SEC En Banc Case No. 09-10-214 In the matter of: York Fidelity Ltd., Gregory Kennedy and Christine Pamela Kennedy, Seawall Realty Services, Inc.(formerly Seawall Services, Inc.), Represented by its Authorized Representative, Mr. Robert Patrick Staradub, Complainant-Appelant, - versus - Atty. Hubert Dominic B Guevara, in his capacity as Director of the Enforcement and Investor Protection Department

SEC Building, EDSA, Greenhills, Mandaluyong City. Securities and Exchange Commission Republic of the Philippines Department of Finance

In the matter of: YORK FIDELITY LTD., CHRISTINE PAMELA KENNEDY GREGORY KENNEDY and

PATRICK STARADUB, INC.), Represented by its Authorized Representative, MR. ROBERT SEAWALL REALTY SERVICES, INC (formerly SEAWALL SERVICES Complainant-Appellant,

Versus - SEC En Banc Case No. 09-10-214 ATTY. HUBERT DOMINIC B. GUEVARA, In his capacity as Director of the DEPARTMENT, ENFORCEMENT AND PROSECUTION Public-Appellee.

DECISION

SEAWALL REALTY SERVICES, INC.. (Seawall) seeking to reverse and set aside the ENFORCEMENT AND PROSECUTION DEPARTMENT's, presently the complaint against YORK FIDELITY LTD. (York Fidelity). ENFORCEMENT AND INVESTOR PROTECTION: DEPARTMENT(EIPD), Letter-Decision dated 18 May 2010 (Assailed Order) which dismissed the former's Before the Commission En Banc is an Appeal' filed on 09 September 2010 by

February 2006 under SEC Registration No. CS2003038962. Its primary purpose is "to houses and buildings or any interest therein, and to construct on land owned by the improvements.3 buy, sell, deal in lease, hold, improve, subdivide, and otherwise dispose of lands. corporation, houses, buildings, roads,. bridges, alleys. and. all kinds of Seawall is a domestic corporation registered with the Commission on 24

laws of Bermuda with business address at 63 Market Street #20-04 Singapore 04 York Fidelity is a foreign corporation duly organized and existing under the

1 Dated 09 April 2010. 2 Annex "B" of the Memorandum of Appeal. 3 Paragraph 1.02 of the Memorandum of Appeal.

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York Fidelity (Philippines) Corporation (York Phil)5. 89424. York Fidelity owns 999,997 shares of 2,500,000 outstanding capital stock of

Facts of the Case

Purchase Agreement"' for the sale of Seawall's shares (115,830) shares; representing Lexus Inc. is the developer of "The Lexus Hotel" (Lexus Hotel) project located in Damages with application of a Writ of Preliminary Attachment against York Fidelity. Inc.), in the amount of Four Hundred Forty Five Thousand Dollars ($445,000.00). Angeles City, Pampanga. However, as claimed by Seawall, York Fidelity was not able to pay the remaining balance of One Hundred Forty Five Thousand Dollars approximately Fifty-Eight percent (58%) in Lexus Landholdings Group, Inc. (Lexus ($145,000.00). On 12 March 2009, Seawall filed a complaint for Sum of Money and On 30 January 2008, Seawall and York Fidelity entered into a "Share Sale and

Seawall claims that York Fidelity is the "seed capital investor" in Lexus Hotel. Seawall also alleges that York Fidelity has Forty percent (40%) shareholdings in York Phil and has two (2) nominee-directors to represent its interest in the said corporation. it should be investigated and penalized for violation of the Corporation Code, Foreign Investment Act and the Implementing Rules and Regulations issued by the National Economic Development Authority (NEDA) for "doing business" in the Philippines without a license from the Commission. Thus, Seawall claims that York Fidelity is "doing business" in the Philippines, hence, On 23 July 2009, Seawall8 filed a complaint with EIPD against York Fidelity

Seawall to submit additional evidence to support its complaint. Subsequently, EIPD in its Assailed Order ruled that: created an investigating team and conducted conferences with Seawall. It required Thereafter, EIPD conducted an investigation based on Seawall's complaint. It

summon and much less, penalize the same. consistently that it can only act on complaints against entities issued "The Commission, in deciding cases involving its jurisdiction, maintained registration, licenses or permits by the Commission. For this reason, the Commission is bereft of any authority over York Fidelity and hence, cannot

Lastly, the pendency of an action for Collection of Sum of Money, filed by Seawall against York Fidelity, is an indication that this administrative complaint was brought about by an intra-corporate dispute and that the resolution of such dispute lies with the regular courts.

b A domestic corporation with SEC Registration No. CS200616087; Lexus' primary purpose is "to buy, ell, deal in, lease 8 Represented by its President, Sarah Jane Natividad, Annex "D" of the Memorandum of Appeal. 9 Seawall's Complaint, Annex "D" of the Memorandum of Appeal. 5 Annex "E" and "E-1" of the Memorandum of Appeal. hold, improve, subdivide, and otherwise dispose of lands, houses and buildings or any interest therein, and to construct on land owned by the corporation, houses, buildings, roads, bridges, alleys and all kinds of improvements x x x" 7 Annex "K-1" and "K-2" of the Memorandum of Appeal. 4 Paragraph 3 of the Memorandum of Appeal.

