration: Philippine Gaming and Management Corporation claimed this move violated its exclusive right and filed indirect contempt petitions in the Regional Trial Court of Makati (SCA Case Nos. 12-530 and 12-1011). The trial court initially granted a writ of preliminary injunction in 2012. On December 11, 2013, the parties entered into an Interim Settlement, agreeing to submit the exclusivity issue to a three-member International Chamber of Commerce Arbitral Tribunal and to archive the contempt cases. Philippine Gaming and Management Corporation filed its Request for Arbitration on March 13, 2014.
• Supplemental and Status Quo Agreement (2015): On August 13, 2015, while arbitration was pending, the parties executed a Supplemental and Status Quo Agreement that extended the Equipment Lease Agreement term from August 22, 2015 to August 21, 2018, and required the dismissal of all pending judicial actions between them except arbitration. Consistent with this agreement, the Philippine Charity Sweepstakes Office sought and obtained from the Court of Appeals the dismissal of its pending certiorari case against the earlier writ; the dismissal became final on March 1, 2016. The Philippine Charity Sweepstakes Office’s subsequent attempt to revive that appeal was denied and is now the subject of a separate petition (G.R. No. 228801).
• The Nationwide On-line Lottery System Bidding and Application for Injunction: With the extended Equipment Lease Agreement expiring in August 2018, the Philippine Charity Sweepstakes Office began preparing for the public bidding of the Nationwide On-line Lottery System, a five-year lease from August 2018 to August 2023. On July 11, 2017, Philippine Gaming and Management Corporation filed, in the archived Regional Trial Court cases, an application for a temporary restraining order and writ of preliminary injunction to halt the scheduled July 27, 2017 bidding. It claimed exclusive rights under the Interim Settlement and the still-pending arbitration. The Regional Trial Court, now presided by respondent Judge Maximo M. De Leon, granted a 72-hour temporary restraining order on July 21, 2017, and after summary hearing issued a Resolution on August 3, 2017 granting a writ of preliminary injunction, enjoining the Philippine Charity Sweepstakes Office “not to proceed with its public bidding process BUT INSOFAR as Luzon territory only is concerned,” pending conclusion of the trial and the arbitration proceedings. The writ was issued on August 10, 2017 upon posting of a Php 25,000,000 bond. The Philippine Charity Sweepstakes Office’s motion for reconsideration was denied on November 7, 2017.
• Arbitral Final Award and Confirmation: On February 20, 2018, the International Chamber of Commerce Arbitral Tribunal rendered its Final Award, declaring that Philippine Gaming and Management Corporation “does not have an exclusive contractual right to supply an online lottery system for Luzon,” dismissing its claim in its entirety and awarding costs against it. The Regional Trial Court confirmed this award on May 25, 2018, recognizing that the decision was not contrary to law, morals, or public policy and that the parties were bound by their agreement to arbitrate.

• Interference with Arbitral Tribunal’s Jurisdiction: Petitioner argued that respondent Judge De Leon gravely abused his discretion because the injunctive writ invaded the jurisdiction of the International Chamber of Commerce Arbitral Tribunal, violating Section 28(1) of the International Chamber of Commerce Rules and Rule 5.15 of the Special Rules of Court on Alternative Dispute Resolution. Philippine Gaming and Management Corporation’s application was likewise procedurally defective for lack of a verified petition, contrary to Rule 5.5 of the Special ADR Rules.
• Absence of a Clear Legal Right: Petitioner contended that Philippine Gaming and Management Corporation failed to demonstrate any positive, clear, and unmistakable right to be protected. The Interim Settlement did not vest exclusive lessor rights for the period after August 22, 2018. The bidding sought to be enjoined concerned a five-year term commencing when the existing lease had already expired.
• Irrelevance of Pending Arbitration: Petitioner maintained the Regional Trial Court erroneously relied on the pendency of the arbitration, because the sole issue before the Arbitral Tribunal was Philippine Gaming and Management Corporation’s alleged exclusive right under the Equipment Lease Agreement (ending in August 2018), not the new Nationwide On-line Lottery System contract. Thus, the pending arbitration provided no legal basis to enjoin the bidding.
• No Irreparable Injury and No Extreme Urgency: Petitioner asserted that Philippine Gaming and Management Corporation would not suffer grave and irreparable injury, as any winning bidder would require a 10-month test run before the existing lease expired, affording ample time for judicial resolution. No extreme urgency existed to justify the premature restraint on the bidding.
• Violation of Freedom to Contract: Petitioner alleged that the injunction effectively compelled it to extend the unfavorable Equipment Lease Agreement beyond its stipulated term, violating its freedom to contract and statutory duty to conduct transparent public bidding.

