Narra Nickel vs. Redmont (Main)

I. SHORT TITLE: Narra Nickel vs.
Redmont
II. FULL TITLE: NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING, INC. , petitioners, vs .
REDMONT CONSOLIDATED MINES CORP., respondent., G.R. No. 195580. April 21, 2014
III. TOPIC: Grandfather Rule
IV. Statement of the Facts:
Sometime in December 2006, respondent 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.
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 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. In their Answers, petitioners averred that they were qualified
persons under Section 3 of Republic Act No. (RA) 7942 or the Philippine Mining Act of 199.
POA issued a Resolution disqualifying petitioners from gaining MPSAs.
V. Statement of the Case:
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of
Appeal and Memorandum of Appeal with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal and Memorandum of Appeal.
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. Thereafter, Redmont filed a
Manifestation and Motion to Suspend Proceeding before the MAB praying for the suspension of
the proceedings on the appeals filed by McArthur, Tesoro and Narra. Subsequently, Redmont
filed before the Regional Trial Court a Complaint for injunction with application for issuance of
a temporary restraining order (TRO) and/or writ of preliminary injunction. Redmont prayed for
the deferral of the MAB proceedings pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont's Complaint and applications for injunctive reliefs, the
MAB issued an Order, finding the appeal meritorious. Redmont filed a MR on the Order of
MAB, which was subsequently denied. Hence, the petition for review filed by Redmont before
the CA, assailing the Orders issued by the MAB.
The CA first dismissed the appeal but upon a MR filed by Redmont, it 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. In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders. Using the grandfather rule,
the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners
as well as at least 60% equity interest of other majority shareholders of petitioners through joint
venture agreements. The CA found that through a "web of corporate layering, it is clear that one
common controlling investor in all mining corporations involved . . . is MBMI." Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-
interest of, MBMI.
VI. Issue/s:
Whether or not Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather
Rule"
VII. Ruling:
Yes. 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 affrmed 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%.
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60%
fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only
made an example of an instance where "doubt" as to the ownership of the corporation exists. It
would be ludicrous to limit the application of the said word only to the instances where the
stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a
corporation. The corporations interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for these applying corporations to
state in their respective articles of incorporation that they have less than 60% Filipino
stockholders since the applications will be denied instantly. 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.
xxx xxx xxx xxx xxx
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution,
entitled to undertake the exploration, development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may
apply the "grandfather rule."
VIII. Dispositive Portion
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of
Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby
AFFIRMED. SO ORDERED.

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