Quo Warranto in a Nutshell: SolGen’s Petition on ABS-CBN Franchise Renewal

https://forlifeandlaw.org/2020/02/14/quo-warranto-in-a-nutshell-solgens-petition-on-abs-cbn-franchise-renewal/

What is Quo Warranto?

Quo Warranto is generally a prerogative writ issued to individuals who are wrongfully exercising powers or beyond, also called as “ultra vires”, those authorized by the statute or by the corporation’s charter.

In the Philippines, the Rules of Court provides the following:
RULE 66
Quo Warranto

Section 1. Action by Government against individuals. — An action for the usurpation of a public office, position or franchise may be commenced by a verified petition brought in the name of the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise;
(b) A public officer who does or suffers an act which, by the provision of law, constitutes a ground for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act.

The law provides that the Solicitor General must commence quo warranto action when:

A. Directed by the President of the Philippines, or
B. When upon complaint or otherwise he has good reason to believe that such action must be commenced against those individuals or corporation as mentioned in Section 1, Rule 66 of the Rules of Court.

SolGen Calida’s Quo Warranto Petition against ABS-CBN’s Franchise Renewal:

On February 10, 2020, the Solicitor General of the Philippines Jose Calida filed a quo warranto petition before the Supreme Court against ABS-CBN, a giant TV network in the Philippines.

The following are some of the major legal points of Calida’s 63-page petition, which aimed to revoke the network’s franchise for allegedly “abusing and misusing” their privileges.

FIRST: Calida alleged that ABS-CBN acted beyond (“ultra vires’’) what was authorized on the corporation’s charter.

This contention is in reference to Section 1, (C), Rules 66 of the Rules of Court which provides: Quo Warranto petition may be filed against: “An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act.”

  • Calida asked the Philippine’s highest court to nullify the franchises of ABS-CBN and ABS-CBN Convergence, Inc as they are “unlawfully exercising their legislative franchises.”
  • To support the above petition, he pointed out that that the network was “broadcasting for a fee, which is beyond the scope of its legislative franchise.
  • The said claim refers to new ABS-CBN’s products like ABS-CBN TV Plus and KBO Channel. He said that the “pay-per-view channel without prior approval or permit from the National Telecommunications Commission is a manifestation of unlawful actions of the network.”
  • The SolGen also added that the network allegedly engaged in highly abusive practices benefiting a greedy few at the expense of millions of its loyal subscribers.

SECOND: The SolGen accused ABS-CBN of allowing foreign investments to partake in the ownership of the media giant, which is a violation of the 1987 Philippine Constitution.

The Section 11(1), Article XVI of the Constitution provides that: “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

Calida cited that ABS-CBN issued Philippine Depositary Receipts (PDRs) to foreigners and this is a “gross violation of the foreign interest restriction of mass media” as provided under the Constitution.

What are Philippine Depositary Receipts (PDRs):

PDRs are financial instruments. Its primary purpose is to “give the holder the right to receive dividends from the issuer and the right to convert the PDRs to shares of stock, but only if he or she is qualified,” according to former PSE president and ACCRA Law senior partner Francis Lim.

To simplify it, Lim said that “It’s like buying a ticket in order to bet on a horse. You don’t own the horse, but if that horse wins, you have a share in the winnings.”

Lim also explained that what this instrument gives you is the right to own a share, but that right is subject to the law.

Like in the case of foreigners, these PRDs ideally cannot be converted into a share in ABS-CBN Group because foreigners are disqualified from owning a share of a Philippine media company. All it gives you is the “right to receive dividends from the issuer,” said Lim.

ABS-CBN’s Answer to SolGen Calida’s Petition:

photo from Business World

Meanwhile, ABS-CBN is firm on their stand that the network has not violated the law and all their activities as a corporation is within the powers vested upon them by their corporate charter.

“We reiterate that everything we do is in accordance with the law. We did not violate the law. This case appears to be an attempt to deprive Filipinos of the services of ABS-CBN,” said the Lopez-led network to on the quo warranto petition.

FIRST: As to the issue of “Ultra Vires”:

The giant network also denied Calida’s allegations about the pay-per-view violation. ABS-CBN said that its broadcast offerings such as KBO and ABS-CBN TV Plus “received necessary government and regulatory approvals. Moreover, these are “not prohibited by the franchise,” as contended by ABS.

As to its ownership of ABS-CBN Convergence, they said that the said ownership was undertaken in accordance with the law. The same was undertaken under the same law and structures that have been utilized by other telecommunications companies.

SECOND: As to the issue of “Foreign Ownership”

ABS-CBN said that the PRDs they issued were “evaluated and approved” by the Securities and Exchange Commission and the Philippine Stock Exchange.

“The capital we have raised from the PDRs has enabled us to provide services to nearly 90% of the Philippines and to our OFW’s all over the world,” ABS-CBN said.

Latest Update:

As of this writing, the quo warranto petition is still pending on the highest court of the Philippines. The parties themselves, the legislators and the public still await SC’s decision with high hopes for an impartial and objective judgment.

Let us know your thoughts about this quo warranto petition and franchise renewal of the ABS-CBN issue. Your opinion matters!

For more updates follow For Life and Law.

Sources: The 63-page Calida Petition; Rappler ; PDI; ABS-CBN News



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