Supreme Court affirms Filipino control of utilities
The Supreme Court (SC) has ruled with finality that the 60-percent Filipino ownership over foreigners required by the Constitution to engage in certain economic activities, particularly public utilities, extended not only to the voting rights but also to the beneficial ownership of the corporation.
In its Oct. 9 ruling released Monday, the high court also reiterated its order for the Securities and Exchange Commission (SEC) to determine whether Philippine Long Distance Telephone Company (PLDT) was in violation of the 60-40 nationality requirement for companies running public utilities.
Voting 10-3-1, the high court last week denied with finality the petitions filed by businessman and PLDT chair Manuel Pangilinan against its June 28, 2011, ruling on the 60-40 nationality requirement in favor of Filipinos in the operation of public utilities.
The 51-page decision was penned by Associate Justice Antonio Carpio on Oct. 9 but was only released Monday.
Those who concurred were Carpio, Chief Justice Ma. Lourdes Sereno, Teresita de Castro, Arturo Brion, Diosdado Peralta, Lucas Bersamin, Mariano del Castillo, Martin Villarama Jr., Jose Perez and Jose Mendoza. The dissenters were Associate Justices Roberto Abad, Presbiterio Velasco and Bienvenido Reyes, while Associate Justice Estela Perlas-Bernabe abstained.
In its ruling, the high court said it did not touch on whether PLDT violated the 60-40 percent requirement, reiterating that the SEC was the “administrative body” tasked to enforce the 60-40 ownership requirement. The court, had “limited its decision on the purely legal and threshold issue on the definition of the term capital, in Section 11, Article XII, of the Constitution.”
During oral arguments of the case, the SEC deferred to the high court’s definition of capital and said that it would comply with its directive with regard to PLDT.
The high court said PLDT must be impleaded in order to fully resolve the issues on whether the sale of the 111,415 Philippine Telecommunications Investment Corp. (PITC) shares in PLDT to First Pacific Co. Ltd. of Hong Kong violated the constitutional limit on foreign ownership; whether the sale of common shares to foreigners exceeded the 40 percent limit on foreign equity and whether the total percentage of PLDT common shares with voting rights complied with the 60-40 ownership requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT.
Since the high court limited its resolution on the legal issue on the definition of the term “capital” and asked the SEC to investigate any violation by PLDT, it said it did not deprive PLDT of any property or deny its right to due process contrary to the “misimpression” of Pangilinan and PLDT president Napoleon Nazareno.
“Due process will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with Section 11, Article XII, of the Constitution,” it said.
The high court had earlier ruled that capital in Section 11 of Article XII of the Constitution referred “only to shares of stock entitled to vote in the election of directors, and thus only to common shares, and not to the total outstanding capital stock (common and nonvoting preferred shares.)
In its decision, the high court maintained that to have “effective control” of a corporation, there should be a right to elect officers as well as beneficial ownership of the firm.
It said this was consistent with Section 3 of the Foreign Investments Act which provides that “where 100 percent of the capital stock is held by “a trustee of funds for pension or other employee retirement or separation benefits,” the trustee is a Philippine national if at least 60 percent of the fund will accrue to the benefit of Philippine nationals.
The high court underscored the need for such requirement to be applied uniformly and across the board to all classes of shares.
“The 60-40 ownership requirement in favor of Filipinos must apply separately to each class of shares, whether common, preferred nonvoting, preferred voting or any other class of shares,” it said.
The court said the uniform application of the 60-40 ownership requirement in favor of Filipinos to each class of shares “guarantees effective Filipino control of public utilities,” in keeping with the Constitution.