• Established Right and Threatened Injury: Respondent Philippine Gaming and Management Corporation countered that it had shown clear legal rights based on the 2012 writ of preliminary injunction, the Interim Settlement, and the pending arbitration, and that the Philippine Charity Sweepstakes Office’s public bidding constituted a threatened violation of those rights. It contended it would suffer grave and irreparable damage in the form of severe business and financial losses that would be difficult to compute with accuracy if a new contract were awarded.
• Legality of Concurrent Court Relief: Respondent argued that the International Chamber of Commerce Rules and the Special ADR Rules expressly permit the simultaneous filing of an application for interim or injunctive relief before regular courts while arbitration is ongoing, and that the Regional Trial Court acted within its jurisdiction when it entertained and granted the application.

• Grave Abuse of Discretion — Existence of a Right to be Protected: Whether respondent Judge De Leon committed grave abuse of discretion amounting to lack or excess of jurisdiction in granting Philippine Gaming and Management Corporation a writ of preliminary injunction when the applicant failed to establish any existing legal right that would be violated by the bidding for a contract period commencing after the expiration of the parties’ lease agreement.

• Grave Abuse of Discretion — Existence of a Right to be Protected: The Regional Trial Court committed grave abuse of discretion in issuing the writ. A preliminary injunction under Rule 58, Section 3 of the Rules of Court requires the applicant to show, by prima facie evidence, an existing right before trial, a material and substantial invasion of that right, and the necessity of the writ to prevent irreparable injury. Philippine Gaming and Management Corporation’s claim of exclusivity, whether rooted in the Interim Settlement or the underlying amendments, extended only until August 21, 2018. The public bidding it sought to enjoin was for a five-year Nationwide On-line Lottery System contract that would begin on August 22, 2018 — a period for which it held no contractual or legal entitlement. Because no existing right was threatened, the first and indispensable requisite for injunctive relief was absent. The arbitral tribunal’s Final Award, subsequently confirmed by the Regional Trial Court itself, unequivocally declared that Philippine Gaming and Management Corporation had no exclusive contractual right, removing any residual color of a claim. The writ was therefore deemed lifted, and the Philippine Charity Sweepstakes Office could resume the bidding process.

• Preliminary Injunction; Requisites for Issuance: Under Rule 58, Section 3 of the 1997 Rules of Civil Procedure, a writ of preliminary injunction may be granted only when the applicant establishes by prima facie evidence: (a) an existing right before trial; (b) a material and substantial invasion of that right; and (c) that the writ is necessary to prevent irreparable injury. The absence of any one element is fatal. Here, Philippine Gaming and Management Corporation’s claimed exclusive right did not survive beyond the expiration of the Equipment Lease Agreement, defeating the application at the first requisite.

• “Absent the showing of an existing right to be protected, a party’s application for an injunctive relief must necessarily be denied.” — This opening pronouncement captures the ratio decidendi and the dispositive logic of the decision.
• “A preliminary injunction is an order granted at any stage of an action prior to final judgment, requiring a person to refrain from a particular act. As an ancillary or preventive remedy, a writ of preliminary injunction may therefore be resorted to by a party to protect or preserve his rights and for no other purpose during the pendency of the principal action.” (Citing Mabayo Farms, Inc. v. Court of Appeals) — Defines the nature and narrow purpose of the provisional remedy.
• “For a writ of preliminary injunction to be issued, the applicant must show, by prima facie evidence, an existing right before trial, a material and substantial invasion of this right, and that a writ of preliminary injunction is necessary to prevent irreparable injury.” (Citing Department of Public Works and Highways v. City Advertising Ventures Corporation) — The controlling three-part test applied to the facts.

• Department of Public Works and Highways v. City Advertising Ventures Corporation, G.R. No. 132944, November 9, 2016 — Followed as the primary authority for the three requisites of a preliminary injunction.
• Mabayo Farms, Inc. v. Court of Appeals, 435 Phil. 112 (2002) — Cited for the principle that a preliminary injunction is merely an ancillary remedy to protect or preserve existing rights pending final adjudication.
• First Global Realty and Development Corporation v. San Agustin, 427 Phil. 593 (2002) — Cited for the definition of a preliminary injunction as a measure to prevent threatened or continuous irremediable injury.

• Rule 58, Section 3, 1997 Rules of Civil Procedure — Sets out the grounds for issuance of a preliminary injunction. The provision was applied to hold that Philippine Gaming and Management Corporation’s failure to demonstrate any existing right beyond August 21, 2018 precluded the issuance of the writ.
• Special Rules of Court on Alternative Dispute Resolution (A.M. No. 07-11-08), Rules 5.5 and 5.15 — Petitioner invoked these rules to argue that respondent’s application for interim relief was procedurally defective and that the court interfered with the arbitral tribunal’s jurisdiction. The Court noted the arguments but resolved the case squarely on the absence of a substantive right, without needing to rule definitively on the procedural ADR issues.

Leonardo-De Castro (Chairperson), Bersamin, Reyes, Jr., and Gesmundo, JJ., concurred.

N/A — The decision was unanimous.