1279. JG Summit Holdings Inc. vs. CA G.R. No.

124293, November 20, 2000

FACTS:
The National Investment and Development Corporation (NIDC), a government corporation, entered into a
Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and
management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion
of 60%-40% and that the parties have the right of first refusal in case of a sale.
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.
ISSUE:
* Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146.
On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a shipyard was not a
public utility. But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg.
391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of
PD No. 666. Therefore, the law that states that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply
with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki
manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should
the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first
refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock. The
NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government
corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of
stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40%
of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the
capitalization of the joint venture on account of both constitutional and contractual proscriptions.