JG Summit Holdings Inc Vs CA

2/9/2018 JG Summit Holdings Inc vs CA : 124293 : September 24, 2003 : J.
Puno : Special First Division
SPECIAL FIRST DIVISION
[G.R. No. 124293. September 24, 2003]
JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE

ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION
TRUST and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility
whose capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of this issue will
determine the fate of the shipbuilding and ship repair industry. It can either spell the industrys demise
or breathe new life to the struggling but potentially healthy partner in the countrys bid for economic
growth. It can either kill an initiative yet in its infancy, or harness creativity in the productive disposition
of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the
Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330
million for the capitalization of PHILSECO in the proportion of 60%-40% respectively.[1] One of its
salient features is the grant to the parties of the right of first refusal should either of them decide to
sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party
without giving the other under the same terms the right of first refusal. This provision shall not apply if the
transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.[2]
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-
performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement
was entered into between the National Government and the APT wherein the latter was named the
trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National Governments
shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKIs shareholdings to
2.59%.[3]
In the interest of the national economy and the government, the COP and the APT deemed it best
to sell the National Governments share in PHILSECO to private entities. After a series of negotiations
between the APT and KAWASAKI, they agreed that the latters right of first refusal under the JVA be
exchanged for the right to top by five percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which
http://sc.judiciary.gov.ph/jurisprudence/2003/sep2003/124293.htm 1/14
2/9/2018 JG Summit Holdings Inc vs CA : 124293 : September 24, 2003 : J. Puno : Special First Division
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI) would exercise its right to top.[4]
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies
of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for
the National Governments 87.6% equity share in PHILSECO.[5] The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on December 2,
1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Governments
equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECOs
outstanding capital stock), which will be sold as a whole block in accordance with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees
and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National
Governments 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the
bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to
the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki
Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from
the date of receipt of such advice from APT within which to exercise their Option to Top the Highest Bid by
offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to Top the
Highest Bid, they shall so notify the APT about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day
period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety (90)
days from the receipt of the APTs notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their Option to Top
the Highest Bid within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid
forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise
be responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares
which may, in any manner, affect the bidders proposal. Failure on the part of the bidder to so examine and
inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. . ..[6]
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of
Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of
KAWASAKI/Philyards right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APTs
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to
the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a
period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise
their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
[7]
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by
5% as specified in the bidding rules.[8]
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its
bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies
were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b)
only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or
auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
[9]
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised
its option to top the highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.[10] Consequently,
petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said
petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same
for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought by the proper party in the proper forum at the
proper time and threshed out in a full blown trial. The Court of Appeals further ruled that the right of
first refusal and the right to top are prima facie legal and that the petitioner, by participating in the
public bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is . .
.estopped from questioning the validity of the award given to Philyards after the latter exercised the
right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR.
Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the
part of the appellate court.[11]
On November 20, 2000, this Court rendered the now assailed Decision ruling among others that
the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the
special civil action of mandamus because the petition was also one of certiorari.[12] It further ruled that
a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-
owned.[13] Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is
illegal---not only because it violates the rules on competitive bidding--- but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard.[14] It also held that although the
petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal and inequitable provisions thereof.[15] Thus, this
