NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC.

,
AND MCARTHUR MINING, INC., Petitioners, v. REDMONT CONSOLIDATED MINES CORP., Respondent.
G.R. No. 195580, January 28, 2015,
VELASCO JR., J.

DOCTRINE:

The Control Test can be, as it has been, applied jointly with the Grandfather Rule to determine the observance
of foreign ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule
are not, as it were, incompatible ownership-determinant methods that can only be applied alternative to each
other. Rather, these methods can, if appropriate, be used cumulatively in the determination of the ownership
and control of corporations engaged in fully or partly nationalized activities, as the mining operation involved in
this case or the operation of public utilities.

FACTS:

Respondent 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 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. Petitioners
Narra, Tesoro and McArthur applied for an MPSA and Exploration Permit which was subsequently issued.
Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of
petitioners’ applications for MPSA. 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. Petitioners averred that they were
qualified persons under Section 39 (aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995.
They stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) which are granted to foreign-owned corporations. Nevertheless, they
claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact
Philippine Nationals as 60% of their capital is owned by citizens of the Philippines. POA issued a Resolution
disqualifying petitioners from gaining MPSAs considering petitioners as foreign corporations being "effectively
controlled" by MBMI, a 100% Canadian company and declared their MPSAs null and void. Pending the
resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the
ground that they are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the exploitation of natural
resources, the CA used the "grandfather rule" to determine the nationality of petitioners.

ISSUE: WHETHER THE PETITIONERS ARE FOREIGN CORPORATIONS.

HELD:

YES. As explained in the April 21, 2012 Decision, the “doubt” that demands the application of the Grandfather
Rule in addition to or in tandem with the Control Test is not confined to, or more bluntly, does not refer to the
fact that the apparent Filipino ownership of the corporation’s equity falls below the 60% threshold. Rather,
“doubt” refers to various indicia that the “beneficial ownership” and “control” of the corporation do not in fact
reside in Filipino shareholders but in foreign stakeholders. As provided in DOJ Opinion No. 165, Series of
1984, which applied the pertinent provisions of the Anti-Dummy Law in relation to the minimum Filipino equity
requirement in the Constitution, “significant indicators of the dummy status” have been recognized in view of
reports “that some Filipino investors or businessmen are being utilized or [are] allowing themselves to be used
as dummies by foreign investors” specifically in joint ventures for national resource exploitation. These
indicators are:
(1) That the foreign investors provide practically all the funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner;
(2) That the foreign investors undertake to provide practically all the technological support for the joint
venture;
(3) That the foreign investors, while being minority stockholders, manage the company and prepare all
economic viability studies.