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In view of the foregoing, we are constrained to dismiss the case for lack of business or on any corporate issue, the Office of the General Counsel of the SEC is tasked with the duty to render such opinion." jurisdiction. Should any of the parties require an opinion on the matter of doing

Hence, this Appeal.

errors: In Seawall's Appeal, it argued, among others, and assigned the following

1. That EIPD erred in holding that York Fidelity is not deemed doing 2 deliberate and conscious effort to engage in "commercial dealings business in the Philippines without the requisite license from the and arrangements" on a continuing or progressive basis, through its seed capital investment in Lexus Hotel located in Angeles City, That EIPD erred in claiming that the Angeles City Regional Trial Commission because the subject corporation embarked on a Pampangalo:

3 That EIPD erred in dismissing Seawall's complaint for lack of it is considered that the subject corporation is transacting business in Court, Branch 60 (Angeles RTC) in its Orders dated 27 October 2009 and 25 February 2009, merely resolved the procedural issue on the propriety of service of summons upon the Chair of the Commission, in the absence of a resident agent in the Philippines because the mere fact Angeles RTC caused the service of summons. jurisdiction when York Fidelity has been found by Angeles City RTC to be doing business in the Philippines without the requisite license because the Commission has implied or necessary or incidental powers to regulate, investigate or supervise the activities of persons to ensure compliance with the corporate laws of the Philippines12. the Philippines! :

the former's complaint in order to proceed with the investigation against York Fidelity. Seawall prays to reverse and set aside EIPD's Letter-Decision and to reinstate

others, the following: On 02 November 2010, EIPD filed its Reply Memorandum, arguing among

1 EIPD pointed out in its Assailed Order that the corporate acts of York Fidelity do not constitute "doing business" since its only nominee directors to represent its interest in the same corporation. recorded activities are investment in York Phil and having two (2)

12 Pages 12-16 of the Memorandum of Appeal. 10 Pages 9-11 of the Memorandum of Appeal. 11 Pages 11-12 of the Memorandum of Appeal

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2. 3 There is no provision of law or jurisprudence to show the difference There is no evidence that would support an investigation on the between a seed capital investment and a mere investment as provided under the Foreign Investment Act. Thus, the seed capital aspect was treated as any investment, which taken alone, would not constitute EIPD simply complied with its mandate as provided under Section 3- matter of doing business and acquisition of license to do business13: "doing business"14:

4. 5. 6 agent. It did not resolve if York Fidelity is doing business in the There is a pending case of Collection of Sum of Money filed by EIPD prays for the denial of the instant Appeal for lack of merit. 7 of the 2006 SEC Rules of Procedure (2006 Rules) which states that the Director of the Operating Department has the duty to dismiss the Also, the Angeles RTC issued Orders dated 27 October 2009 and 25 the service of summons to a foreign corporation who has no resident intra-corporate issue which the regular courts has jurisdiction16. complaint if he finds it to be insufficient in form and substance; February 2010 that merely resolved the procedural aspect concerning Philippines'5. Seawall against York Fidelity. Hence, EIPD could not take cognizance of the instant case because the controversy involved is an

Issuels

has jurisdiction over foreign corporations doing business in the Philippines, though Fidelity in subscribing to Fifty Eight percent (58%) of Lexus Landholding, Inc.; and owning Forty percent (40%) of York Phil and having two (2) nominal directors to represent its interest constitute "doing business"; 2.) Whether or not the Commission not registered. The issues raised are the following: 1.) Whether or not the acts of York

Ruling The instant Appeal is bereft of merit.

CONSIDERED "DOING BUSINESS" FOREIGN CORPORATION

1991 (FIA)" provides the definition of what constitutes "doing business" in the Philippines, to wit: Section 3(d) of Republic Act No. 7042 or the "Foreign Investments Act of

14 Paragraph 11-12 of the Reply Memorandum. 16 Paragraph 26 of the Reply Memorandum. 13 Paragraphs 7-10 of the Reply Memorandum. 15 Paragraphs 14-25 of the Reply Memorandum.

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such corporation; nor appointing a representative or distributor and for its own account; " contracts, opening offices, whether called "liaison" offices or branches; who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in domiciled in the Philippines which transacts business in its own name "d) The phrase "doing business" shall include soliciting orders, service appointing representatives or distributors domiciled in the Philippines or shareholder by a foreign entity in domestic corporations duly

provides further that: Section 1 (f), Rule I of the Implementing Rules and Regulations (IRR) of FIA

SECTION 1. Definition of Terms. - For the purpose of these Rules and Regulations: x x x DEFINITIONS RULE I

The following acts shall NOT be deemed "doing business" in the 2. Having a nominee director or officer to represent its interest in such corporation; x x x f. "Doing Business"-- x 1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; Philippines:

"doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its own peculiar circumstances17. Not every activity or transaction undertaken in the Philippines by a foreign corporation amounts to doing or transacting business (i.e., presence) as to require the foreign corporation to obtain such licensel8 No general rule or governing principles can be laid down as to what constitute

be engaged in acts that imply continuity of commercial dealings or arrangements and Philippines without a license for two reasons: 1.) York Fidelity has shareholdings with York Phil and is a "seed investor? in Lexus Hotel. 2.) York Fidelity is considered tc Seawall argues that York Fidelity is deemed to be "doing business" in the

17 Top-Weld Manufacturing, Inc. vs. ECED, et. al., G.R. No. L-44944, 09 August 1985. 18 Philippine Corporate Law, Cesar Villanueva, 2013, page 954.