Court voided the transfer of the national governments 87.67% share in PHILSECO to Philyard
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said
shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its
bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid deposit plus interests upon the
finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of
PHILSECOs total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million
Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.[16]
In separate Motions for Reconsideration,[17] respondents submit three basic issues for our
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI
can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3)
Whether the right to top granted to KAWASAKI violates the principles of competitive bidding.
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a
public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation, telephone
or telegraph service.[18] To constitute a public utility, the facility must be necessary for the maintenance
of life and occupation of the residents. However, the fact that a business offers services or goods that
promote public good and serve the interest of the public does not automatically make it a public utility.
Public use is not synonymous with public interest. As its name indicates, the term public utility implies
public use and service to the public. The principal determinative characteristic of a public utility is
that of service to, or readiness to serve, an indefinite public or portion of the public as such which has
a legal right to demand and receive its services or commodities. Stated otherwise, the owner or
person in control of a public utility must have devoted it to such use that the public generally or that
part of the public which has been served and has accepted the service, has the right to demand that
use or service so long as it is continued, with reasonable efficiency and under proper charges.[19]
Unlike a private enterprise which independently determines whom it will serve, a public utility holds out
generally and may not refuse legitimate demand for service.[20] Thus, in Iloilo Ice and Cold Storage
Co. vs. Public Utility Board,[21] this Court defined public use, viz:
Public use means the same as use by the public. The essential feature of the public use is that it is not confined to
privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it
its public character. In determining whether a use is public, we must look not only to the character of the
business to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or
the public benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the public
utility commission. There must be, in general, a right which the law compels the owner to give to the general
public. It is not enough that the general prosperity of the public is promoted. Public use is not synonymous with
public interest. The true criterion by which to judge the character of the use is whether the public may
enjoy it by right or only by permission.[22] (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard
cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired.[23] Its nature dictates that it
serves but a limited clientele whom it may choose to serve at its discretion. While it offers its facilities
to whoever may wish to avail of its services, a shipyard is not legally obliged to render its services
indiscriminately to the public. It has no legal obligation to render the services sought by each and
every client. The fact that it publicly offers its services does not give the public a legal right to demand
that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued with public
interest as it involves the maintenance of the seaworthiness of vessels dedicated to the transportation
of either persons or goods. Nevertheless, the fact that a business is affected with public interest does
not imply that it is under a duty to serve the public. While the business may be regulated for public
good, the regulation cannot justify the classification of a purely private enterprise as a public utility.
The legislature cannot, by its mere declaration, make something a public utility which is not in fact
such; and a private business operated under private contracts with selected customers and not
devoted to public use cannot, by legislative fiat or by order of a public service commission, be
declared a public utility, since that would be taking private property for public use without just
compensation, which cannot be done consistently with the due process clause.[24]
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to
shipyards, are not considered public utilities despite the fact that their operations greatly impact on
land and air transportation. The reason is simple. Unlike commodities or services traditionally
regarded as public utilities such as electricity, gas, water, transportation, telephone or telegraph
service, automobile and aircraft manufacturing---and for that matter ship building and ship repair---
serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent of any law.
The succession of laws affecting the status of shipyards ought not to obliterate, but rather, give us full
picture of the intent of the legislature. The totality of the circumstances, including the
contemporaneous interpretation accorded by the administrative bodies tasked with the enforcement of
the law all lead to a singular conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its
repeal by Commonwealth Act No. 146, establishing the Public Service Commission (PSC), a shipyard,
by legislative declaration, has been considered a public utility.[25] A Certificate of Public Convenience
(CPC) from the PSC to the effect that the operation of the said service and the authorization to do
business will promote the public interests in a proper and suitable manner is required before any
person or corporation may operate a shipyard.[26] In addition, such persons or corporations should
abide by the citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution,[27] viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the
Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such
franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm or corporation, except under the condition that it shall
be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires.
(emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former President
Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall be
