RP can be dragged into int’l court over inconsistent investment rules

A lawyer believes the government can be sued by foreign investors before an international tribunal for espousing inconsistent investment rules.

Addressing the Supreme Court on Tuesday, lawyer E.M. Lombos, a lawyer of Manuel V. Pangilinan, CEO and managing director of the First Pacific Group, said the constitutional provision capping at 40 percent the equity of foreign investors in public utilities was never violated in the case of PLDT.

Lombos made the statement during oral arguments on the foreign ownership of the publicly-listed telecom giant Philippine Long Distance Telephone Co. (PLDT) at the high tribunal.

One of the respondents in the petition filed by now deceased human rights lawyer Wilson Gamboa was Pangilinan who heads PLDT — a unit of Hong Kong-based First Pacific Co. Ltd. Gamboa sought for the Supreme Court to annul the sale of government-acquired 111,415 PLDT shares under the name of Philippine Telecommunications Investment Corp. (PTIC) to First Pacific for P25.2 billion. He said the sale violated Section 11, Article 12 of the Constitution which limits foreign ownership of domestic public utilities to 40 percent and accused the respondents of committing grave abuse of discretion by allowing the sale to push through. Pangilinan, in turn, asked the SC to reverse its June 28, 2011 decision which gave weight to Gamboa’s complaint by redefining the term “capital” under Section 11, Article 12 of the Constitution. Lombos told the court the move was inconsistent on the part of government, and a violation of the fair and equitable treatment of foreign investors who invested their money in a Philippine company in good faith.

According to him, this may have a bad impact on equity investments in the country by foreign businesses.

He said PLDT stands to lose its public utility franchise as the value of shares held by its Filipino and foreign investors are expected to hit bottom low if the court will maintain its ruling. “I have little or no doubt that the arbitral tribunal will not allow the Philippine government to go away with something by pointing fingers at each other and saying, ‘Well that’s what we said, but that is not what that guy in the other branch said,’” Lombos said in answering a query by Associate Justice Maria Lourdes Sereno.

Lombos said the international arbitrary tribunals look at a government as a single, unified entity despite the independence of the executive from the judicial and legislative branches. “Thus, in case two branches of the same government took different positions, as far as investors are concerned, the fact that there may be disagreements does not prevent a potential liability from arising when there is an effective position taken by the government insofar as its investment rules are concerned,” he said. Lombos explained that In the case of PLDT, the executive branch invited foreigners to join the bidding for the PLDT shares at a time when the foreign investors already owned more than 40 percent of the voting stocks in the company. He said Globe and other carries that depend on interconnection relationships will be affected if PLDT loses its franchise..

“If that public utility franchise is lost, the losers will be PLDT’s Filipino and foreign shareholders because of the hit on the value of their shares will sustain,” he said. Sereno told Lombos that the court was mandated to interpret the Constitution and the laws, regardless of the adverse consequences. “Assuming that there is inconsistency, are we going to diminish our review powers or the exercise of judicial review simply because there is this inconsistency? Or is it not in fact the rule to set to rest all questions even if in fact there will be adverse consequences because that is the primary role of the court, to settle all questions regarding interpretations of the Constitution or the law?” she said. But Lombos said the court has no jurisdiction to hear the matter and issue the ruling considering that not all the affected parties are impleaded.

Meanwhile, the issues in the case are not constitutional in nature but “statutory” because the definition of the term “capital” is not stated in the Constitution., according to constitutionalist Fr. Joaquin Bernas SJ, who attended the oral arguments as amicus curiae or “friend of the court.” Closing the oral arguments, Acting Chief Justice Antonio Carpio directed all parties to submit their respective memorandum within 30 days, after which the case is deemed submitted for resolution. In its decision last year, the Court held that the term “capital” in Section 11, Article XII of the 1987 Constitution refers only to common stocks or voting shares used in electing company directors and not the total outstanding, capital stock composed of common and preferred or non-voting shares. The SC ordered the Securities and Exchange Commission to look “only to common shares, and not to the total outstanding, capital stock” in the case of PLDT.