Case Digest: JG Summit Holdings. Inc. vs CA, G.R. No. 124293

 

JG Summit Holdings, Inc. vs. CA, G.R. No. 124293, September 24, 2003

Subject: Transportation Law

FACTS

A joint venture (JVA) was entered by a government corporation, National Investment and Development Corporation (NIDC) with a Japanese corporation, Kawasaki Heavy Industries, Ltd. for a shipyard business, Philippine Shipyard and Engineering Corporation (PHILSECO), with an agreement of a shareholding proportion of 60%-40 respectively and a right of first refusal to Kawasaki. Thereafter, NIDC transferred all its rights, title and interest to the Philippine National Bank (PNB).

After several months, by virtue of Administrative Order 14, PNB's interest in PHILSECO was transferred to the National Government. Then President Aquino’s Proclamation No. 50 was issued 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.

A trust agreement was entered into between the National Government and the APT by virtue of which the latter was named the trustee of the National Government's share in PHILSECO. As a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing Kawasaki's shareholdings to 2.59%.

After negotiations, it was agreed that Kawasaki’s right of first refusal under the JVA be “exchanged” for the right to top by 5% the highest bid for said shares. Kawasaki informed that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead. Petitioner JG Summit Holdings was declared highest bidder.

Even so, because of the right to top by 5% percent the highest bid, Kawasaki/PHI’s was able to top the winning bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock, thus violative of the laws.

ISSUE

Whether or not PHILSECO, a shipyard, is a public utility and hence Kawasaki, a foreign corporation, can acquire only a maximum of 40% of its capital.

RULING

No, a shipyard such as PHILSECO is not considered a public utility.

First, a shipyard which is a place or enclosure where ships are built or repaired is in its nature serves a limited clientele and not legally obliged to render its services indiscriminately to the public. While the business may be regulated for public good, it does not justify the qualifications for public utility which implies public use and service to the public hence it must be engaged in regularly supplying the public with some commodity or service of public consequence.

Second, it is not declared as public utility by law. Based on its legislative history, since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until repealed by Commonwealth Act No. 146 establishing Public Service Commission, a shipyard was a public utility and should abide by the Filipino citizenship requirement of 60-40 capital of a corporation. Thereafter, Pres. Marcos issued PD No. 666 which removed the shipbuilding and ship repair industry from the list of public utilities thereby freeing it from the 60-40 citizenship requirement. Batas Pambansa Blg. 391 repealed the PD No. 666 and reverted shipyards as public utilities. Then Pres. Aquino’s Executive Order No. 226 repealed the previous laws with no revival of the principle that shipyards are public utilities. Thus, absent of such legislation declaring the same, a shipyard reverts back to its status as a non-public utility.

With this, there was nothing preventing Kawasaki from acquiring more than 40% of PHILSECO’s total capitalization. The JVA should also be interpreted as 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.