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ISSUES:
A. WON the resolution should be confined to the issues taken up during
the oral arguments? NO.
1. Petitioners argue that the issue of whether the Mining Act and the
WMCP FTAA are manifestly disadvantageous to the government could
not be passed upon because the same was supposedly not raised in
the original petition.
2. BUT, there is no rule of procedure, whether in Rule 52 or elsewhere,
which restricts the resolution of a case to the issues taken up
in the oral arguments.
3. Section 1 of Rule 49 provides:
Section 1. When allowed. At its own instance or upon motion
of a party, the court may hear the parties in oral argument on the
merits of a case, or on any material incident in connection
therewith.
The oral argument shall be limited to such matters as the
court may specify in its order or resolution (Emphasis supplied)
4. A narrow delimitation of matters to be taken up during oral argument
is a matter of practical necessity since often not all the relevant issues
can be thoroughly discussed without unduly imposing on the time of
the Court
5. Moreover, issue of whether the Mining Act and the WMCP FTAA
afford the State a just share in the proceeds of its natural resources
was in fact raised by the petitioners.
Construction
Constitution
of
paragraph
4,
Section
2,
Article
XII
of
the
D. WON the provisions of the Mining Act, insofar as they pertain to FTAA
contracts, must be declared unconstitutional and void? YES
16.
Foreign-owned corporations, however, are not precluded from a
limited participation in the management of the exploration,
development and utilization of natural resources, so long as it is
incidental to the financial or technical assistance being
rendered
the law grants the lion's share of the proceeds of the mining operation to the foreign
corporation.
the Government does not receive a share in the proceeds of the mining operation. All
that gov. receives are taxes and fees from the foreign corporation, just as in the old
concession and service contract regimes.
o
The collection of taxes and fees cannot be considered a return on the resources
mined corresponding to beneficial ownership of the Filipino people.
the Government's share (composed only of taxes and fees) shall not be collected
until after the foreign corporation has "fully recovered its pre-operating expenses,
exploration, and development expenditures, inclusive."
2. Main Argument: The majority opinion that theres 50-50 sharing between government and
foreign corp. is misleading and meaningless
The Mining Act gives the foreign-owned corporation virtually complete control, not mere
"incidental" participation in management, over the entire operations. grants beneficial
ownership of the natural resources to the foreign contractor and does little to affirm the
State's ownership over them
Majority opinion: Mining Act, as implemented by DENR Administrative Order 99-56 126 (DAO
99-56), is constitutional b/c it does not "convey beneficial ownership of any mineral resource
or product to any foreign FTAA contractor."
total government share, equal to the sum of the "basic government share" and the
"additional government share," will achieve "a fifty-fifty sharing between the government
and the contractor of net benefits from mining."
the taxes and fees which make up the government's "basic share" cannot be
considered a return on the resources mined corresponding to the beneficial
ownership of the Filipino people. Again, they do not correspond to a return on investment
or property.
the provisions of the Mining Act effectively allow the foreign contractor to circumvent
all the provisions of DAO 99-56, including its intended "50-50 sharing" of the net
benefits from mining, and reduce government's total share to as low as 2% of the
value of the minerals mined
o
Section 39 of the Mining Act allows it to convert its FTAA into a Mineral ProductionSharing Agreement (MPSA) by the simple expedient of reducing its equity in the
corporation undertaking the FTAA to 40%:
under Section 80 of the Mining Act, in connection with Section 151(a) of the National
Internal Revenue Code132 (Tax Code), the TOTAL GOVERNMENT SHARE in an
MPSA is ONLY TWO PERCENT (2%) of the value of the minerals.
Hence a foreign contractor can easily reduce the total government's share
(held in trust for the benefit of the Filipino People) in the minerals mined to a
paltry 2% while maintaining a 40% beneficial interest in the same.