entitled to the following incentive benefits:
(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials for
shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and spare parts for
the repair and overhaul of vessels such as steel plates, electrical machinery and electronic parts, shall be exempt
from the payment of customs duty and compensating tax: Provided, however, That the Maritime Industry
Authority certifies that the item or items imported are not produced locally in sufficient quantity and acceptable
quality at reasonable prices, and that the importation is directly and actually needed and will be used exclusively
for the construction, repair, alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further,
That if the above machinery, equipment, materials and spare parts are sold to non-tax exempt persons or entities,
the corresponding duties and taxes shall be paid by the original importer; Provided, finally, That local dealers
and/or agents who sell machinery, equipment, materials and accessories to shipyards for shipbuilding and ship
repair are entitled to tax credits, subject to approval by the total tariff duties and compensating tax paid for said
machinery, equipment, materials and accessories.
(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder and ship
repairer, be depreciated for any number of years between five years and expected economic life.
(c) Exemption from contractors percentage tax.- The gross receipts derived by shipbuilders and ship repairers
from shipbuilding and ship repairing activities shall be exempt from the Contractors Tax provided in Section 91
of the National Internal Revenue Code during the first ten years from registration with the Maritime Industry
Authority, provided that such registration is effected not later than the year 1990; Provided, That any and all
amounts which would otherwise have been paid as contractors tax shall be set aside as a separate fund, to be
known as Shipyard Development Fund, by the contractor for the purpose of expansion, modernization and/or
improvement of the contractors own shipbuilding or ship repairing facilities; Provided, That, for this purpose,
the contractor shall submit an annual statement of its receipts to the Maritime Industry Authority; and Provided,
further, That any disbursement from such fund for any of the purposes hereinabove stated shall be subject to
approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public
utilities, thereby freeing the industry from the 60% citizenship requirement under the Constitution and
from the need to obtain Certificate of Public Convenience pursuant to section 15 of C.A No. 146.
Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of constructing and repairing vessels or
parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be
required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or
enterprise shall engage in construction and/or repair of any vessel, or any phase or part thereof, without a valid
Certificate of Registration and license for this purpose from the Maritime Industry Authority, except those
owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or
agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were
repealed or modified accordingly.[28] Consequently, sections 13 (b) and 15 of C.A. No. 146 were
repealed in so far as the former law included shipyards in the list of public utilities and required the
certificate of public convenience for their operation. Simply stated, the repeal was due to irreconcilable
inconsistency, and by definition, this kind of repeal falls under the category of an implied repeal.[29]
On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive Policy Act
of 1983, was enacted. It laid down the general policy of the government to encourage private domestic
and foreign investments in the various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic and foreign
investments in industry, agriculture, mining and other sectors of the economy which shall: provide significant
employment opportunities relative to the amount of the capital being invested; increase productivity of the land,
minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof;
improve technical skills of the people employed in the enterprise; provide a foundation for the future
development of the economy; accelerate development of less developed regions of the country; and result in
increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly contribute to the attainment of these
objectives, fiscal incentives without which said projects may not be established in the locales, number and/or
pace required for optimum national economic development. Fiscal incentive systems shall be devised to
compensate for market imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the enterprise,
and shall terminate after a period of not more than 10 years from registration or start-up of operation unless a
special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede
article 2 of Presidential Decree No. 1789. (emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following laws,
viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77.
Articles 45, 46 and 48 are hereby amended only with respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which are
inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act may be restructured
by the President so as to render them cost-efficient and to make them conform with the other policy guidelines in
the declaration of policy provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was
expressly and categorically repealed. As a consequence, the provisions of C.A. No. 146, which were
impliedly repealed by P.D. No. 666, section 1 were revived.[30] In other words, with the enactment of
Batas Pambansa Blg. 391, a shipyard reverted back to its status as a public utility and as such,
requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg.
391 by Executive Order No. 226 issued by former President Corazon C. Aquino under her emergency
powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive
Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of sections 13 (b)
and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally
written, owed their continued existence to Batas Pambansa Blg. 391. Had the latter not repealed P.D.
No. 666, the former should have been modified accordingly and shipyards effectively removed from
the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226,
