Atty. Cesar P. Manalaysay

May 23, 2002 SEC OPINION Attys. Cesar P. Manalaysay and Edgardo G. Balois Siguion Reyna, Montecillo & Ongsiako 4th & 6th floors, Citibank Center 8741 Paseo de Roxas, Makati City Gentlemen : This refers to your letter dated 24 January 2002 inquiring whether the electronic or tape recording of the entire proceedings in a Board meeting is a requirement sine qua non for the validity of tele/video conferencing. It is your claim that electronic or tape recording of the proceeding should not be a mandatory requirement for reasons as follows: 1. Anti-wire Tapping Act can be invoked to prevent the full or partial recording of the tele/video conferencing; 2. The Corporation Code and the E-Commerce Act which are used as bases for the Circular do not require the electronic or tape recording of the proceedings in the meetings of the Board of Directors; Recording would render vulnerable to disclosure confidential and sensitive business affairs and information discussed in the said meeting. 3. In some instances, the Board of Directors may be hampered from freely discussing and/or deliberating on matters before them. As such they should be given the option to record or not to record the proceedings. 4. Since the Corporate Secretary is tasked to record the minutes of the meeting, an electronic or tape recording of the proceeding may be unnecessary. Relative to your first reason, please be informed that the Anti-wire Tapping Act (R.A. 4200) cannot be invoked to prevent the full or partial recording of the tele/video conferencing. Section 1 par. 1 of R.A. 4200 provides: "It shall be unlawful for any person, not being authorized by all parties to any private communication or spoken word, to tap any wire or cable, or by using any other devise or arrangement to secretly overhear, intercept, or record such communication or spoken word by using a devise commonly known as dictaphone or dictagraph or detectaphone or walkie-talkie, or tape recorder, or however otherwise described"( emphasis supplied) xxx xxx xxx Violation of the above-quoted provision presupposes that all the elements of the crime should concur. However, SEC Memorandum Circular No. 15 Series of 2001 provides that: xxx xxx xxx 2. The Secretary shall send out the notices of the meeting to all directors in accordance with the manner of giving notice as stated in the corporate by-laws. 3. The notice shall include the following: a. inquiry on whether the director will attend physically or through tele/video conferencing b. Contact number/s of the Secretary and office staff whom the director may call to notify and state whether he shall be physically present or attend through tele/video conferencing xxx xxx xxx 4. If the director chooses tele/conferencing, he shall give notice of at least five days prior to the scheduled meeting to the Secretary. .. In the above-cited Memorandum Circular No. 15, Series of 2001, all the parties to the board meeting are aware that all the communications are recorded since, aside from the above-mentioned guidelines, amendment of the corporate by-laws approved by the Commission is a necessary requisite for video/teleconferencing. As such, the prior approval of at least the majority of the Board and majority of the outstanding capital stock or members of the corporation is a requirement for the amendment of the corporate by-laws. Under Section 9 of the Implementing Rules and Regulations of R.A. 8792, quoted hereunder: Use not mandatory. Without prejudice to the application of Section 27 of the Act and Section 37 of these Rules, nothing in the Act or these rules requires a person to use or accept information contained in electronic data messages, electronic documents or electronic signatures, but a person's consent to do so may be inferred from the person's conduct. Should the corporation adopt tele/video conferencing in its by-laws, it impliedly gave its consent for the recording of the tele/video conference, having knowledge that the same constitutes the recording of the proceedings. In connection with your second argument, R.A. 8792, otherwise known as the "Electronic Commerce Act," provides: Section 2. Declaration of Policy . The State recognizes the vital role of information and communications technology (ICT) in nation-building; the need to create an information friendly environment which supports and ensures the availability, diversity and affordability of ICT products and services; the primary responsibility of the private sector in contributing investments and services in ICT; ... to ensure network security, connectivity and neutrality of technology for the national benefit; ...(emphasis supplied) In its Implementing Rules and Regulations, Chapter II Section 3a provides: Role of the Government. Government Intervention, when required, shall promote a stable legal environment, allow a fair allocation of scarce resources and protect public interest. Such intervention shall be no more than is essential and should be clear, transparent, objective, non-discriminatory, proportional, flexible and technologically neutral. Mechanisms for private sector input and involvement in policy making shall be promoted and widely used. (emphasis ours) Furthermore, Section 3, R.A. 8792 also provides: Objectives. This Act aims to facilitate domestic and International dealings, transactions, arrangements, agreements, contracts and exchanges and storage of information through the utilization of electronic, optical and similar medium, mode, instrumentality and technology to recognize the authenticity and reliability of electronic documents related to such activities and to promote the universal use of electronic transactions in the government and by the general public .