SEC vs INTERPORT

Facts:
The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda
Holdings Berhad). Under said memorandum of agreement, IRC acquired 100% of the entire capital stock
of GEHI (Ganda Energy Holdings Inc.) which would own and operate a 102 megawatt gas turbine power
generating barge. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC. On the
side, IRC would acquire 67% of the entire capital of PRCI (Philippine Racing Club).

It is alleged herein that a press release announcing the approval of the agreement was sent to the
Philippine Stock Exchange through facsimile and the SEC, but the facsimile machine of the SEC could not
receive it. However, the SEC received reports that the IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, heavily traded IRC shares utilizing this material
insider information. For this reason, the SEC required the directors to appear before the SEC to explain
the alleged failure to disclose material information as required by the Rules on Disclosure of Material
Facts. Unsatisfied with the explanation, the SEC issued an order finding that the IRC violated the Rules in
connection with the then Old Securities Act when it failed to make timely disclosures of its negotiations
with GHB. In addition, the SEC found that the directors of IRC entered into transactions involving IRC
shares in violation of the Revised Securities Act.
Respondents, however, questioned the authority of the SEC to investigate on said matter since
according to PD 902-A, jurisdiction upon the matter was conferred upon the PED (Prosecution and
Enforcement Department) of the SEC however, this issue is already moot since pending the disposition
of the case, the Securities Regulation Code was passed thereby effectively repealing PD 902-A and
abolishing the PED. They also contended that their right to due process was violated when the SEC
required them to appear before the SEC to show cause why sanctions should not be imposed upon them
since such requirement shifted the burden of proof to respondents.

The case reached the CA and said court ruled in favor of the respondents and effectively enjoined the
SEC from filing any criminal, civil or administrative cases against respondents. In its resolution, the CA
stated that since there are no rules and regulations implementing the rules regarding DISCLOSURE,
INSIDER TRADING OR ANY OF THE PROVISIONS OF THE REVISED SECURITIES ACT, the SEC has no
statutory authority to file any suit against respondents. The CA, therefore, prohibited the SEC from
taking cognizance or initiating any action against the respondents for the alleged violations of the
Revised Securities Act.

Issue:
Whether or not the SEC has authority to file suit against respondents for violations of the RSA.
Whether or not their right to due process was violated when the SEC denied the parties of their
right to cross examination.

Ratio:
The Revised Securities Act does not require the enactment of implementing rules to make it
binding and effective. The provisions of the RSA are sufficiently clear and complete by themselves. The
requirements are specifically set out and the acts which are enjoined are determinable. To tule that
absence of implementing rules can render ineffective an act of Congress would empower administrative
bodies to defeat the legislative will by delaying the implementing rules. Where the statute contains
sufficient standards and an unmistakable intent (as in this case, the RSA) there should be no impediment
as to its implementation.

The court does not discern any vagueness or ambiguity in the RSA such that the acts proscribed and/or
required would not be understood by a person of ordinary intelligence. The provision explains in simple
terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal
conduct and that the intent of the law is the protection of investors against fraud committed when an
insider, using secret information, takes advantage of an uninformed investor. Insiders are obligatd to
disclose material information to the other party or abstain from trading the shares of his corporation.
This duty to disclose or abstain is based n 2 factors: 1) the existence of a relationship giving access,
directly or indirectly to information intended to be available only for a corporate purpose and not for
the personal benefit of anyone and 2) the inherent unfairness involved when a party takes advantage of
such information knowing it is unavailable to those with whom he is dealing.

This obligation to disclose is imposed upon "insiders" which are particularly officers, directors or
controlling stockholders but that definition has already been expanded and not includes those persons
whose relationship of former relationship to the issuer or the security that is not generally available and
the one who learns such a fact from an insider knowing that the person from whom he learns such fact
is an insider. In some case, however, there may be valid corporate reasons for the nondisclosure of
material information but it should not be used for non-corporate purposes.

