Title
JG Summit Holdings, Inc. vs. Court of Appeals
Case
G.R. No. 124293
Decision Date
Nov 20, 2000
A joint venture's right-to-top clause in PHILSECO's privatization violated constitutional foreign ownership limits and public bidding principles, favoring Kawasaki unfairly.
right of first refusal
right to top
unconstitutional

Case Summary (G.R. No. 124293)

Factual Background: The Joint Venture, the Right of First Refusal, and the Privatization Scheme

The JVA’s key clause on transfer restrictions stated that no party could sell or transfer its interest to a third party without giving the other a right of first refusal under the same terms, and that the clause would not apply if the transferee was a corporation owned or controlled by the government or by a Kawasaki affiliate. On November 25, 1986, NIDC transferred all its rights, title, and interest in PHILSECO to the Philippine National Bank (PNB). More than two months later, on February 3, 1987, by virtue of Administrative Order No. 14, PNB’s interest was transferred to the National Government.

On February 27, 1987, the National Government and APT entered into a trust agreement naming APT as trustee of the National Government’s share in PHILSECO. In 1990 and thereafter, COP and APT considered privatization beneficial for the national economy. After negotiations, APT and Kawasaki “exchanged” Kawasaki’s right of first refusal for the right to “top” by five percent (5%) the highest bid for the shares being offered for sale. It was also agreed that Kawasaki could designate a company in which it was a stockholder to exercise the right to top.

On September 7, 1990, Kawasaki informed APT that PHI would exercise the “right to top” by 5%. At the pre-bidding conference held on September 28, 1993, interested bidders were furnished copies of the JVA and APT’s Asset Specific Bidding Rules (ASBR) governing the sale of the National Government’s block of shares representing 87.67% of PHILSECO’s total outstanding capitalization. The ASBR provided that the bidding would be on an indicative price bidding basis, that bidders were to examine the rules and bid forms at their own risk, and that no relief for error or omission would be given by APT or COP.

At the public bidding on December 2, 1993, the consortium composed of petitioner JG Summit Holdings, Inc., Sembawang Shipyard Ltd. of Singapore, and Jurong Shipyard Limited of Malaysia, was declared the highest bidder at P2.03 billion. On December 3, 1993, COP approved the sale of the 87.67% National Government shares to that consortium, but it notified petitioner that the approval was “subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top [petitioner’s] bid by 5% as specified in the bidding rules.”

Petitioner later protested. On December 29, 1993, petitioner informed APT of its objections to the “right to top,” including allegations that the Kawasaki/PHI consortium violated the ASBR by benefiting from losing bidders, that only Kawasaki could exercise the right to top, and that the ASBR’s scheme was unconstitutional, contrary to law and public policy, and incompatible with competitive public bidding. Petitioner also argued that no right of first refusal could be exercised in a public auction.

Despite petitioner’s protest, PHI paid the remaining balance of the purchase price, and by February 7, 1994, APT notified petitioner that PHI had exercised its option to top and that COP had approved the same on January 6, 1994. On February 24, 1994, APT and PHI executed a Stock Purchase Agreement.

Mandamus in the Court of Appeals and the Denial for Lack of Merit

Because the sale had already been approved and the buyer had paid the balance, petitioner filed in the Supreme Court a petition for mandamus under G.R. No. 114057. By order, the petition was referred to the Court of Appeals for determination and disposition, recognizing the Court of Appeals’ original jurisdiction to issue writs of mandamus, with jurisdiction concurrent with the Supreme Court in the absence of a special and important reason to assume original jurisdiction.

On July 18, 1995, the Court of Appeals denied petitioner’s mandamus petition for lack of merit. It relied on Guanio v. Fernandez and held that mandamus was not a proper remedy to compel the undoing of an act already done or the correction of a wrong already perpetuated even if the action taken was clearly illegal. The Court of Appeals also found that the petition, in substance, sought to question the constitutionality or legality of the right to first refusal and the right to top, and it stated that such matters should be threshed out in a full-blown trial in the proper forum and time.

The Court of Appeals further ruled that the rights of first refusal and to top were “prima facie legal” and that petitioner was estopped based on its participation in the bidding despite the known right to top. It reasoned that if petitioner believed the right to top was illegal, it should not have joined the public bidding or should have attacked the legality of the rules earlier, such as by filing for declaratory relief prior to the bidding. It also observed that the participation of losing bidders in assisting PHI to raise the funds necessary to top was not contrary to law or public policy and was part of legitimate business competition.