(emphasis ours) In addition, please note that Section 5.1 of the Securities Regulation Code, provides: The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investments Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following power and functions: a. Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; xxx xxx xxx b. Regulate, investigate or supervise the activities of persons to ensure compliance xxx xxx xxx c. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; xxx xxx xxx Besides, the Commission En Banc ruled that the Commission must respond to the exigencies of the times and the technological developments of the 21st Century thereby modifying its previous ruling requiring "actual presence" of directors or trustees during the board meetings. Section 16 of the Electronic Commerce Act (R.A. 8792), provides in part that, "no contract shall be denied validity or enforceability on the sole ground that it is in the form of an electronic data message or electronic document or that any or all of the elements required under existing laws for the formation of contracts is expressed, demonstrated and proved by means of electronic documents." (SEC Opinion, Atty. Victor P. Lazatin, 09 August 2001) Further, it cannot be said that the recording of the tele/video conference proceedings will render the corporation vulnerable to disclosure confidential and sensitive business affairs and information discussed in the said meeting since the said records will not be taken out of the premises of the corporation, if not so authorized, but will be stored "for safekeeping" by the Corporate Secretary. As to the third and fourth, recording of the tele/video conference proceedings of the Board of Directors should be a condition sine qua non since there is no tangible proof that the Director/s electronically attended the Board meeting. Hence, if the recording is in existence, it can be produced and serve as a prima facie evidence of the events that transpired and matters recorded during the meeting. This procedure is in consonance with the hereunder quoted pertinent E-Commerce Act. Section 11, R.A. 8792 provides in part: Until the Supreme Court by appropriate rules shall have so provided, electronic documents, electronic data messages and electronic signature, shall be authenticated by demonstrating, substantiating and validating a claimed identity of a user, device, or another entity in an information or communication system among other ways, as follows: xxx xxx xxx b. The electronic data message and electronic document shall be authenticated by proof that an appropriate security procedure, when applicable was adopted and employed for the purpose of verifying the originator of an electronic data message and/or electronic document or detecting error or alteration in the communication, content or storage of an electronic document or electronic data message from a specific point, which using algorithm or codes, identifying words or numbers, encryptions, answers back or acknowledgments procedures, or similar security devices. xxx xxx xxx In the absence of evidence to the contrary, the integrity of the information and communication system in which an electronic data message or electronic document is recorded and stored may be established in any legal proceeding a. by evidence that all material times the information and communication system or other similar device was operating in a manner that did not affect the integrity of the electronic data message and/or electronic document, and there are no other reasonable grounds to doubt the integrity of the information and communication system; b. by showing that the electronic data message and/or electronic document was recorded by a party to the proceedings who is adverse in interest to the party using it; or c. by slowing that the electronic data message and/or electronic document was recorded or stored in the usual and ordinary course of business by a person who is not a party to the proceedings and who did not act under the control of the party using the record. Also, partly quoted hereunder is Section 12 of R.A. 8792: In assessing the evidential weight of an electronic data message or electronic document, the reliability of the manner in which it was generated, stored or communicated, the reliability of the manner in which its originator was identified and other relevant factors shall be given due regard (emphasis supplied) It is not to be questioned that, generally speaking, books and records kept by the corporation in the regular course of its business are admissible in evidence to the same extent and under the same conditions as other private books and records (5A Fletcher Cyc. Corp.,p. 263) .In addition, the original books and records of a private corporation, when properly authenticated, are the best evidence of its acts (5A Fletcher Cyc. Corp.,p. 264). Moreover, mere reliance on the minutes of the Corporate Secretary may give room to abuse, manipulation and/or alteration of the electronic data message a situation the Commission would like to prevent. With the advent of e-technology, changes in records keeping must be introduced to enable corporations to cope up with the inevitable modern technological developments in addition to the traditional mode of minute taking. Electronic or tape recording of the proceeding enhances the transparency, authenticity and reliability of the video-teleconferencing. We trust that we had fully addressed your query. Very truly yours, (SGD.) JESUS ENRIQUE G. MARTINEZ Commissioner