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.

RESOLUTION
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 industrys
demise or breathe new life to the struggling but potentially healthy partner
in the countrys 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 P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One of its salient
[1]

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
Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the
National Governments shareholdings in PHILSECO increased to 97.41%
thereby reducing KAWASAKIs 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 Governments share in
PHILSECO to private entities. After a series of negotiations between the
APT and KAWASAKI, they agreed that the latters 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
Governments 87.6% equity share in PHILSECO. The provisions of the
[5]

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 Governments equity in PHILSECO consisting of 896,869,942
shares of stock (representing 87.67% of PHILSECOs 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 Governments 87.67% equity in PHILSECO is
PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
...

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 APTs 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 bidders 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
(P2,030,000,000.00) 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 APTs 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 JGSMIs 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. Consequently, petitioner filed with this Court a Petition for
[10]

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. It [12]

further ruled that a shipyard like PHILSECO is a public utility whose

capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset
[13]

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. It also [14]

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. Thus, this
[15]

Court voided the transfer of the national governments 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 (P2,030,000,000.00 ), less its bid deposit plus interests upon the
finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 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 PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED. [16]

In separate Motions for Reconsideration, respondents submit three

[17]

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. To [18]

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 [19]

enterprise which independently determines whom it will serve, a public

utility holds out generally and may not refuse legitimate demand for service.
Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board, this
[20] [21]

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. (emphasis supplied)
[22]

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. Its[23]

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. A Certificate of
[25]

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. In addition, such persons
[26]

or corporations should abide by the citizenship requirement provided in

Article XIII, section 8 of the 1935 Constitution, viz:
[27]

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 contractors percentage tax.- The gross receipts derived by
shipbuilders and ship repairers from shipbuilding and ship repairing activities shall
be exempt from the Contractors 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 contractors 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 contractors 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. Consequently,
[28]

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. In other words, with the
[30]

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
[31]

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, none appears to have an existing franchise.
[33]

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. 474 to issue franchises for the
[34]

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 PHILSECOs 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
PHILSECOs total capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 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 P312 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 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.
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 partys 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
partnership which, unlike an ordinary corporation, is based on delectus
[36]

personae. No one can become a member of the partnership association

[37]

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
PHILSECOs 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 Governments share to 40% of Philsecos 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 partners 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 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.
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.
The three principles of public bidding are: (1) the offer to the public; (2) an
[38]

opportunity for competition; and (3) a basis for comparison of bids. As [39]

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. Thus: [40]

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 COAs official representative
and before all interested bidders. The only question that remains is whether
or not the existence of KAWASAKIs 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 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 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 JGSMIs 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 petitioners 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 KAWASAKIs 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 KAWASAKIs right of first refusal, which is concededly the basis for the
grant of the right to top. Under KAWASAKIs 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. But the requirement for public bidding does not negate the
[42]

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. 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 KAWASAKIs right of first refusal
with the right to top, KAWASAKI would have been able to buy the National
Governments shares in PHILSECOunder 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 P2.03 billion and not the
higher amount of P2.1315 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 latters effort to raise P2.131 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 Governments 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 presumed and in the
[44]

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.