Petitioner sought reconsideration, which the Court of Appeals denied on March 15, 1996. Petitioner then elevated the controversy to the Supreme Court via a petition for review on certiorari, contesting the Court of Appeals’ holdings, including estoppel and the alleged impropriety of mandamus.

The Issues Raised by Petitioner and the Challenge to Standing and Real-Party Requirements

Petitioner advanced several legal grounds, asserting that the rights in the ASBR—derived from the JVA’s right of first refusal—were constitutionally and legally infirm. It argued that the right of first refusal granted to Kawasaki when Kawasaki held 40% equity in a corporation engaged in landholding was void as contrary to the Constitution; that the right to top was granted when Kawasaki held only 2.6% equity; and that a right of first refusal over shares was contrary to corporate law. Petitioner also alleged that the right to top was contrary to public policy and due process because it was unduly restrictive of competitive public bidding, and that it constituted a violation of the anti-graft law for giving PHI clearly unwarranted benefits.

Petitioner also argued that mandamus was a proper remedy and that, consistent with the Court of Appeals’ prior findings, the case required a trial on alleged factual issues and the appointment of an amicus curiae from the Commission on Audit to determine applicability of COA requirements.

In response, PHI contended that the petition should have been filed by the entire JG Summit Consortium as real party in interest and that petitioner alone was insufficient because Sembawang and Jurong were indispensable parties. It also suggested that petitioner lacked standing to question the legality of a provision in the JVA to which it was not a party.

The Supreme Court’s Treatment of Real Party, Standing, and the Nature of the Remedy

The Court rejected the procedural objections. It recognized the Rule 3, Section 2 requirement that all persons with an interest in obtaining the relief must be joined as plaintiffs, but it held that the non-inclusion of Sembawang and Jurong did not warrant dismissal. The Court reasoned that they were not indispensable for the resolution of the dispute. It noted that foreign corporations’ amenability to the court’s jurisdiction over service of process and venue was doubtful. It also held that petitioner could be treated as representing the consortium based on counsel’s admission that the foreign corporations were underwriting legal fees, and that petitioner’s participation in the consortium created a nexus binding their corresponding responsibilities in the event petitioner prevailed.

On standing, the Court distinguished real-party-in-interest rules from constitutional locus standi requirements, citing Kilosbayan v. Morato. It held that petitioner sufficiently alleged constitutional ramifications in the public bidding that merited judicial attention. The Court also found that petitioner had a sufficient personal stake because the consortium was the highest bidder and would have obtained the sale absent Kawasaki/PHI’s top-right. It also invoked due process considerations, reasoning that a winning bidder has personality to challenge actions that would set at naught its right, otherwise its due process rights would be impaired.

The Court then addressed the remedy. It held that the Court of Appeals had been correct in stating that mandamus was not the proper remedy to question the legality of PHI’s exercise of the right to top. Mandamus issues only when the petitioner’s right is clearly established in law and the duty demanded is imperative. It cannot lie to compel the award of a contract subject of bidding to an unsuccessful bidder, and it cannot direct an agency to exercise discretion in a particular way or retract an action already taken in an exercise of discretion.

However, the Court of Appeals erred in dismissing on the sole ground of mandamus’s impropriety. The Court explained that petitioner’s pleading, though captioned as mandamus, alleged grave abuse of discretion tantamount to lack or excess of jurisdiction, effectively seeking certiorari relief. The Court reiterated that it was the allegations that determined the nature of the action, not the caption. Thus, the dismissal could not stand as a total bar to judicial review.

Central Substantive Determination: PHILSECO as a Public Utility and the Constitutional 60%-40% Requirement

Petitioner’s primary constitutional contention was that PHILSECO, as a shipyard, was a public utility, and therefore its operation required that at least 60% of capital be owned by Filipino citizens under Article XII, Section 10 (as reflected in the decision’s discussion of the constitutional capitalization rule). Petitioner relied on the definition of public services and argued that shipyards fell within the public service concept. Respondents countered that shipyards had been removed from the category of public utilities by Presidential Decree No. 666, wh

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