GROUP 3 - 1G (ART XII)
ART. XII - SEC. 2 Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation,
1. Narra Nickel vs Redmont
April 21, 2014 | J. Velasco, Jr. | Article 12, Section 2
PETITIONER​​: NARRA NICKEL MINING AND DEVELOPMENT CORP.,
TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR
MINING, INC.
RESPONDENTS​​: REDMONT CONSOLIDATED MINES CORP.
SUMMARY​​: Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Phil. laws, took interest in mining and
exploring certain areas in 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. Redmont filed before
the Panel of Arbitrations (POA) of the DENR petitions for the denial of
petitioners' application for MPSA alleging that at least 60% of the captial stock
of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadaian corporation.
Are petitioners Filipino or foreign? Foreign.
The portion in Art. XII, Sec. 2 which focuses on the State entering into different
types of agreements for the exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 percent ownership of
capital is pertinent to this case, since the issues are centered on the utilization of
our country's natural resources or specifically, mining. Thus, there is a need to
ascertain the nationality of petitioners since, as the Constitution so provides,
such agreements are only allowed corporations or associations "at least 60
percent of such capital is owned by such citizens."
The Court ruled that petitioners are NOT Filipino nationals and must be
considered foreign since 60% or more of their capital stocks or equity interests
are owned by MBMI. The Court here used the Grandfather Rule. Under this
rule, the combined totals in the Investing Corporation and the Investee
Corporation must be traced to determine the total percentage of Filipino
ownership. This rule only applied when the 60-40 Filipino-foreign equity
ownership is in doubt. In the end, the Court finds that petitioners McArthur,
owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners' corporate owners.
DOCTRINE​​: The portion in Art. XII, Sec. 2 which focuses on the State
entering into different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino due to 60
percent ownership of capital is pertinent to this case, since the issues are
centered on the utilization of our country's natural resources or specifically,
mining. Thus, there is a need to ascertain the nationality of petitioners since, as
the Constitution so provides, such agreements are only allowed corporations or
associations "at least 60 percent of such capital is owned by such citizens.
FACTS:
1. Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized
and existing under Phil. laws, took interest in mining and exploring certain areas in
Palawan.
2. 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.
3. Redmont filed before the Panel of Arbitrations (POA) of the DENR petitions for
the denial of petitioners' application for MPSA.
4. Redmont alleged that at least 60% of the captial stock of McArthur, Tesoro and
Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadaian corporation. He further alleged that because of this, petitioners were
disqualified from engaing in mining activities through MPSAs, which are reserved
only for Filipino citizens.
5. Petitioners argued that they were qualified under the Philippine Mining Act. They
further argued that their nationality is immaterial because they also applied for
Financial or Techinical Assistance Agreements. They said that the issue on
nationality should not be raised because 60% of their capital is owned by citizens of
the Philippines.
ISSUE:
1. Is this case moot and academic? – NO
2. Are petitioners Filipino or foreign? – Foreign
RULING:​​ Petition denied
RATIO:
First Issue

1. A case is said to be moot and/or academic when it "ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon would be
of no practical use or value."
2. This principle admits of exceptions: (1) there is a grave violation of the
Constitution, (2) the exceptional character of the situation and paramount public
interest is involved (3) when constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public, and (4) the case is
capable of repetition yet evading review.
3. All of the exceptions stated above are present in the instant case.
- A grave violation of the Constitution, specifically Section 2 of Article XII,
is being committed by a foreign corporation through a myriad of corporate
layering under different, allegedly, Filipino corporations.
- The intricate corporate layering utilized by the Canadian company, MBMI,
is of exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Country's natural resources.
- The corresponding actions of petitioners during the lifetime and existence of
the instant case raise questions as what principle is to be applied to cases
with similar issues.
- No definite ruling on such principle has been pronounced by the Court;
hence, the disposition of the issues or errors in the instant case will serve as
a guide "to the bench, the bar and the public."
- Finally, the instant case is capable of repetition yet evading review, since
the Canadian company, MBMI, can keep on utilizing dummy Filipino
corporations through various schemes of corporate layering and conversion
of applications to skirt the constitutional prohibition against foreign mining
in Philippine soil.
Second Issue:
1. 2 acknowledged tests in determining the nationality of a corporation:
1.Control test - Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules: 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, 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.
2.Grandfather rule - 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."
GROUP 3 - 1G (ART XII)
- 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
- Applies only when the 60-40 Filipino-foreign equity ownership is
in doubt
5. Petitioners in this case were constant in advocating the application of the control
test under the Foreign Investment Act (FIA) rather than using the stricter grandfather
rule.
6. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned
must be discredited for lack of basis.
7. The portion in Art. XII, Sec. 2 which focuses on the State entering into different
types of agreements for the exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 percent ownership of
capital is pertinent to this case, since the issues are centered on the utilization of our
country's natural resources or specifically, mining. Thus, there is a need to ascertain
the nationality of petitioners since, as the Constitution so provides, such agreements
are only allowed corporations or associations "at least 60 percent of such capital is
owned by such citizens.
8. It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present.
9. After a scrutiny of the evidence extant on record, the Court finds that this case
calls for the application of the grandfather rule since, as ruled by the POA and
affirmed by the OP, doubt prevails and persists in the corporate ownership of
petitioners.
- Also, as found by the CA, doubt is present in the 60-40 Filipino equity
ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation--MBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of
Filipinos are less than 60%.43
10. Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests.
11. Such conclusion is derived from grandfathering petitioners' corporate owners,
namely: MMI, SMMI and PLMDC.
 GROUP 3 - 1G (ART XII)

12. Noticeably, the ownership of the "layered" corporations boils down to MBMI,
Olympic or corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations
mentioned.
13. In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and
must be considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.