Hence, these sections of Mining Act are virtually identical to that embodied in Section 7.9 of the
WMCP FTAA which the majority opinion itself found to be "without a doubt grossly
disadvantageous to the government, detrimental to the interests of the Filipino people, and violative
of public policy:"
o
Section 7.9 deprives the government of part or all of the said 60 percent. Under the
latter provision, should WMCP's foreign shareholders who originally owned 100 percent of
the equity sell 60 percent or more of its outstanding capital stock to a Filipino citizen or
corporation, the State loses its right to receive its 60 percent share in net mining revenues
under Section 7.7.
Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining
revenues of WMCP without any offset or compensation whatsoever
3. Main Argument: Section 39 that allows FTAA holder to covert its agreement to an MPSA
"at any time during the term of the agreement" is not advantageous.
As any reasonable person with a modicum of business experience can readily determine,
the optimal time for the foreign contractor to convert its FTAA into an MPSA is after the
completion of the exploration phase and just before undertaking the development,
construction and utilization phase.
This is because under Section 56 (a) of DAO 40-96, the requirement for a minimum
investment of Fifty Million U.S. Dollars (US$ 50,000,000.00) 135 is only applicable during the
development, construction and utilization phase and NOT during the exploration phase
where the foreign contractor need only comply with the stipulated minimum ground
expenditures
Clearly, under the terms and provisions of the Mining Act, even the promised influx of
tens of millions of dollars in direct foreign investments is merely hypothetical and
ultimately illusory.
Grant of Exploration Permits to Foreign
Corporations is Unconstitutional
1. Main Argument: Section 3 (aq), in so far as it allows the granting of exploration permits to
foreign corporations, is patently unconstitutional, hence, null and void.
Majority Opinion: Section 3(aq) of the Mining Act, defining foreign corporations as a qualified
entity for the purposes of granting exploration permits, is "not unconstitutional."
SECTION 3. Definition of Terms. As used in and for purposes of this Act, the
following terms, whether in singular or plural, shall mean:
xxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract,
or a corporation, partnership, association, or cooperative organized or authorized for
the purpose of engaging in mining, with technical and financial capability to
undertake mineral resources development and duly registered in accordance with
law at least sixty per centum (60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned corporation shall
be deemed a qualified person for purposes of granting an exploration
FIRST. the only constitutionally sanctioned method by which a foreign entity may participate
in the natural resources of the Philippines is (1) by virtue of paragraph 4 of Section 2, Article
XII of the Constitution;
o
Not falling within the exception embodied in paragraph 4 of Section 2, Article XII of
the Constitution, the grant of such a permit to a foreign corporation is prohibited and
the proviso providing for such grant in Section 3 (aq) of the Mining Act is void for
being unconstitutional.
SECOND. to allow the grant of exploration permits to foreign corporations is to allow the
whole-sale circumvention of the entire system of FTAAs mandated by the Constitution.
Together with grant of exploration permit are the ff:
(1) the right to enter, occupy and explore the permit area under Section 23,
(2) the exclusive right to an MPSA or other mineral agreements or FTAAs upon the
filing of a Declaration of Mining Project Feasibility under Sections 23 and 24; but
requires none of the obligations of an FTAA not even the obligation under Section
56 of DAO 40-96 to pay the minimum ground expenditures during the exploration
and feasibility period.139
Should it discover minerals in commercial quantities, it can circumvent the Fiscal Regime in
DAO 99-56 by divesting 60% of its equity in favor of a Philippine corporation and
opting to enter into an MPSA. By doing so it automatically reduces the Government's
TOTAL SHARE to merely 2% of value of the minerals mined by operation of Section 81.
And if the Philippine corporation to which it divested its 60% foreign equity is itself a 60-40
Philippine Corporation, then the beneficial interest of foreigners in the minerals mined would
be a minimum of 64%.
Invalidity of the WMCP FTAA Sale of foreign
interest in WMCP to a Filipino corporation
did not render the case moot and academic.
1. Main Argument: the transfer of the shares in WMCP from WMC Resources International Pty.
Ltd. (WMC), a foreign-owned corporation, to a Filipino-owned one, whether Sagittarius or
Lepanto, now presently engaged in a dispute over said shares, 154 did not "cure" the FTAA nor
moot the petition at bar.