the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on. A law that has been
expressly repealed ceases to exist and becomes inoperative from the moment the repealing law
becomes effective.[31] Hence, there is simply no basis in the conclusion that shipyards remain to be a
public utility. A repealed statute cannot be the basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a
pubic utility. A shipyard has been considered a public utility merely by legislative declaration. Absent
this declaration, there is no more reason why it should continuously be regarded as such. The fact that
the legislature did not clearly and unambiguously express its intention to include shipyards in the list of
public utilities indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status
as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the legislature with the preparation of annual Investment
Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the manufacturing
sector and not of the public utilities sector. The enactment of Batas Pambansa Blg. 391 did not alter
the treatment of the BOI on shipyards. It has been, as at present, classified as part of the
manufacturing and not of the public utilities sector.[32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the
MARINA,[33] none appears to have an existing franchise. If we continue to hold that a shipyard is a
pubic utility, it is a necessary consequence that all these entities should have obtained a franchise as
was the rule prior to the enactment of P.D. No. 666. But MARINA remains without authority, pursuant
to P.D. No. 474[34] to issue franchises for the operation of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as a public
utility without giving MARINA the power to issue a Certificate of Public Convenience (CPC) or a
Certificate of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents
KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. Section 1 of the 1977
JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase their
subscription in Philseco as may be necessary and as called by the Board of Directors, maintaining a proportion
of 60%-40% for NIDC and KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312
million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed PHILSECO] to any
third party without giving the other under the same terms the right of first refusal. This provision shall not apply
if the transferee is a corporation owned and controlled by the GOVERMENT [of the Philippines] or by a
Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS
[PHILSECO].[35]
Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of
their joint venture. There was no mention of the amount of their initial subscription. What is clear is
that they are to infuse the needed capital from time to time until the total subscribed and paid-up
capital reaches P312 million. The phrase maintaining a proportion of 60%-40% refers to their
respective share of the burden each time the Board of Directors decides to increase the subscription
to reach the target paid-up capital of P312 million. It does not bind the parties to maintain the sharing
scheme all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to preserve their
respective interests in the partnership in the event that (a) one party decides to sell its shares to third
parties; and (b) new Philseco shares are issued. Anent the first situation, the non-selling party is given
the right of first refusal under section 1.4 to have a preferential right to buy or to refuse the selling
partys shares. The right of first refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-
shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature
of a partnership[36] which, unlike an ordinary corporation, is based on delectus personae.[37] No one
can become a member of the partnership association without the consent of all the other associates.
The right of first refusal thus ensures that the parties are given control over who may become a new
partner in substitution of or in addition to the original partners. Should the selling partner decide to
dispose all its shares, the non-selling partner may acquire all these shares and terminate the
partnership. No person or corporation can be compelled to remain or to continue the partnership. Of
course, this presupposes that there are no other restrictions in the maximum allowable share that the
non-selling partner may acquire such as the constitutional restriction on foreign ownership in public
utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares is
correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can
acquire only a maximum of 40% of the total capitalization of a public utility despite the grant of first
refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as afore-
discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right
of KAWASAKI to purchase the Governments share to 40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an interpretation
that would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original
proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the
whole of section 1.4, the phrase under the same terms means that a partner to the joint venture
that decides to sell its shares to a third party shall make a similar offer to the non-selling
partner. The selling partner cannot make a different or a more onerous offer to the non-selling
partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the
conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects
the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right
to sell its shares to third persons if, under the same offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in
the unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a
partners shares to third parties but the issuance of new Philseco shares. The grant of preemptive
rights preserves the proportionate shares of the original partners so as not to dilute their respective
interests with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives
a partner a preferential right over the newly issued shares only to the extent that it retains its original
proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a partners share
in the joint venture. Verily, the operative protective mechanism is the right of first refusal which does
not impose any limitation in the maximum shares that the non-selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates

the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private respondent did
not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation to
prospective contractors whereby the government manifests its intention to make proposals for the
purpose of supplies, materials and equipment for official business or public use, or for public works or
repair.[38] The three principles of public bidding are: (1) the offer to the public; (2) an opportunity for
competition; and (3) a basis for comparison of bids.[39] As long as these three principles are complied
with, the public bidding can be considered valid and legal. It is not necessary that the highest bid be
automatically accepted. The bidding rules may specify other conditions or the bidding process be
subjected to certain reservation or qualification such as when the owner reserves to himself openly at
the time of the sale the right to bid upon the property, or openly announces a price below which the
property will not be sold. Hence, where the seller reserves the right to refuse to accept any bid made,
a binding sale is not consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received, the owner may
exercise the right even after the auctioneer has accepted a bid, and this applies to the auction of
public as well as private property. [40] Thus:
It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or all
bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right for it
does not become a ministerial duty of the Government to make such an award. Thus, it has been held that where
the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality,
that all bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a
sound discretion, the award may be made to another than the lowest bidder. And so, where the Government as
advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause
to complain nor right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no
ground of action to compel the Government to award the contract in his favor, nor compel it to accept his bid.[41]
In the instant case, the sale of the Government shares in PHILSECO was publicly known. All
interested bidders were welcomed. The basis for comparing the bids were laid down. All bids were
accepted sealed and were opened and read in the presence of the COAs official representative and
before all interested bidders. The only question that remains is whether or not the existence of
KAWASAKIs right to top destroys the essence of competitive bidding so as to say that the bidders did
not have an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal footing. This
means that all qualified bidders have an equal chance of winning the auction through their bids. In the
case at bar, all of the bidders were exposed to the same risk and were subjected to the same
condition, i.e., the existence of KAWASAKIs right to top. Under the ASBR, the Government expressly
reserved the right to reject any or all bids, and manifested its intention not to accept the highest bid
should KAWASAKI decide to exercise its right to top under the ABSR. This reservation or qualification
was made known to the bidders in a pre-bidding conference held on September 28, 1993. They all
expressly accepted this condition in writing without any qualification. Furthermore, when the
Committee on Privatization notified petitioner of the approval of the sale of the National Government
shares of stock in PHILSECO, it specifically stated that such approval was subject to the right of
KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in
the bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards eventually
exercised its right to top petitioners bid by 5%, the sale was not consummated. Parenthetically, it
cannot be argued that the existence of the right to top set for naught the entire public bidding. Had
Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale between the petitioner
and the National Government would have been consummated. In like manner, the existence of the
right to top cannot be likened to a second bidding, which is countenanced, except when there is failure
to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes that
based on the terms and conditions of the sale, there is already a highest bidder with the right to
demand that the seller accept its bid. In the instant case, the highest bidder was well aware that the
acceptance of its bid was conditioned upon the non-exercise of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI,
a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs nominee to exercise the
right to top has among its stockholders some losing bidders cannot also be deemed unfair.
It must be emphasized that none of the parties questions the existence of KAWASAKIs right of
first refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKIs right of
first refusal, the National Government is under the obligation to give preferential right to KAWASAKI in
the event it decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it
the option to buy or refuse under the same terms for which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of which
are governed by the law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a public
bidding is held. Public bidding is the accepted method in arriving at a fair and reasonable price and
ensures that overpricing, favoritism and other anomalous practices are eliminated or minimized.[42] But
the requirement for public bidding does not negate the exercise of the right of first refusal. In fact,
public bidding is an essential first step in the exercise of the right of first refusal because it is only after
the public bidding that the terms upon which the Government may be said to be willing to sell its
shares to third parties may be known. It is only after the public bidding that the Government will have a
basis with which to offer KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top,
KAWASAKI would have been able to buy the National Governments shares in PHILSECO under the
same terms as offered by the highest bidder. Stated otherwise, by exercising its right of first refusal,
KAWASAKI could have bought the shares for only P2.03 billion and not the higher amount of P2.1315
billion. There is, thus, no basis in the submission that the right to top unfairly favored KAWASAKI. In
fact, with the right to top, KAWASAKI stands to pay higher than it should had it settled with its right of
first refusal. The obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right to top
is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to top. This is
a valid contractual stipulation; the right to top is an assignable right and both parties are aware of the
full legal consequences of its exercise. As aforesaid, all bidders were aware of the existence of the