Respondent contends that the terms "material fact", "reasonable person", "nature and
reliability" and "generally available" are vaguely used in the RSA because under the provision of the said
law what is required to be disclosed is a fact of special significance, meaning:

1. a material fact which would be likely to affect the market price of a security or;
2. one which a reasonable person would consider especially important in determining his course of
action with regard to the shares of stock.

But the court dismissed said contention and stated that material fact is already defined and explained as
one which induces or tends to induce or otherwise affect the sale or purchase of securities. On the other
hand, "reasonable person" has already been used many times in jurisprudence and in law since it is a
standard on which most of legal doctrines stand (even the doctrine on negligence uses such standard)
and it has been held to mean "a man who relies on the calculus of common sense of which all
reasonable men have in abundance"

As to "nature and reliability" the proper adjudicative body would be able to determine if facts of a
certain nature and reliability can influence a reasonable person's decision to retain, buy or sell securities
and thereafter explain and justify its factual findings in its decision since the same must be viewed in
connection with the particular circumstances of a case.

As to "generally available", the court held also that such is a matter which may be adjudged given the
particular circumstances of the case. The standards of which cannot remain at a standstill.

There is no violation of due process in this case since the proceedings before the PED are
summary in nature. The hearing officer may require the parties to submit their respective verified
position papers together will all supporting documents and affidavits of witnesses. A formal hearing is
not mandatory and it is within the discretion of the hearing officer to determine whether or not there is
a need for a formal hearing.

Moreover, the law creating the PED empowers it to investigate violations of the rules and regulations
and to file and prosecute such cases. It does not have an adjudicatory powers. Thus, the PED need not
comply with the provisions of the Administrative Code on adjudication.

The SEC retained jurisdiction to investigate violations of the RSA, reenacted in the Securities
Regulations Code despite the abolition of the PED. In this case, the SEC already commenced
investigating the respondents for violations of the RSA but during the pendency of the case the
Securities and Regulations Code was passed thereby repealing the RSA. However, the repeal cannot
deprive the SEC of its jurisdiction to continue investigating the case.

Investigations by the SEC is a requisite before a criminal case may be referred to the DOJ since the SEC is
an administrative agency with the special competence to do so. According to the doctrine of primary
jurisdiction, the courts will not determine a controversy involving a question within the jurisdiction of an
administrative tribunal where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical
and intricate matters of fact.

EASTERN SHIPPING LINES vs. POEA (Philippine Overseas Employment Administration)

Facts:
Saco, Chief Officer of a vessel owned by Eastern Shipping Lines (ESL), was killed in an accident in Japan.
His widow filed a complaint with the POEAD & sued for damages under EO No. 797 and Memorandum
Circular No. 2 of the POEA.

POEA was created under E.O. No. 797 to promote and monitor the overseas employment of Filipinos
and to protect their rights. It replaced the National Seamen Board created earlier. Under Section 4(a) of
the said EO, the POEA is vested with "original and exclusive jurisdiction over all cases, including money
claims, involving employee-employer relations arising out of or by virtue of any law or contract involving
Filipino contract workers, including seamen." These cases, according to the 1985 Rules and Regulations
on Overseas Employment issued by the POEA, include "claims for death, disability and other benefits"
arising out of such employment.

POEA ruled in favor of the widow and awarded death benefits and burial expenses. These awards were
made by the POEA pursuant to its MC No. 2. This circular prescribed a standard contract to be adopted
by both foreign and domestic shipping companies in the hiring of Filipino seamen for overseas
employment. A similar contract had earlier been required by the National Seamen Board and had been
sustained in a number of cases by this Court.

ESL assails the validity of MC No. 2 for being violative of the principle of non-delegation of legislative
power. It contends that no authority had been given the POEA to promulgate the said regulation; and
even with such authorization, the regulation represents an exercise of legislative discretion which, under
the principle, is not subject to delegation.

Issue/ Held:
W/N the MC No. 2 is valid - YES
W/N ESL entered into such standard contract prescribed by MC No. 2 and thus should be held liable
YES

Ratio:

The authority to issue the said regulation is clearly provided in EO No. 797: ... The governing Board of
the Administration (POEA), as hereunder provided shall promulgate the necessary rules and regulations
to govern the exercise of the adjudicatory functions of the Administration (POEA). Similar authorization
had been granted the National Seamen Board, which, as earlier observed, had itself prescribed a
standard shipping contract substantially the same as the format adopted by the POEA.

