MANILA, Philippines (3rd UPDATE) - The Supreme Court has ruled that the stake of businessman Eduardo "Danding" Cojuangco in diversifying conglomerate San Miguel Corp. was not acquired using coco levy funds.

In a 73-page decision penned by Associate Justice Lucas Bersamin, the Court en banc dismissed the petition filed by the Presidential Commission on Good Government (PCGG), seeking the reversal of the 2007 Sandiganbayan ruling, which declared that Cojuangco did not use coco levy funds to acquire 20% of San Miguel.

"The Court dismissed the petition for certiorari…and accordingly affirms the decision promulgated by the Sandiganbayan on November 28, 2007… The Court declares that the block of shares in San Miguel Corp. in the names of respondent Cojuangco et al... is the exclusive property of Cojuangco et al as registered owners," the high court ruled.

The Supreme Court said the government, through PCGG, failed to present evidence that would substantiate its allegation that Cojuangco’s shares in San Miguel are part of the ill-gotten wealth of late dictator Ferdinand Marcos and his family.

Lift sequestration

At the same time, it affirmed Sandiganbayan's order lifting the writ of sequestration over the said block of shares, saying this did not constitute grave abuse of discretion.

The decision comes weeks before the planned sale of shares of current owners. This is part of an $850-million fund raising through equity and bonds.

In May 2010, San Miguel announced that Cojuangco sold his stakes to Top Frontier, a San Miguel major shareholder controlled by former Marcos trade minister Robert Ongpin and by the conglomerate itself.

Cojuangco, the uncle of President Aquino, remains the chairman of the 120-year-old conglomerate.

The Court noted that Cojuangco bought his 20% stake in San Miguel in 1983 for a price of US $45-million. His shares in San Miguel were estimated to be worth more than P18.8 billion in 2007.

San Miguel has since issued additional shares, resulting in the dilution of Cojuangco's stake to 17%. 

Aside from Cojuangco's stake, the other bloc of sequestered shares in San Miguel is being contested by coconut farmers. As the ownership of the shares is still being questioned in court, PCGG has been granted the rights to vote and represent these shares, which account for 24% (diluted from 27%).

In February 2010, the Supreme Court allowed the conversion of these contested common shares, which have voting rights, into preferred shares, which don't have voting rights.  

Close ties with Marcos not proven

The PCGG -- a special body created by the late President Corazon Aquino to recover ill-gotten wealth accumulated during the 21-year regime of former President Ferdinand Marcos -- has asserted that Cojuangco and others funneled the levy (a kind of tax) paid by coconut farmers into various companies, including San Miguel.

The levy was collected whenever the farmers sold copra from August 1973 to August 1982.

"Republic’s burden to establish by preponderance of evidence that respondents’ SMC shares had been illegally acquired with coconut levy funds was not discharged," the Court declared.

In its decision, the Court stressed that, as far as ill-gotten wealth cases are concerned, it demands "two concurring elements to be present before assets of properties were considered as ill-gotten wealth, namely:

1. they must have 'originated from the government itself' 
2. they must have been taken by former President Marcos, his immediate family, relatives, and close associates by illegal means."

"In this regard, identifying former President Marcos, his immediate family, and relatives was not difficult, but identifying other persons who might be the close associates of former President Marcos presented an inherent difficulty, because it was not fair and just to include within the term close associates everyone who had any association with President Marcos, his immediate family and relatives," the decision read.

To establish who these so-called close associates of Marcos are who benefited from ill-gotten wealth, the Court said "the Republic should furnish to the Sandiganbayan in proper judicial proceedings the competent evidence proving who were the close associates of President Marcos who had amassed assets and properties that would be rightly considered as ill-gotten wealth."

In the civil action filed by PCGG before the Sandiganbayan, it claimed that Cojuangco "acquired assets, funds, and other property grossly and manifestly disproportionate to his salaries, lawful income and income from legitimately acquired property" which included the San Miguel shares.

