JG SUMMIT HOLDINGS INC. V. COURT OF APPEALS 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.
Doctrine: See Holding 1.a.

Facts:

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 Philippine Shipyard and Engineering Corporation (PHILSECO), previously the
Subic National Shipyard.
Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively.
o 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
Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling
87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis
right of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for said
shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its
stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent
the highest bid, it was able to top JG Summits 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 PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.
Petitioner filed a Petition for Mandamus with SC, and the petition was referred to the CA.
CA dismissed the petition because it 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.
Petitioner filed MR, which was denied.
Petitioner filed with SC petition for certiorari alleging GAOD on the part of CA.
SC ruled that (1) PHILSECO is a public utility and that (2) the right to top granted to Kawasaki was illegal, among
others.
This is an MR of that decision.

Issues:

1. W/N PHILSECO is a public utility? NO

2. W/N under the 1977 JVA, Kawasaki can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO? NO

3. W/N the right to top granted to Kawasaki in exchange for its right to first refusal violates the principles of competitive
bidding NO

Held:

1.

a. 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. 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. 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.

b. Iloilo Ice and Storage Co. vs. Public Utility Board: 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.

c. 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.

d. Secondly, there is NO LAW declaring a shipyard a public utility.

- 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.

- Later, Pres. Marcos issued PD 666 granting incentives to shipbuilding and shipyards to accelerate the
shipbuilding and ship repair industry, such as exemption from import duties and taxes, accelerated depreciation,
and exemption from contractors percentage tax.
- 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.
- Batas Pambansa Blg. 391, also known as the Investment Incentive Policy Act of 1983, was enacted. It repealed
P.D. No. 666.

- 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. 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. 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 public 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.
2. 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.

a. 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.
b. 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.

3. We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate
the rules of competitive bidding.
a. 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.
b. 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. As long as these three principles are complied with, the public bidding can be
considered valid and legal.
c. 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.
d. 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.
e. 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.

f. 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.
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.