Kuwait Airways Corporation V. Philippine Airlines Facts
Uploaded by
ArtemisTzyKuwait Airways Corporation V. Philippine Airlines Facts
Uploaded by
ArtemisTzyKUWAIT AIRWAYS CORPORATION v.
PHILIPPINE AIRLINES
FACTS:
The Commercial Agreement was entered into in 1981 at a time when Philippine
Airlines had not provided a route to Kuwait while Kuwait Airways had a route to Manila.
The Commercial Agreement established a joint commercial arrangement whereby
Philippine Airlines and Kuwait Airways were to jointly operate the Manila-Kuwait (and
vice versa) route, utilizing the planes and services of Kuwait Airways. Based on the
preambular paragraphs of the Joint Services Agreement, as of 1981, Kuwait Airways
was interested in establishing a "second frequency" (or an increase of its Manila flights
to two) and that "as a result of cordial and frank discussions the concept of a joint
service emerged as the most desirable alternative option." As a result, the revenue-
sharing agreement was reached between the two airlines, an agreement which stood as
an alternative to both carriers offering competing flights servicing the Manila-Kuwait
route. An apparent concession though by Philippine Airlines was the preclusion of the
exercise of one of the fundamental air traffic rights, the Fifth Freedom traffic rights with
respect to the Manila-Bangkok-Kuwait, thereby precluding the deplaning of passengers
from Manila in Bangkok and the boarding in Bangkok of passengers bound for Manila.
The Confidential Memorandum Understanding (CMU), between the delegates of
Philippines and Kuwait, effectively sought to end the 1981 agreement between
Philippine Airlines and Kuwait Airways, by precluding any commercial arrangements in
the exercise of the Third and Fourth freedom traffic rights. As a result, both Kuwait and
the Philippines had the respective right to board passengers from their respective
countries and deplane them in the other country, without having to share any revenue or
enter into any commercial arrangements to exercise such rights. In exchange, the
designated airline or airlines of each country was entitled to operate six frequencies per
week in each direction. In addition, the designated airlines were allowed to enter into
commercial arrangements for the unilateral exercise of the Fifth Freedom traffic rights.
RTC ruled in favor of PAL. It asserted the obligatory force of contracts between
contracting parties as the source of vested rights which may not be modified or
impaired. After recasting Kuwait Airway's arguments on this point as being that "the
Confidential Memorandum of Understanding is superior to the Commercial Agreement[,]
the same having been supposedly executed by virtue of the state's sovereign power,"
the RTC rejected the argument, holding that "[t]he fact that the [CMU] may have been
executed by a Philippine Panel consisting of representative [sic] of CAB, DFA, etc. does
not necessarily give rise to the conclusion that the [CMU] is a superior contract[,] for the
exercise of the State's sovereign power cannot be arbitrarily and indiscriminately utilized
specifically to impair contractual vested rights."
ISSUE: Whether the bilateral agreement between the Republic of the Philippines and
the State of Kuwait is superior to the Commercial Agreement;
RULING:
The court held that in the case of statutes, while a preamble manifests the
reasons for the passage of the statute and aids in the interpretation of any ambiguities
within the statute to which it is prefixed, it nonetheless is not an essential part of an act,
and it neither enlarges nor confers powers.
In the case at bar, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered, and in doing so,
the courts may consider the relations existing between the parties and the purpose of
the contract. In 1981, Philippine Airlines was still owned by the Philippine government.
In that context, it is evident that the Philippine government, as owner Philippine Airlines,
* could enter into agreements with the Kuwait government that would supersede the
Commercial Agreement entered into by one of its GOCCs, a scenario that changed
once Philippine Airlines fell to private ownership.
Philippine Airlines argues before us that the cited preambular stipulation is in fact
superfluous, and we can agree in the sense that as of the time of the execution of the
Commercial Agreement, it was evident, without need of stipulation, that the Philippine
government could enter into an agreement with the Kuwait government that would
prejudice the terms of the commercial arrangements between the two airlines. After all,
Philippine Airlines then would not have been in a position to challenge the wishes of its
then majority stockholder — the Philippine government.
Yet by the time ownership of Philippine Airlines was transferred into private
hands, the controverted "Whereas" clause had taken on a different complexion, for it
was newly evident that an act of the Philippine government negating the commercial
arrangement between the two airlines would infringe the vested rights of a private
individual. The original intention of the "Whereas" clause was to reflect what was then a
given fact relative to the nationalized status of Philippine Airlines. With the change of
ownership of Philippine Airlines, the "Whereas" clause had ceased to be reflective of the
current situation as it now stands as a seeming invitation to the Philippine government
to erode private vested rights. We would have no problem according the interpretation
preferred by Kuwait Airways of the "Whereas" clause had it been still reflective of the
original intent to waive vested rights of private persons, rather than the rights in favor of
the government by a GOCC. That is not the case, and we are not inclined to give effect
to the "Whereas" clause in a manner that does not reflect the original intention of the
contracting parties.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