On the contrary, it is the Decision in this case that rendered those pending cases moot for the
invalidation of the FTAA leaves Sagittarius and Lepanto with nothing to dispute.
Respondent WMCP's analogy is fallacious. Whether the legal title to the corporate vehicle
holding the FTAA has been transferred from a foreigner to a Filipino is irrelevant.
What is relevant is whether a foreigner has improperly and illegally obtained an FTAA
and has therefore benefited from the exploration, development or utilization of Philippine
natural resources in a manner contrary to the provisions of the Constitution.
Divestment by a foreigner of an illegally acquired right to mine Philippine resources does not
alter the illegal character of the right being divested or sold.
To rule otherwise would be to condone, even to invite, foreign entities to obtain Philippine
mining interests in violation of the Constitution with the assurance that they can escape
liability and at the same time make a tidy sum by later selling these interests to Filipinos.
To allow a foreigner to profit from illegally obtained mining rights or FTAAs subverts and
circumvents the letter and intent of Article XII of the Constitution. It facilitates rather than
prevents the rape and plunder of the nation's natural resources by unscrupulous neo-colonial
entities. It thwarts, rather than achieves, the purpose of the fundamental law.
If the FTAA is held to be valid under the Constitution, then the sale is valid and, more
importantly, WMC's US$10,000,000.00 interest in Philippine mineral deposit, arising as it did
from the sale and its prior 100% ownership of WMCP, is likewise valid.
However, if the FTAA is held to be invalid, then neither WMC's interest nor the sale which
gave rise to said interest is valid for no foreigner may profit from the natural resources of
the Republic of the Philippines in a manner contrary to the terms of the Philippine
Constitution. If held unconstitutional, the WMCP FTAA is void ab initio for being contrary to
the fundamental law and no rights may arise from it, either in favor of WMC or its Filipino
transferee.
Terms of the WMCP FTAA are
contrary to the Constitution and
render said FTAA null and void.
1. Main Argument: On the part of WMCP, a foreign-owned corporation, the cause was to
extend NOT ONLY technical or financial assistance but management assistance as well. The
MANAGEMENT PREROGATIVES contemplated by the FTAA are not merely incidental to the
two other forms of assistance, but VIRTUALLY grant WMCP FULL CONTROL over its mining
operations.
Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management and
personnel necessary for the Mining Operations." The mining company binds itself to "perform all
Mining Operations . . . providing all necessary services, technology and financing in connection
therewith," and to "furnish all materials, labour, equipment and other installations that may be
required for carrying on all Mining Operations." WMCP may make expansions, improvements
and replacements of the mining facilities and may add such new facilities as it considers
necessary for the mining operations.
Also, in Section 8.3 of the FTAA, in case of a dispute between the DENR and WMCP, it is
WMCP's decision which will prevail.
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens.
Contracts whose cause is contrary to law or public policy are inexistent and void from the
beginning. They produce no effect whatsoever.160 They cannot be ratified,161 and so cannot the
WMCP FTAA.
The terms of the WMCP FTAA effectively give away
the Beneficial Ownership of Philippine minerals
1. Main Argument: viewed in its entirety, the WMCP FTAA cannot withstand a rigid
constitutional scrutiny since, by its provisions, it conveys both the beneficial ownership of
Philippine minerals and control over their exploration, development and utilization to a
foreign corporation. Being contrary to both the letter and intent of Section 2, Article XII of the
Constitution, the WMCP FTAA must be declared void and of no effect whatsoever.
Majority opinion: Although Section 7.9 and 7.8 (e) of the WMCP FTAA are "grossly
disadvantageous to the government, detrimental to the interests of the Filipino people, and
violative of public policy" since it "effectively gives away the State's share of net mining
revenues (provided for in Section 7.7) without anything in exchange, WMCP FTAA doesnt
have to be invalidated because they are separable from the rest of the agreement, which
may supposedly be given effect without the offending provisions.