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and its two (2) officers are listed as subscriber-investor in York Phil. progressively prosecuting for commercial gain when it made the two (2) investments

exceptions, one of which is that a mere investment by a foreign entity/corporation in director or officer to represent York Fidelity in York Phil. a domestic corporation is NOT deemed to be "doing business", nor having a nominee We are not convinced. The definition of "doing business" is subject to several

present concrete evidence showing that York Fidelity is engaged in acts or acts that imply continuity of commercial dealings or arrangements and "in progressive prosecution of commercial gain". In LMR Holdings Ltd. vs. Bajar, the Supreme Court ruled that: Fidelity is merely a shareholder/investor in York Phil and in Lexus. Seawall did not Moreover, we agree with the EIPD that based on the evidence presented, York

be "doing business" in the Philippines is based mainly on conjectures and speculation. In concluding that the "unmistakable intention" of petitioner huge financial investments which it poured into Marcopper's rehabilitation without it (petitioner) continuing Marcopper's business in held that even if a foreign corporation purchased and took conveyances assignee of mining properties, facilities and equipment cannot be intention of engaging in mining business. Indeed, the Court of Appeals' holding that petitioner was determined to is to continue Marcopper's business, the Court of Appeals hangs on the wobbly premise that "there is no other way for petitioner to recover its the country." This is a mere presumption. Absent overt acts of petitioner from which we may directly infer its intention to continue Marcopper's business, we cannot give our concurrence. Significantly, a view subscribed upon by many authorities is that the mere ownership by business. In Chittim vs. Belle Fourche Bentonite Products Co., it was of a mining claim, did some assessment work thereon, and endeavored to sell it, its acts will not constitute the doing of business so as to subject the corporation to the statutory requirements for the transacting of business. On the same vein, petitioner, a foreign corporation, which becomes the automatically considered as doing business, nor presumed to have the state, unaccompanied by its active use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing foreign corporation of aproperty in a certain

to substantially prove the direct -involvement of York Fidelity in Lexus' affairs and management that would be considered as "doing business". Seawall failed to meet the requirement for substantial evidence to support its claim against York Fidelity. foreign corporation of shares in a domestic corporation constitutes "doing business" in that the said foreign corporation intends to engage or transact business in the unverified website print-out of York Fidelity. The said website print-out is inadequate the Philippines. There should be overt acts supported by concrete evidence showing Philippines. In the instant case, Seawall failed to do so and merely presented an As clearly explained, it is erroneous to presume that mere ownership of a

E

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summons over the said corporation. Fidelity is deemed "doing business". It simply ruled on the propriety of the service of Additionally, the Angeles RTC did not categorically conclude that York

EIPD to dismiss the complaint because it has no cause of action. Philippines and made liable for violations of the Corporation Code. It was proper for Hence, York Fidelity cannot be considered to be "doing business" in the

OVER BUSINESS IN THE PHILIPPINES COMMISSION'S CORPORATIONS UNLICENSED NOT JURISDICTION FOREIGN "DOING

(Code) provides that: However, as to the issue on jurisdiction, Section 133 of the Corporation Code

transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit action recognized under Philippine laws." or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of "Sec. 133. Doing business without a license. - No foreign corporation

Supreme Court interpreted the above-stated provision as: In B. Van Zuiden Bros., LTD. vs. GTVL Manufacturing Industries, Inc.19, the

Can sue before Philippine courts. The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines

not doing business in the Philippines can sue and perforce be sued before the corporations. As enunciated by the Supreme Court, an unlicensed foreign corporation Philippine courts or administrative agencies. ground that the Commission has no jurisdiction over unregistered foreign Thus, in the instant case, EIPD erred in dismissing the complaint on the

corporations considered not doing business in the Philippines as clearly provided under Section 133 of the Code, the present complaint should still be dismissed since there is no cause of action, in light of our ruling that mere investment of a foreign corporation in a domestic corporation shall not be deemed as "doing business" in the Philippines. However, though the Commission has jurisdiction over unlicensed foreign

19 G.R. No. 147905, May 28, 2007.

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for lack of merit. WHEREFORE, premises considered, the instant Appeal is hereby DENIED

SO ORDERED.

Mandaluyong City, Philippines; 24 September 2015.

TERESITA J. HERBOSA* Chairperson

ANTONIETA F. IBE Commissioner X MANUEL HUBERTO B. GAITE Commissioner

EPHYRO LUIS B. AMATONG Commissioner 1W JAMES G.VITERBO lamesG-Vrtebo Commissioner

* On Official Leave *on official business