dsdsdNARRA NICKEL MINING AND DEVELOPMENT CORP, TESORO MINING AND

DEVELOPMENT,INC, and MCARTHUR MINING, INC

vs.
REDMONT CONSOLIDATED MINES CORP.

G.R. No. 195580 April 21, 2014

Facts:
Respondent Redmont Consolidated Mines Corp is a domestic corporation organized with
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.

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., a 100% Canadian corporation.
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.

The POA considered petitioners as foreign corporations being "effectively controlled" by

MBMI, a 100% Canadian company and declared their MPSAs null and void. In the same Resolution,
it gave due course to Redmont’s EPAs.

Issue:
Whether or not Narra, Tesoro and McArthur are foreign corporations based on the “Grandfather
Rule”

Held:
Yes, there are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule.

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. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned
by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned
by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "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," pertains to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.

Thus, various corporate schemes and layerings are utilized to circumvent the application of
the Constitution. Obviously, the instant case presents a situation which exhibits a scheme employed
by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

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.