Narra Nickel Mining and Dev. Corp. vs.

Redmont Consolidated Mines owned by citizens of the Philippines, based on the control test which
G.R. No. 195580 Apr. 21, 2014 is the best tool used in determining the nationality of a corporation.

DOCTRINE:
There are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. The control test is still
the prevailing test to determine the nationality of a corporation. 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.”
Grandfather rule: “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.”
When there is doubt, the grandfather rule applies.
FACTS:
 The POA granted Redmont’s petition which disqualified petitioners from
gaining MPSAs because the petitioners are foreign corporations being
“effectively controlled” by MBMI, a 100% Canadian company.
 The POA declared petitioners’ MPSAs null and void.
 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 filed its separate appeal.
 Pending the resolution of the appeal with the MAB, Redmont filed a
Complaint before the 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.

 Redmont, a domestic corporation, took interest in mining and exploring

 Later, the MAB reverses the Resolution of the POA. It dismissed Redmont’s
certain areas in Palawan. After inquiring with the DENR, it learned that the
petition to disqualify petitioners from obtaining MPSAs. Redmont appealed
areas where it wanted to undertake exploration and mining activities where
the MAB Resolution but was denied. Hence, the petition for review filed by
already covered by Mineral Production Sharing Agreement (MPSA)
Redmont before the CA, assailing the Orders issued by the MAB.
applications of petitioners Narra, Tesoro and McArthur.

 The CA partially granted the appeal of Redmont.

 Redmont filed before the Panel of Arbitrators (POA) of the DENR petitions
 It found that McArthur, Tesoro and Narra are foreign corporations
for the denial of petitioners’ applications for MPSA. Redmont alleged that at
and their applications for MPSAs must be rejected by the DENR.
least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
 It found that there was doubt as to the nationality of petitioners when
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
it realized that petitioners had a common major investor, MBMI, a
 Redmont alleged that petitioners’ capital stocks were mostly owned
corporation composed of 100% Canadians.
by MBMI. Hence, they are disqualified from engaging in mining
 The CA used the “grandfather rule” to determine the nationality of
activities through MPSAs, which are reserved only for Filipino
petitioners. It discovered that MBMI in effect owned majority of the
citizens.
common stocks of the petitioners and at least 60% equity interest of
other majority shareholders of petitioners through joint venture
 Petitioners argued that:
agreements.
1. they are qualified persons to engage in mining under the Philippine
 The CA found that through a web of corporate layering, it is clear
Mining Act; \
that one common controlling investor in all mining corporations
2. their nationality is immaterial because they also applied for Financial
involved MBMI.
or Technical Assistance Agreements (FTAA) which are granted to
foreign-owned corporations;
3. the issue on nationality should not be raised since McArthur, Tesoro
ISSUE(S): Whether petitioners Narra, Tesoro and McArthur are foreign
and Narra are in fact Philippine Nationals as 60% of their capital is corporations based on the “Grandfather Rule”.
 Salazar Filipino 1 P1,000 P1,000
RULING:
Esguerra Filipino 1 P1,000 P1,000
YES. The petitioners are foreign corporation based on the “Grandfather Rule”.
Agcaoli Filipino 1 P1,000 P1,000
Two tests in determining the nationality of a corporation
Mason American 1 P1,000 P1,000
1. Control Test: The first part of paragraph 7, DOJ Opinion No. 020, stating
Cawkell Canadian 1 P1,000 P1,000
“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 total 10,000 P10,000,00 P2,708,174.60
nationality,” pertains to the control test or the liberal rule. 0

