G.R. No. 124293 - JG Summit Holdings, Inc. vs. Court of Appeals

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, for the construction, operation, and management of the Subic National Shipyard, Inc. (SNS), later known as Philippine Shipyard and Engineering Corporation (PHILSECO).
The JVA provided for a shareholding ratio of 60% for NIDC and 40% for Kawasaki, and it included a provision (paragraph 1.4) granting both parties a right of first refusal in the event that one party decided to transfer, sell, or assign its interest, with an exception if the transferee was a government-controlled corporation or a Kawasaki affiliate.

On November 25, 1986, NIDC transferred all its rights, title, and interest in PHILSECO to the Philippine National Bank (PNB).
On February 3, 1987, PNB’s interest in PHILSECO was subsequently transferred to the National Government by virtue of Administrative Order No. 14.
President Corazon C. Aquino, on December 8, 1986, issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) with the mandate to manage and dispose of non-performing government assets.
A trust agreement was entered into on February 27, 1987 between the National Government and the APT, making the latter the trustee for the government's share in PHILSECO.

In 1989, due to a quasi-reorganization aimed at settling PHILSECO’s obligations to PNB, the National Government’s share increased to 97.41% while Kawasaki’s share was reduced to 2.59%.
The COP and APT, exercising their discretion, decided that privatizing PHILSECO by selling 87.67% of its outstanding capital stock was in the best interest of the national economy.
In negotiations between the APT and Kawasaki, an arrangement was reached to “exchange” Kawasaki’s original right of first refusal for the right to top the highest bid by 5%. Kawasaki was further allowed to designate a stockholder company (PHI) to exercise this top-option.

At the pre-bidding conference on September 28, 1993, interested bidders received copies of both the JVA and the Asset Specific Bidding Rules (ASBR) drafted for the sale of 87.67% of PHILSECO’s equity.
The ASBR included crucial provisions such as:

The sale was to be conducted on an Indicative Price Bidding basis, with an indicative price set at ₱1.3 billion.
The bidder’s responsibility to fully examine the rules and bid forms, with no relief for errors or omissions.

On December 2, 1993, a public bidding was held where the consortium composed of JG Summit Holdings, Inc. (petitioner), Sembawang Shipyard Ltd. of Singapore, and Jurong Shipyard Limited of Malaysia emerged as the highest bidder with a bid of ₱2.03 billion.
The COP approved the sale the following day, December 3, 1993, subject to Kawasaki/PHI's right to top the bid by 5%.

On December 29, 1993, petitioner JG Summit protested the exercise of the topping right on several grounds, arguing that:

The participation of a consortium including companies that were losing bidders violated the ASBR and fostered an inequitable environment.
Only Kawasaki, as a contracting party, should have had the right to top.
The granting of the topping right to PHI constituted an unwarranted benefit to a third party and was contrary to competitive bidding principles.
A right of first refusal is not applicable in a public bidding context.

Despite the protest, by February 7, 1994, APT notified petitioner that PHI had exercised its topping option, and a Stock Purchase Agreement was executed on February 24, 1994.
Petitioner then filed a petition for mandamus challenging both the propriety of the exercise of the topping right and the underlying bidding process.

The petition for mandamus was initially referred to the Court of Appeals, which later “denied” it on July 18, 1995, holding that:

Mandamus was not the appropriate remedy to undo an act that had already been taken—even if that act was arguably illegal.
The petitioner was estopped from challenging the proceedings because it knowingly participated in the bidding process.

Petitioner then moved for reconsideration, which was denied on March 15, 1996, leading to the instant petition for review on certiorari before the Supreme Court.

Petitioner questioned the legality and constitutionality of the right of first refusal and the derived right to top, emphasizing that:

The original 40% right under the JVA was being exceeded in the public bidding process where Kawasaki/PHI could top the bid for 87.67% of the shares.
The provisions violated constitutional requirements regarding public utilities and foreign ownership (60%-40% Filipino-foreign capitalization).

Additional claims included improper venue and standing, as well as the assertion that mandamus should have been available to remedy the flawed sale process, despite previous rulings.

Whether the right of first refusal, as agreed upon in the JVA, and its “exchange” for the right to top the highest bid, complies with constitutional requirements on equity participation, particularly regarding the 60%-40% Filipino versus foreign ownership in public utilities.
If the ASBR provisions – especially the right to top – contravene constitutional and statutory limitations imposed on the operation of public utilities by foreign entities.

Whether mandamus, as a special civil action, is the proper remedy to challenge the legality and constitutionality of the public bidding process and the exercise of the topping right by PHI.
Whether the petitioner, being only part of a consortium, possesses the necessary standing and should have joined as a co-petitioner, or if its independent petition suffices.

Whether the inclusion of a right to top in the bidding process effectively undermined the competitive spirit and fairness inherent in public bidding.
Whether the absence of appropriate oversight—such as the failure to observe COA requirements—rendered the bidding procedures defective and legally flawed.