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BAGUIO CITY, Philippines – The Supreme Court heard oral arguments on Tuesday in the petition for reconsideration of the Wilson Gamboa case questioning the foreign ownership ratio in PLDT, with the session turning into an extended discussion on the meaning of the word "capital."
Victor Lazatin, counsel for respondents, said the SC decision on Gamboa - adopting the meaning of capital as being limited to common shares and excluding the non-voting preferred shares - would, if not reconsidered, be tantamount to changing the rules of the game midstream, create serious disruptions not only in PLDT but many other corporations, drive away investors and hurt the overall economic climate.
The decision, he said, runs counter to substantive definitions of capital as in plain meaning, the constitutional framers’ intention, the consistent interpretation by executive and legislative officials and the re-enacted provision from the 1935 and 1975 Constitutions that are now found in the 1987 Charter.
Lazatin noted that in the 1935, 1973, 1987 Constitutions, consistent use of capital pertained to "corporations or other entities organized under the laws of the Philippines sixty percent of the capital of which is owned by citizens of the Philippines."
Oral arguments for the PLDT petition to reverse the Gamboa decision were heard in an en banc session of the Supreme Court, which is holding, following yearly tradition in summer, its sessions in Baguio City.
The parties were directed to limit their discussion to the following issues:
1. Whether the term "capital" in Section 11, Article X11 of the 1987 Constitution refers only to shares of stock, including those with right to vote in the election of directors (common shares) , or to all kinds of shares of stock, including those with no right in the election of directors.
2. Assuming the term ‘capital’ refers only to shares of stock with the right to vote in the election of directors, whether this ruling of the Court should have retroactive effect to affect such shares of stock owned by foreigners prior to this ruling.
3. Whether Philippine Long Distance Telephone Company (PLDT) and its foreign stockholders are indispensable parties in the resolution of the legal issue on the definition of the term ‘capital’ in Section 11, Article 12 of the 1987 Constitution.
(3.1) If so, whether the Court has acquired jurisdiction over the persons of PLDT and its foreign stockholders.
The SC had ruled earlier ruled in agreement with petitioners led by the late human-rights lawyer Wilson Gamboa---he died last year while the MR was pending--- that the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the PLDT case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
If such a narrow interpretation of capital were applied, PLDT would be in breach of the 1987 Constitution’s cap on foreign ownership in public utilities and vital industries.
The PLDT case was brought to the high court because its equity structure--being partly owned by Hong Kong's First Pacific Co. Ltd. and Japan's NTT Communications and NTT DoCoMo---is being examined in light of the 40-percent constitutional ceiling on such foreign ownership.
The Supreme Court earlier directed the Securities and Exchange Commission (SEC) to study if PLDT violated the 60:40 rule.
At the height of public debates on the issue last year, PLDT chairman Manuel V. Pangilinan said about 64 percent of PLDT's common shares are held by foreigners. But if preferred shares were included in determining PLDT's ownership structure, 87 percent of the company would end up being owned by Filipinos and 13 percent by foreigners. "This common and preferred share capital structure of PLDT is something that we inherited. It was there when we came in 1998, and that structure, from an ownership standpoint, is legal and valid," he explained.
Pangilinan is also chairman of TV5, for which InterAksyon.com is the online news portal.
'Untested data, erroneous conclusions'
In the Motion for Reconsideration seeking the reversal of the Gamboa decision, respondents’ lawyer Lazatin argued that the Gamboa decision relied on untested facts and data which led to erroneous and misleading findings and conclusions, such as holding a majority of the common shares equates to control and that therefore foreigners exercise control over PLDT. Also, that per share the PLDT preferred (SIP) shares earn a pittance in dividends compared to common shares.
Lazatin said petitioners have argued that 64 percent of the voting shares are owned by foreigners and that therefore foreigners or their dummies have 64- percent control over the public utility, allegedly in violation of Section 11, Article 12 of the Charter. This supposedly makes the management and control of PLDT in the hands of foreigners.
But Lazatin asserted that only two of the 13 members of the PLDT Board of Directors are foreigners; and that all the executives and managers of PLDT are Filipinos.
Lazatin asserted as well that the Gamboa decision will affect vested rights of PLDT and its foreign shareholders. "It changes the rules in the middle of the game," he said. The Gamboa decision, Lazatin said, will set back the country in its quest for economic development, as this will discourage foreign investments and expose the Philippine government to investors’ suits.
Lazatin also cited the La Bugal case in an effort to persuade the court to reverse the Gamboa decision. He cited the surge in economic activity that the mining industry enjoyed after the La Bugal decision was reconsidered.
When the La Bugal Tribal Group questioned the 1995 Philippine Mining Act before the Supreme Court in 1997, the number of pending and approved applications in mining activities slowed down to a handful for a period of seven years (1997-2004) while the case was pending. After the SC reconsidered its decision, there was a significant increase from 2005 to 2012, Lazatin said. Financial and Technical Agreements increased by 366 percent; and exploration permits by 843 percent. Lazatin noted that this pertains only to mining, so that the Gamboa case, reconsidered, will affect all public utilities, all natural resource corporations, and all corporations which own land.
Associate Justice Antonio Carpio said there has never been a question on PLDT ownership and control of 60 percent until First Pacific Company, a Hongkong-based investment company, acquired shares. Carpio added that all the Philippine Constitutions since 1935, the Foreign Investment Act of 1991, Investment Incentive act of 1967, Business Regulatory Act of 1968,the Omnibus Investment Code of 197 by Congress and RA 54 were all consistent in defining what “Philippine national” means and in asserting that a public utility must be owned by a Philippine national by 60 percent.
Still, Lazatin said, while foreigners owned 64 percent of common shares and Filipinos the 36 percent, the all- around capital however is 86.3-percent held by Filipinos and 13.47 percent by foreigners.
Though Tuesday’s session was long- drawn, only Lazatin was grilled in the long line of speakers. The next oral arguments were scheduled for June 26, with framers of the 1987 Constitution - Dr. Bernardo Villegas and Father Joaquin Bernas - invited to give light to the real intent and meaning of capital in Section 11, Article 12 of the Charter.
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