On November 28, 2007, the Sandiganbayan ruled that Cojuangco was the rightful owner of the contested San Miguel shares and lifted sequestration orders over said shares.

Cojuangco's loan

The Court, in its ruling, affirmed the lifting of 9 Writs of Sequestration (WOS) issued over the SMC shares for violation of PCGG rules, and held that the lifting of the WOS did not constitute grave abuse of discretion.

Cojuangco was director of the biggest and the most integrated conglomerate in the Philippine coconut industry, the CIIF Oil Mills; director of the Philippine Coconut Authority (PCA); and chairman of the United Coconut Planters Bank (UCPB) - the bank of coconut farmers - at the time the SMC shares were acquired. Thus, the government claimed he took advantage of his positions in these entities and breached fidiciary duties or the trust and confidence of the CIIF, PCA and UCPB's share holders when he "took money from the bank...treating the funds of UCPB and the CIIF as his own personal capital to buy 'his' SMC shares."

Government insisted that the contested shares were acquired through borrowings or advances from UCPB and the CIIF Oil Mills. This was illegal, according to the government, since it violated rules restricting bank officials from taking advantage of their own deposits and assets. But the Court was not convinced.

"[C]oncluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable. Thus, the Sandiganbayan could not fairly find that Cojuangco had committed any breach of fiduciary duties..." the decision read.

"Although the trust relationship supposedly arose from Cojuangco's being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc..." the Court stressed.

The Court also ruled that Cojuangco did not violate the Single Borrower's Limit restrictions.

Immediate resolution

Cojuangco, chairman and chief executive officer of San Miguel, had pushed for the immediate resolution of the case saying that their rights as owners of the diversifying conglomerate have been “curtailed and limited” since their shares were sequestered by the PCGG in 1986.

In a ruling in 2007, Sandiganbayan dismissed the government’s complaint seeking to recover the 20% block of shares in San Miguel currently controlled by Cojuangco and his companies due to insufficiency of evidence.

The anti-graft court held that the government failed to substantiate its claim that the said shares were bought by Cojuangco’s group using coco levy funds.

Earlier, the Court granted the motion filed by Senators Jovito Salonga and Wigberto and Tañada and former Rep. Oscar Santos as well as coconut farmers belonging to Surigao del Sur Federation of Agricultural Cooperatives (SUFAC), Moro Farmers Association of Zamboanga del Sur (MOFAZS) and Pambansang Kilusan ng mga Samahan ng Magsasaka (Pakisama) to intervene in the case.

In their petition-in-intervention, Salonga’s group claimed that the Sandiganbayan gravely erred and decided the case in violation of law and contrary to the previous ruling of the SC that that subject San Miguel shares are not private property.

The intervenors insisted that that the subject SMC shares, having been purchased from funds sourced from the United Coconut Planters' Bank and the Coconut Industry Investment Fund's (CIIF) oil mills, are deemed to have been purchased using public funds.

The Court, likewise, denied the contentions of the intervenors.

How they voted

Those who voted to dismiss PCGG’s petition were:

• Chief Justice Renato Corona
• Associate Justice Lucas Bersamin (ponente)
• Associate Justice Presbitero Velasco Jr.
• Associate Justice Mariano del Castillo
• Associate Justice Roberto Abad
• Associate Justice Martin Villarama
• Associate JusticeJose Perez

Those who dissented were: 

• Associate Justice Conchita Carpio Morales
• Associate Justice Arturo Brion
• Associate Justice Jose Mendoza
• Associate Justice Ma. Lourdes Sereno

Meanwhile, those who abstained included:

• Associate Justice Antonio Carpio, being one of then petitioners to declare the coco levy fund public funds
• Associate Justice Antonio Eduardo Nachura who signed pleadings pertaining to the coco levy funds during his stint as solicitor general
• Associate Justice Teresita Leonardo de Castro, who was the Sandiganbayan presiding justice when the anti-graft court's 2007 ruling was handed down
• Associate Justice Diosdado Peralta

- with a report from Ina Reformina, ABS-CBN News