JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA G.R.

207246

Facts:
On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present
case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred
shares).
The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued on
December 11, 2012
On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement.
For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to
BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote in the election of directors.
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of SEC-MC No. 8
for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the
SEC with grave abuse of discretion.
Issue:
W/N the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa
Resolution
Ruling: NO
SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued SEC-MC No.
8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and
Resolution.
Gamboa Decision:
"Capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares).
Gamboa Resolution:
Foreign Investments Act of 1991 ("FIA")
Gamboa Resolution put to rest the Court's interpretation of the term "capital"
Full beneficial ownership of stocks, coupled with appropriate voting rights is essential... reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting
rights, as well as with full beneficial ownership.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact,
Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires
the 60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC
formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of
60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights is required."[79] Clearly, SEC-
MC No. 8 cannot be said to have been issued with grave abuse of discretion
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of stocks
requirement in the FIA, this will not, as it does not, render it invalid meaning, it does not follow that the SEC will not
apply this test in determining whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are
held by them by mere title or in full beneficial ownership. To be sure, the SEC takes its guiding lights also from the FIA
and its implementing rules, the Securities Regulation Code
NARRA NICKEL MINING VS REDMONT G.R. NO. 195580

Facts:
Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under Philippine laws,
took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur. Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI),
filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB),
Region IV-B, Office of the Department of Environment and Natural Resources (DENR). Subsequently, SMMI was
issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality
of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the
MPSA application in favor of Narra. Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled
as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and assigned its rights and
interest over the said MPSA application to Tesoro. On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA designated as
AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only
participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given
that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only for Filipino citizens.

Issue: W/N the petitioner corporations are Filipino and can validly be issued MPSA and EP.

Ruling: NO
The SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among others,
of determining compliance with nationality requirements (the ‘Investee Corporation’). Such manner of computation is
necessary since the shares in the Investee Corporation may be owned both by individual stockholders (‘Investing
Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for the
determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.

Under the SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is
the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, 'shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal
Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.”
Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership. Moreover,
the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added
to the shares directly owned in the Investee Corporation.

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC
Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.