Tuesday, June 24, 2008 Gov't, Meralco lawyers face off over intra-corporate disputes
LAWYERS of the government and the Lopez-owned Manila Electric Company (Meralco) faced off before the Court of Appeals (CA) Monday amid the shifting focus of the suit from the validation of proxy votes to the process of securing these proxies.
Meralco earlier asked the CA to nullify the cease and desist order (CDO) issued by the Securities and Exchange Commission (SEC) stopping the counting of proxy votes in favor of the Lopezes.
The SEC issued the CDO after the state pension fund Government Service Insurance System (GSIS) through its president, Winston Garcia, questioned the validity of about 1.9 billion-proxy shares.
During the three-hour oral arguments before the CA Special Ninth Division, Meralco lawyer and former ombudsman Simeon Marcelo said the SEC gravely abused its discretion when it issued the CDO and show-cause order against the power distributor during its annual stockholders' meeting on May 27.
Marcelo insisted that the SEC has no jurisdiction over the conduct of Meralco's stockholders' meeting because the matter was an intra-corporate dispute, of which jurisdiction is lodged with the special commercial courts or designated regional trial courts under Republic Act (RA) 8799 or the Securities Regulation Code (SRC).
He further said that the GSIS' complaint on the validation of proxies took on the nature of an election contest, which is also an intra-corporate controversy. He said Meralco was denied due process when the SEC issued the CDO without hearing the parties involved and without the approval of the agency's three commissioners.
He said intra-corporate disputes pertain to disputes between the corporation and its stockholders, partners, members, or officers; between the corporation or association and the state as far as its franchise, permit or license to operate is concerned; and among the stockholders, partners or associates themselves.
"It's really on the validation but the Rubicon was crossed. When they file the case of May 23, the validation process already started on May 22. They should have filed the case prior to May 22, prior to the start of the validation process. The moment that it went to the validation process, that is already within the jurisdiction of a regular court," Marcelo said.
But GSIS chief legal counsel Estrella Elamparo argued that the Lopez bloc violated SEC rules on proxy solicitations, thus it is the SEC and not the regular courts which has jurisdiction over any violations of the SRC.
Elamparo said the Garcia bloc was just constrained to file the complaint before the SEC because the Meralco management had refused to furnish it copies of the proxy validation reports until the afternoon of May 26, or a day before the election of new members of the board.
This, she said, was against SEC rules on the process of securing proxy votes, an issue deemed separate from the validation of proxies.
"Meralco did not follow the SEC rules and regulation regarding proxy solicitations. They did not submit proxy statement or proxy forms. The law states that these should be submitted to the SEC. So it's only logical that it will be the SEC that will determine if these proxies are valid or not, and not the regular courts," Elamparo said.
That was why, she said, when they sought a CDO before the SEC, it was for the solicitation of proxies. In fact, the SEC order specifically stated that the questioned proxies should not be counted first since their validity is still being looked into.
Elamparo also denied the allegation of Meralco that GSIS' main cause of action in filing a complaint before the SEC was a mere protest on the election of the new board.
The Lopez bloc is composed of Anthony Rosete, acting corporate secretary; Manuel Lopez, chairman of the board and chief executive officer; Felipe Alfonso, vice chairman; Jesus Francisco, president and chief operating officer; Christian Monsod, board member; Elpidio Ibañez, president and chief operating officer of First Philippine Holdings Corp. (FPHC); and Francis Giles Puno, chief officer, treasurer and executive vice president of FPHC.
CA Division chairman Jose Sabio Jr. questioned SEC's authority to prevent the election of Meralco's board of officers considering that the SRC only empowers it to supervise election process.
"The way the CDO was worded, it had gone beyond to what it ordinarily should exercise because it prevented the election. Does it have an authority to prevent elections?" Sabio asked Assistant Solicitor General Amparo Tang, who is representing the SEC.
At the end of the hearing, Sabio directed the parties to submit their respective memoranda within 15 days, after which the case will be deemed submitted for resolution.
The court told the parties to focus on three issues: whether or not the proxy forms that was used by Meralco did not comply with the SEC rules and regulations; whether the issue is an intra-corporate one, therefore, should be lodged before the lower court; and whether the SEC committed grave abuse of discretion in issuing the CDO, granting that it had authority to issue such. (ECV/Sunnex)