However, As previously discussed, the SAME deleterious results are easily achieved by the
foreign contractor's conversion of its FTAA into an MPSA under the OTHER provisions of the
Mining Act. Hence, merely striking out Sections 7.9 and 7.8(e) of the WMCP FTAA will
not suffice; the provisions pertaining to FTAAs in the Mining Act must be stricken out
for being unconstitutional as well.
2. Moreover, Section 7.8 (e) and 7.9 are not the only provisions of the WMCP FTAA which
convey beneficial ownership of mineral resources to a foreign corporation. For example, Sec.
10.2 (l)
Section 10.2 (l) of the WMCP FTAA, the foreign FTAA contractor shall have the right to
mortgage and encumber, not only its rights and interests in the FTAA, but the very
minerals themselves:
o
The act of mortgaging the minerals is an act of ownership, which, under the Constitution, is
reserved solely to the State. In purporting to grant such power to a foreign FTAA contractor, Section
10.2 (l) of the WMCP FTAA clearly runs afoul of the Constitution.
3. Another unconstitutional provision: Under Section 10.2 (e) of the WMCP FTAA, the foreign
FTAA Contractor has the power to require the Government to acquire surface rights in its
behalf at such price and terms acceptable to it:
It reads:
10.2 Rights of Contractor
The Government agrees that the Contractor shall:xxx
(e) have the right to require the Government at the Contractor's own cost, to
purchase or acquire surface areas for and on behalf of the Contractor at such
price and terms as may be acceptable to the Contractor. At the termination of this
Agreement such areas shall be sold by public auction or tender and the Contractor
shall be entitled to reimbursement of the costs of acquisition and maintenance,
adjusted for inflation, from the proceeds of sale; (Emphasis supplied)
the provision in question clearly contemplates a situation where the surface area is
not already owned by the Government i.e. when the land over which the minerals
are located is owned by some private person.
Second, the logical solution in that situation is not, as asserted by respondent WMCP, to
have the Government purchase or acquire the land, but for the foreign FTAA contractor
to negotiate a lease over the property with the private owner.
Third, it is plain that the foreign FTAA contractor would only avail of Section 10.2 (e) if, for
some reason or another, it is unable to lease the land in question at the price it is willing
to pay. In that situation, it would have the power under Section 10.2 (e) to compel
the State, as the only entity which can legally compel the landowner to involuntarily part
with his property, to acquire the land at a price dictated by the foreign FTAA contractor.
Clearly, the State's power of eminent domain is very much related to the practical workings of
Section 10.2 (e) of the WMCP FTAA. It is the very instrument by which the contractor assures
itself that it can obtain the "surface right" to the property at a price of its own choosing.
Moreover, under Section 60 of DAO 40-96, the contractor may, after final relinquishment, hold up to
5,000 hectares of land in this manner.
4. Conclusion: Taken together, the foregoing provisions of the WMCP FTAA amount to a
conveyance to a foreign corporation of the beneficial ownership of both the minerals and the
surface rights to the same in contravention of the clear provisions of the Constitution.
under Section 60 of DAO 40-96, which is among the enactments under review, the contractor
may, after final relinquishment, hold up to 5,000 hectares of land. And, under Section 3.3. of
the WMCP FTAA, it may do so for a term of 25 years automatically renewable for
another 25 years, at the option of the contractor.
under the terms of the WMCP FTAA, the contractor is given the power to hold
inalienable mineral land of up to 5,000 hectares, with the assistance of the State's
power of eminent domain for a period of up to 50 years in contravention of Section 3,
Article XII of the Constitution.
Even measured against the majority opinion's standards of control i.e. either (1) the power
to set aside, reverse, or modify plans and actions of the contractor; or (2) regulatory control
the foregoing provisions cannot pass muster. This is because, by virtue of the foregoing
provisions, the foreign FTAA contractor has unfettered discretion to countermand the
orders of its putative regulator, the DENR.
o