2. Grandfather Rule: On the other hand, the second part of the DOJ Opinion  The corporate structure of MMC has a similar structure and composition
which provides, “if the percentage of the Filipino ownership in the as McArthur. MBMI is also a major investor and “controls”.
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as Philippine nationality,” Madridejos Mining Corporation (MCC)
pertains to the stricter, more stringent grandfather rule. Name Nationality No. of Amount Amount
Shares Subscribed Paid
Applicability of Grandfather Rule Olympic Filipino 6,663 P6,663,000 0
MBMI Canadian 3,331 P3,331,000 P2,803,900
Discussion: Limson Filipino 1 P1,000 P1,000
Esguerra Filipino 1 P1,000 P1,000
The deliberations in the Records of the 1986 Constitutional Commission shed Salazar Filipino 1 P1,000 P1,000
light on how a citizenship of a corporation will be determined. Hernand Filipino 1 P1,000 P1,000
 It is the intention of the framers of the Constitution to apply the o
grandfather rule in cases where corporate layering is present. Mason American 1 P1,000 P1,000
Cawkell Canadian 1 P1,000 P1,000
Application: Total 10,000 P10,000,00 P2,809,900
0
Here, after a scrutiny of the evidence extant on record, the Court finds that this  McArthur, when it is “grandfathered,” company layering was utilized by
case calls for the application of the grandfather rule since doubt prevails and MBMI to gain control over McArthur. It is apparent that MBMI has
persists in the corporate ownership of petitioners. Also doubt is present in the 60- more than 60% or more equityinterest in McArthur, making the latter a
40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since foreign corporation.
their common investor, the 100% Canadian corporation — MBMI, funded them.
Tesoro Mining and Development, Inc.
Determingin the Nationality of Petitioner Corporations Name Nationality No. of Amount Amount Paid
Shares Subscribed
McArthur Mining, Inc. Sara Filipino 5,997 P5,997,000 P825,000
Name Nationality No. of Amount Amount Paid Marie
Shares Subscribed Mining
MBMI Canadian 3,998 P3,998,000 P1,878,174.60
MMC Filipino 5,997 P5,997,000 P825,000
Salazar Filipino 1 P1,000 P1,000
MBMI Canadian 3,998 P3,998,000 P1,878,174.60
 Esguerr Filipino 1 P1,000 P1,000 MBMI Canadian 3,998 P3,996,000 P1,116,000
a Mendoza Filipino 1 P1,000 P1,000
Fernandez Filipino 1 P1,000 P1,000
Agcaoli Filipino 1 P1,000 P1,000 Agcaoli Filipino 1 P1,000 P1,000
Bocalan Filipino 1 P1,000 P1,000
Mason American 1 P1,000 P1,000 Agabin Filipino 1 P1,000 P1,000
McCurdy American 1 P1,000 P1,000
Cawkell Canadian 1 P1,000 P1,000 Cawkell Canadian 1 P1,000 P1,000
Total 10,000 P10,000,000 P2,708,174.60
 MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and
 Except for the name “Sara Marie Mining, Inc.,” the table above shows Esguerra, is present in this corporate structure.
exactly the same figures as the corporate structure of petitioner
Patricia Louise Mining & Development Corporation
McArthur.
Name Nationality No. of Amount Amount
Sara Marie Mining, Inc. Shares Subscribe Paid
d
Name Nationality No. of Amount Amount
Shares Subscribed Paid PASRDC Filipino 6,596 P6,595,000 0
Olympic Filipino 6,663 P6,663,000 0 MBMI Canadian 3,396 P3,396,000 P2,796,000
MBMI Canadian 3,331 P3,331,000 P2,803,900 Mendoza Filipino 1 P1,000 P1,000
Limson Filipino 1 P1,000 P1,000 Esguerra Filipino 1 P1,000 P1,000
Esguerra Filipino 1 P1,000 P1,000 Fernande Filipino 1 P1,000 P1,000
z
Salazar Filipino 1 P1,000 P1,000
Salazar Filipino 1 P1,000 P1,000
Hernand Filipino 1 P1,000 P1,000
o Agcaoili Filipino 1 P1,000 P1,000
Mason American 1 P1,000 P1,000 Agabin Filipino 1 P1,000 P1,000
Cawkell Canadian 1 P1,000 P1,000 Mason American 1 P1,000 P1,000
Total 10,000 P10,000,00 P2,809,900 Cawkell Canadian 1 P1,000 P1,000
0
 After “grandfathering” petitioner Tesoro and factoring in Olympic’s  Yet again, the usual players in petitioners’ corporate structures are
participation in SMMI’s corporate structure, it is clear that MBMI is in present. Similarly, the amount of money paid by the 2nd tier majority
control of Tesoro and owns 60% or more equity interest in Tesoro. This stock holder, in this case, Palawan Alpha South Resources and
makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies Development Corp. (PASRDC), is zero.
it to participate in the exploitation, utilization and development of our
Conclusion:
natural resources.
Concluding from the above-stated facts, it is quite safe to say that petitioners
Narra Nickel Mining and Development Corporation McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
Name Nationality No. of Amount Amount corporation, owns 60% or more of their equity interests. Such conclusion is
Shares Subscribed Paid derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI
Patricia Filipino 5,997 P5,997,000 P1,677,00 and PLMDC.
Louise
Mining & Disposition: Petition DENIED. CA Decision AFFIRMED.
Developmen
t
Corporation