The Court of Appeals has junked the petition by online news website Rappler seeking to restrain the Securities and Exchange Commission from implementing its decision revoking the certificate of incorporation of Rappler Inc. and Rappler Holdings Corp.for allegedly violating the constitution and foreign equity restrictions in mass media.
In its decision, the CA’s Twelfth Division, through Associate Justice Rafael Antonio Santos, denied the petition of Rappler and instead upheld the resolution of the SEC revoking its certificate of incorporation.
The appellate court said that it did not find any grave abuse of discretion on the part of the SEC when it canceled Rappler’s certificate of incorporation.
“The petition is hereby denied. However, the Securities and Exchange Commission is hereby directed to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depository Receipts to the staff of Rappler Inc. Accordingly, this case is hereby remanded to the SEC for this purpose,” the CA decision said.
Associate Justices Apolinario Bruselas and Germano Francisco Legaspi concurred with the ruling.
The SEC earlier canceled the registration of Rappler Inc., the mass media entity that “sold control” to foreigners, and Rappler Holdings Corp. being its alter ego, “existing for no other purpose than to effect a deceptive scheme to circumvent the Constitution.”
The commission cited foreign equity restriction in the Constitution, Presidential Decree and the Securities Regulation Code that states that “the ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations or associations wholly owned and managed by such citizens.”
The SEC en banc also declared Omidyar Philippine Depository Receipts void for “being a fraudulent transaction within the ambit of Section 26.1 of the Securities Regulation Code.”
In ruling against the petitioners, the appellate court ruled that there was no denial of administrative due process with the SEC since notice and hearing was afforded to Rappler.
“Accordingly, the Court rules that in the present case, a substantial compliance with the requirements of due process was observed by the SEC,” the CA said.
“It bears stressing that the foreign equity restriction on mass media implies “zero” foreign control. It thus includes any appearance of control that will influence the corporate actions and decisions of Rappler,” it added.
According to the appellate court, it does not matter whether the approval from Omidyar is required only when the actions taken by Rappler will prejudice the rights of Omidyar, because RHC, will still nonetheless be required to secure the approval of at least 2/3 of the PDR Holders before Rappler can carry out or implement any action which has the effect of altering, modifying or otherwise changing Rappler’s Articles of Incorporation or By Laws.With Nat Mariano
The CA junked Rappler’s argument that Clause 12.2.2 is merely a “negative covenant (requires a party to refrain from doing something)” to safeguard Omidyar’s interests, saying that it found that the said clause “is more than just a negative covenant.”
“In loan agreements, the usual consideration why negative covenants are put in place is to ensure that the creditors will be paid of the loan. Here, the consideration for the insertion of Clause 12.2.2 effectively allows Omidyar to participate in the corporate actions and decisions of Rappler,” the appellate court noted.
In a petition for review, through Angara Abello Concepcion Regala & Cruz (ACCRA), lawyer Francis Lim represented the company, asking the appellate court to set aside the SEC en banc decision dated Jan. 11, 2018, noting that it violated Rappler’s constitutional right to due process.
They argued that the SEC came up with the revocation order in the absence of formal charge, which was supposed to be required in the commission’s rules.
“There was also no formal administrative action filed against Rappler and RHC before the SEC. Without an administrative action, surely, no administrative action, including the suspension or revocation of the corporation’s franchise, could have been imposed by the SEC,” the petition stated.
“Since no administrative charge was instituted against Rappler and RHC, they were not provided with sufficient notice of the formal charge against them (because none was issued) and the opportunity to be heard,” it stressed.
Rappler also said that the SEC erred in canceling Rappler’s certificate of incorporation and voiding the Omidyar Philippine Depository Receipts (PDRs).
“The Omidyar PDR does not confer upon Omidyar control, much less ownership and management, over Rappler. As such, the SEC has no basis to declare void the Omidyar PDR,” petitioners said.
“At most, Clause 12.2.2 of the Omidyar PDR is in the nature of a negative covenant put into place to protect the interest of Omidyar, as investor. This is why Omidyar’s approval is confined only to acts that may prejudice its rights under the Omidyar PDR,” they added.
Petitioner pointed out that the SEC has no finding that Omidyar had actually exercised control of the media outfit.
Rappler added that the penalty imposed by SEC was too severe and grossly disproportionate to the alleged penalty.
In October 2015, Rappler Holdings Corp. issued 7,217,257 PDRs covering shares of Rappler Inc. designated as ON PDRs because they were sold to Omidyar Network Fund LLC, a foreign juridical entity.
Rappler Holdings publicly reported that it received an investment from Omidyar Network LLC.
It also issued PDRs covering shares of Rappler Inc. to NBM Rappler L.P., a foreign juridical entity. NBM Rappler L.P. was founded and co-owned by North Base Media Ltd., a foreign juridical entity.
The body conducted its investigation upon the request of the Office of the Solicitor General (OSG) wrote the agency in December 2016.
Solicitor General Jose Calida said he asked the SEC to probe Rappler after reading the newspaper articles of former ambassador to Cyprus and Greece Rigoberto Tiglao, who disclosed in October 2016 that two American companies, Omidyar Network, Inc. and North Base Media, in 2015 “made substantial investments” in Rappler.
Despite the adverse decision, Rappler chief executive officer and executive editor Maria Ressa on Friday lauded the decision of the CA ordering the SEC to take “a second look” at the revocation of the news website’s certificate of incorporation.
Ressa, who attended a hearing over a libel case against Rappler at the the Department of Justice, said that the CA ruling pointed out that “our articles of incorporation should never have been revoked in the first place and remanded the case back to the SEC.”
The Rappler executive is hoping that the SEC would rule in favor of Rappler considering that American investment firm Omidyar Network has donated its Philippine Depositary Receipts (PDR) to 14 Filipino managers of Rappler. American Pierre Omidyar is founder of online trading website ebay.
“I leave it to the SEC. I continue to hope for the best and at the same time we will hold the line,” Ressa said in an interview.
Rappler had asked the CA to reverse the January 11 decision of the SEC to revoke the certificate of incorporation due to allegations that Omidyar’s PDRs violated the constitutional restrictions against foreign ownership.
Ressa said the CA ruling agreed with Rappler over several points including that “the SEC’s revocation of our certificate of incorporation is wrong.”
She added that the CA indicated that “Omidyar never exercised its right to the allegedly questionable clause in its Philippine Depositary Receipt (PDR) and later even waived its right under that clause.”
Ressa added that the CA observed that “the SEC failed to apply its own rules and practices to Rappler.”
“Worse, the SEC went against the mandate of the law by not giving Rappler an opportunity to amend or correct any perceived error before revoking its certificate of incorporation,” she said.
Meanwhile, Malacanang has acknowledged the CA decision upholding the SEC’s ruling revoking the registration of online news site Rappler for violating foreign ownership rules.
“The decision of the Court of Appeals affirms that the SEC was correct to revoke Rappler’s registration based on its previous investigation,” presidential spokesman Harry Roque said in a statement.
Roque said the decision supports the Palace’s stance that the case against Rappler does not involve press freedom, but the regulatory powers of the SEC.
“We are confident that the SEC will be able to resolve the case with the same competence and objectivity as before,” he said.
President Duterte earlier criticized Rappler for being a purveyor of fake news operating using a foreign money. Duterte claimed that Rappler’s content, such as the article about his aide Christopher “Bong" Go’s alleged intervention in a Navy weapon supplier procurement, was filled “with innuendos and pregnant with falsity.”
Since the SEC decision in January, Rappler was banned from covering the President’s activities inside and outside the Palace. With Nat Mariano