Legislative discretion as to the substantive contents of the law cannot be delegated. What can be
delegated is the discretion to determine how the law may be enforced, not what the law shall be. The
ascertainment of the latter subject is a prerogative of the legislature. This prerogative cannot be
abdicated or surrendered by the legislature to the delegate.

2 accepted tests to determine whether or not there is a valid delegation of legislative power:
o COMPLETENESS TEST: The law must be complete in all its terms and conditions when it leaves
the legislature such that when it reaches the delegate the only thing he will have to do is enforce it.
o SUFFICIENT STANDARD TEST: There must be adequate guidelines or stations in the law to map
out the boundaries of the delegate's authority and prevent the delegation from running riot.

Both tests are intended to prevent a total transference of legislative authority to the delegate, who is
not allowed to step into the shoes of the legislature and exercise a power essentially legislative. The
principle of non-delegation of powers is applicable to all the 3 major powers of the Government but is
especially important in the case of the legislative power because of the many instances when its
delegation is permitted. The occasions are rare when executive or judicial powers have to be delegated
by the authorities to which they legally certain. In the case of the legislative power, however, such
occasions have become more and more frequent, if not necessary. This had led to the observation that
the delegation of legislative power has become the rule and its non-delegation the exception.

The reason is the increasing complexity of the task of government and the growing inability of the
legislature to cope directly with the myriad problems demanding its attention. The growth of society has
ramified its activities and created peculiar and sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization even in legislation has become necessary. Too many
of the problems attendant upon present-day undertakings, the legislature may not have the
competence to provide the required direct and efficacious, not to say, specific solutions. These solutions
may, however, be expected from its delegates, who are supposed to be experts in the particular fields
assigned to them.

With the proliferation of specialized activities and their attendant peculiar problems, the national
legislature has found it more and more necessary to entrust to administrative agencies the authority to
issue rules to carry out the general provisions of the statute. This is called the "power of subordinate
legislation."

With this power, administrative bodies may implement the broad policies laid down in a statute by
"filling in' the details which the Congress may not have the opportunity or competence to provide. This
is effected by their promulgation of what are known as supplementary regulations (eg. implementing
rules issued by DOLE on Labor Code). These regulations have the force and effect of law.

Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed
thereby has been applied in a significant number of the cases without challenge by the employer. The
power of the POEA (and before it the National Seamen Board) in requiring the model contract is not
unlimited as there is a sufficient standard guiding the delegate in the exercise of the said authority. That
standard is discoverable in the executive order itself which, in creating the POEA, mandated it to protect
the rights of overseas Filipino workers to "fair and equitable employment practices."

This Court has accepted as sufficient standards "Public interest," "justice and equity," "public
convenience and welfare," and "simplicity, economy and efficiency." In US the "sense and experience of
men" was accepted and "national security."

It is not denied that the Sacos widow has been receiving a monthly death benefit pension and funeral
benefit by the SSS. She also received burial gratuity from the Welfare Fund for Overseas Workers. These
payments will not preclude allowance of the her claim against the ESL because it is specifically reserved
in the standard contract of employment for Filipino seamen under Memorandum Circular No. 2, Series
of 1984.
Section C. Compensation and Benefits.
1. In case of death of the seamen during the term of his Contract, the employer shall pay his
beneficiaries the amount of xxx
2. It is understood and agreed that the benefits mentioned above shall be separate and distinct from,
and will be in addition to whatever benefits which the seaman is entitled to under Philippine laws. ...
3 c. If the remains of the seaman is buried in the Philippines, the owners shall pay the beneficiaries of
the seaman burial expenses

The above provisions are manifestations of the concern of the State for the working class, consistently
with the social justice policy and the specific provisions in the Constitution for the protection of the
working class and the promotion of its interest.