Foreign Corporation: Isolated transaction

June 8, 2004 SEC OPINION NO. 34-04 Foreign Corporation: Isolated transaction Toyo-Obayashi-Ube-Joint Venture 4th Floor, Princess Building 104 Esteban St.,Legaspi Village, Makati City Attention: Mr. Tomayasu Manabe Project Manager Gentlemen : This is to acknowledge your letter dated 6 May 2004 requesting clearance from the Commission that UBE Industries, Ltd.,(UBE, for brevity) need not register with the Securities and Exchange Commission taking into consideration the scope of its participation in the Toyo-Obayashi-Ube Consortium (Consortium for brevity),one of the bidders for the Casecnan Multi-Purpose Irrigation and Power Project-Irrigation Component (CMIPP-IC) of the National Irrigation Administration (NIA). You further disclosed that UBE is a trading/manufacturing company in Japan and the scope of its involvement in the Consortium is to design manufacture, supply, test deliver, commissioning of gates or simply a supplier of gates from Japan, ready for installation. IDASHa The two other partners in the joint venture are Toyo Construction Co., Ltd., and Obayashi Corporation. The duration of the construction project shall be within NINE HUNDRED TEN (910) calendar days from receipt of the notice to proceed. 1 Section 3 (d) of RA 7042, otherwise known as the Foreign Investments Act, provides: "d) The phrase "doing business shall include soliciting orders, service contracts, opening offices, whether called liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar day stay in the country for a period or periods totaling 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 shareholder by foreign entity in domestic corporations duly registered to do business, and/or exercise of rights as such investor, nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;" "Doing business" implies "continuity of commercial dealings with performance of acts normally incident to a corporate purpose. Thus, SEC has consistently ruled that a foreign corporation is deemed not doing business and thus exempt from the requirement of license if its commercial dealing is limited to a single agreement or is isolated or an occasional transaction and indicates no element of continuity of conduct in that respect ." 2 It has been said "that where the corporation enters into a single agreement, or engaged in some other isolated or casual business act or transaction within a particular State, with no intention to repeat the same or make such State a basis for the conduct of any part of its corporate business, such corporation cannot be said to be doing business or transacting business within the State, within the meaning of the usual statutory provisions regulating the transaction of business by foreign corporations. 3 "Consonant with the general doctrine that the doing of business imports the engagement by a foreign corporation in some continuing activity in the state, or the transaction of some substantial part of its ordinary business there, it is a generally accepted rule that single or isolated acts, contracts or transactions of such corporation in the state will not ordinarily be regarded as a doing or carrying on of business therein, even though they may be said to fall within the usual or customary business of the corporation. Under this rule, many particular acts and transactions have been held not to amount to doing business in the state." 4 While it is true that the duration of contract under consideration is within 910 days from receipt of the notice to proceed by the Consortium, nonetheless UBE's act of supplying gates shall be done once 5 and not continually. Neither shall UBE be responsible for the installation of the supplied gates during the construction project. UBE's participation is limited to providing advice on the proper installation of gates which are fully manufactured in Japan, complete with all its electrical and mechanical components and ready for installation. The contractual obligation of UBE in the consortium is confined to the design, manufacture, supply, test, delivery, commissioning, and others in connection with gates operation. 6 "The accepted rule in this jurisdiction is that each case must be judged in the light of its own environmental circumstances". 7 Applying this pronounced yardstick and the earlier citations to the case of UBE, it may well be said that UBE's transaction is an isolated transaction for which a license to operate its business in the country need not be secured. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Contract For The Construction of PRIS New Intake, Super Diversion Canal, and Related Structures and Supply and Installation of Gates for Casecnan Multipurpose Irrigation and Power Project-Irrigation Component' (Contract No. CMIPPI-C-S1) p. 4. 2. SEC Opinion dated September 30, 1993 addressed to Mr. David Tan cited in SEC Opinion No. 04-2 dated January 15, 2004). 3. Pacific Micronesian Line, Inc. vs. N. Baens Del Rosario et al .(G.R. No. L-7154, October 23, 1954) citing Fletcher, Vol. 17. p. 478. 4. Ibid .citing 23 Am. Jur. 353. 5. Ltr. dated 2 June 2004 of Mr. Shinya Fujise stating that the manufactured gates shall be delivered to the Philippines in October 2004. 6. Amendment to Consortium Agreement dated March 5, 2002, Amending the Scope of Works of UBE Industries, Ltd. p. 2. 7. Eriks Pte. Ltd., vs. Court of Appeals ,G.R. No. 118843, February 6, 1997.