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.
R E S O L U T I O N
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 industry’s demise or breathe new life to the struggling but potentially healthy partner in the country’s 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 ₱330 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 Government’s share in PHILSECO. In 1989, 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%.3
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government’s share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latter’s 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 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 Government’s 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 Government’s equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO’s 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 Government’s 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (₱1,300,000,000.00).
. . .
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 APT’s 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 bidder’s 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 (₱2,030,000,000.00) 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 APT’s 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 JGSMI’s 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 government’s 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 (₱2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of ₱2,030,000,000.00 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 PHILSECO’s total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos (₱2,131,500,000.00); 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 contractor’s percentage tax.- The gross receipts derived by shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be exempt from the Contractor’s 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 contractor’s 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 contractor’s 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. 47434 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 PHILSECO’s 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 PHILSECO’s total capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be ₱330 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 ₱312 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 ₱330 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 ₱312 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 ₱312 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 party’s 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 partnership36 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 PHILSECO’s 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 Government’s share to 40% of Philseco’s 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 partner’s 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 partner’s 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 COA’s official representative and before all interested bidders. The only question that remains is whether or not the existence of KAWASAKI’s 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 KAWASAKI’s 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 JGSMI’s 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 petitioner’s 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 KAWASAKI’s 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 KAWASAKI’s right of first refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKI’s 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.1âwphi1 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 KAWASAKI’s right of first refusal with the right to top, KAWASAKI would have been able to buy the National Government’s 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 ₱2.03 billion and not the higher amount of ₱2.1315 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 latter’s effort to raise ₱2.131 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 Government’s 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 presumed44 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.
Footnotes
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 Government’s equity in PHILSECO will be offered separately to PHILSECO’s 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 Webster’s Third New International Dictionary (1993), p. 2098.
24 Supra note 20 at 560.
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).
38 Supra note 1 at 162.
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).
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