CA affirms its decision on Rappler and its holding firm

Published March 11, 2019, 1:04 PM

by AJ Siytangco

By Rey Panaligan

The Court of Appeals (CA) has affirmed its decision that dismissed the petition against the ruling of the Securities and Exchange Commission (SEC) which cancelled the business registration of online news outfit Rappler and its holding company, Rappler Holdings Corporation (RHC), for violation of the foreign equity restrictions in mass media under the Constitution.

FILE PHOTO: Journalists work at the office of Rappler in Pasig, Metro Manila, Philippines January 15, 2018. REUTERS/Dondi Tawatao/File Photo
Journalists work at the office of Rappler in Pasig, Metro Manila, Philippines January 15, 2018. REUTERS/Dondi Tawatao/File Photo

In a 25-page resolution written by Associate Justice Rafael Antonio M. Santos, the CA ruled:

“In summary, a motion for reconsideration grounded on arguments already submitted to the court and found to be without merit may be denied summarily, as it would be a useless ritual for this Court to reiterate itself.

“Here, petitioners (Rappler and RHC) did not raise any new matter or issue in its Motion. Accordingly, this Court finds no cogent justification to reconsider its Decision dated 26 July 2018.”

The CA said that contrary to the claims of Rappler and RHC, the SEC did not violate the right to due process of RHC in revoking the firm’s business registration.

“While there is no denying that a full compliance with the procedure under the 2016 SEC Rules was not observed by the SEC, a substantial compliance with the requirements of procedural due process was clearly accorded to the petitioners. Therefore, the Court maintains that the assailed SEC en banc decision cannot be annulled on the ground that petitioners were denied due process,” it said.

At the same time, the CA maintained that Rappler is a mass media entity covered by the ban on foreign ownership under the Constitution as well as by the requirement of 100-percent Filipino ownership in terms of both right to receive dividends and right to vote under the full beneficial ownership test.

The CA said that “Rappler cannot credibly claim that it is not engaged in the business of mass media through its own actions and actuations.”

Among other things, the CA said:  “… it has been held that the best proof of the purpose of a corporation is its articles of incorporation and by-laws. The Articles of Incorporation dated 25 July 2011 and Amended Articles of Incorporation dated 16 April 2014 of Rappler states that its primary purpose is ‘to design, develop, establish, market, sell, maintain, support, distribute, customize, sell, resell and/ or operate news, information and social network services xxx via web, internet, mobile, and other delivery formats xxx.’”

“Therefore, applying the Full Beneficial Ownership Test, RHC cannot claim that it fully owns the Rappler shares since it does not exclusively exercise the right to vote on the Rappler shares. By virtue of clause 12.2.2, Omidyar Network is granted the power to direct the voting on the Rappler shared,” it explained.

The CA did not resolve the issue on whether or not the supervening donation made by Omidyar Network of all its Philippine Depository Receipts (PDR) to Rappler’s staff effectively cured the defect in RH’s registration.

The CA said:

“Finally, on the donation, petitioners, in their Motion, submitted a copy of the Deeds of Donation and contend that the SEC En Banc Decision dated 11 January 2018, ‘is now devoid of any legal basis whatsoever, in light of the curative effect of the donation by Omidyar Network of its PDRs to the staff of Rappler, all of whom are Filipinos.’

“It may be recalled that this Court, in its Decision, remanded the case to the SEC and directed the latter to conduct an evaluation of the legal effect of the alleged donation made by Omidyar Network of all its Philippine Depositary Receipts (PDRs) to the staff of Rappler.

“This Court notes that the terms and conditions of the donation made by Omidyar was not discussed by petitioners in their Reply. Also, petitioners did not attach a copy of the document containing the alleged donation in their Reply.

“Thus, it is incumbent upon the SEC to evaluate the terms and conditions of said alleged supervening donation and its legal effect, particularly, whether the same has the effect of mitigating, if not curing, the violation it found petitioners to have committed.

“If so, this may warrant a reexamination of the sanction of revocation of petitioners’ Certificates of Incorporation imposed by the SEC En Banc in the assailed Decision.”

On Jan. 11, 2018, the SEC cancelled the business registration of Rappler and RHC for “existing for no other purpose than to effect a deceptive scheme to circumvent the Constitution.”

Read more: SEC annuls Rappler’s registration

It cited the foreign equity restriction in the Constitution and other laws which provide 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.”

In the same ruling, the SEC declared Omidyar’s PDRs void for “being a fraudulent transaction within the ambit of Section 26.1 of the Securities Regulation Code.”

SEC conducted a probe on request of the Office of the Solicitor General (OSG), the government’s law firm.

Read more: Rappler appeals to reverse SEC ruling