right to top, and its possible effects on the result of the public bidding was fully disclosed to them. The
petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the
proceedings it had fully adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to raise P2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the
right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the
purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any
proof of fraud, the formation by Philyards of a consortium is legitimate in a free enterprise system. The
appellate court is thus correct in holding the petitioner estopped from questioning the validity of the
transfer of the National Governments shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal
because no prior approval was given by the COA for it, specifically the provision on the right to top the
highest bidder and that the public auction on December 2, 1993 was not witnessed by a COA
representative. No evidence was proffered to prove these allegations and the Court cannot make legal
conclusions out of mere allegations. Regularity in the performance of official duties is presumed[44] and
in the absence of competent evidence to rebut this presumption, this Court is duty bound to uphold
this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The
impugned Decision and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.
Tinga, J., please see separate opinion.
[1] JG Summit Holdings, Inc. v. Court of Appeals, et al., 345 SCRA 143, 145 (2000). The Decision was penned by
Associate Justice Consuelo Ynares-Santiago and concurred in by Chief Justice Hilario G. Davide, Jr. and
Associate Justices Reynato S. Puno, Santiago M. Kapunan and Bernardo P. Pardo.
[2] Ibid.
[3] Id. at 146.
[4] Ibid.
[5] The heading of the ASBR states that the rules were specifically set up for 97.4 equity of the national government in
Philippine Shipyard & Engineering Corporation (PHILSECO), Rollo, p. 1146. However, only 87.67% of the shares
were offered for sale since the remaining 9.73% of the National Governments equity in PHILSECO will be offered
separately to PHILSECOs employees and to local small investors, Id. at par. 1.1.
[6] Rollo, pp. 1146-1151.
[7] Id. at 1144-1145. The bid, as well as the acknowledgement of its conformity with the ASBR was signed by Johnson
Robert I. Go, Executive Vice President of J.G. Summit Holdings, Inc.
[8] Supra note 1 at 148.
[9] Id. at 147-148.
[10] Id. at 148.
[11] Id. at 148-149.
[12] Id. at 153.
[13] Id. at 156.
[14] Id. at 157-158.
[15] Id. at 166.
[16] Ibid.
[17] Private respondent Philyard Holdings, Inc., through counsel filed its Motion for Reconsideration on December 28, 2000,
Rollo, pp. 936-980. On the other hand, public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), represented by the Office of the Solicitor General, jointly filed their Motions for
Reconsideration on January 2, 2001, Rollo, pp. 1053-1068.
[18] Almario, Generoso O., Transportation and the Public Service Law, 3rd ed. (1977), p. 267 citing 73 CJS 990-991; Albano
v. Reyes, 175 SCRA 264 (1989) citing Am Jur. 2d v. 64, p. 549; NAPOCOR v. Court of Appeals, 279 SCRA 506
(1997).
[19] Ibid.
[20] Commonwealth v. Lafferty, 426 Pa 541, 233 A2d 256.
[21] Iloilo Ice and Cold Storage Co. vs. Public Utility Board, 44 Phil. 551, 557 (1923).
[22] Id. at 557-558.
[23] Websters Third New International Dictionary (1993), p. 2098.
[25] Act No. 2307 was amended by Act No. 2694. It was subsequently repealed by Act No. 3108. Later however, Act No.
3108 was also repealed by Commonwealth Act No. 146. The series of amendments and repeals did not alter the
character of shipyards as public utilities. Section 13 (b) of C.A. No. 146 provides that:
The term public service includes every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
railway, marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x x x (Underscoring supplied).
[26] See C. A. No. 146, section 15.
[27] This provision is substantially reproduced in Article XIV, section 5 of the 1973 Constitution and in Article XII, section 11
of the 1987 Constitution.
[28] See Section 4, P.D. No. 666.
[29] A declaration in the statute, usually in its repealing clause, that a particular and specific law, identified by its number of
title, is repealed is an express repeal; all other repeals are implied repeals. See Mecano v. Commission on Audit,
216 SCRA 500 (1992) citing Agpalo, Statutory Construction, 289 (1986).
[30] Book I, Chapter 5, section 22 provides: Revival of Law Impliedly Repealed. When a law which impliedly repeals a prior
law is itself repealed, the prior law shall thereby be revived, unless the repealing law provides otherwise.
[31] Agpalo, Statutory Construction (1995), p. 330.
[32] Annexes 1-5 of the Motion for Reconsideration, Rollo, pp. 982-1043.
[33] Industry Profile, Shipbuilding and Ship Repair Industry 2001, p. 3; Rollo, p. 1721.
[34] An Act for the Reorganization of Maritime functions in the Philippines, creating the Maritime Industry Authority, and for
other purposes, June 1, 1974.
[35] 1977 Joint Venture Agreement as amended by Addendum No. 2 dated December 8, 1983.
[36] Supra note 1 at 157-158. The assailed Decision reads: A joint venture is an association of persons or companies jointly
undertaking some commercial enterprise with all of them generally contributing assets and risks. It requires a
community of interest in the performance of the subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both in profit or losses. Persons and business
enterprises enter into a joint venture because it is exempt from corporate income tax. Considered more of a
partnership, a joint venture is governed by the laws on contracts and on partnership.
[37] Literally, choice of person(s).
[39] Ibid.
[40] 7 Am Jur 2d 21, p. 238.
[41] B. Fernandez, Treatise on Government Contracts Under Philippine Law (1991), p. 26, citing Gutierrez v. Ins. Life
Assurance Co., Ltd., 102 Phil. 524 (1957); C & C Commercial Corp. v. Menor, 120 SCRA 112 (1982); A.C.
Esguerra & Sons v. Aytona, 4 SCRA 1245 (1962).
[42] Fernandez, supra at 25.
[43] Medina v. Patcho, 132 SCRA 551 (1984).
[44] Rules of Court, Rule 131, section 3(m).

JG Summit Holdings Inc Vs CA

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2/9/2018 JG Summit Holdings Inc vs CA : 124293 : September 24, 2003 : J.

Puno : Special First Division

SPECIAL FIRST DIVISION

[G.R. No. 124293. September 24, 2003]

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE

(b) execute a Stock Purchase Agreement with petitioner;

(e) cause the cancellation of the stock certificates issued to PHI.

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

in exchange for its right of first refusal violates

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