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

, and McARTHUR
Case Name
MINING, INC. v. REDMONT CONSOLIDATED MINES CORP.
Lesson II
SEC - MC No. 8, Series of 2013, “Guidelines on Compliance with Filipino-Foreign Ownership Requirements Prescribed in
Topic
the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities”
Case No. | Date G.R. NO. 195580 | January 28, 2015
Ponente Velasco, Jr., J.
Doctrine
(Can be dispense)

To determine the nationality of a corporation, apply the control test. In case of doubt as to the 60-40 Filipino equity
What Can we Learn ownership of the corporation, apply the grandfather rule.
from this Case?

FACTS
2014 NARRA NICKEL CASE:
 Redmont, a domestic corporation organized and existing under PH laws, filed before the Panel of Arbitrators (POA) of DENR 3
separate petitions for the denial of petitioners’ Mineral Production Sharing Agreement (MPSA) applications, alleging that at least
60% of their capital stock are owned and controlled by MBMI Resources, Inc., a 100% Canadian corporation. Note that engaging in
mining activities through MPSAs are reserved ONLY for Filipino citizens (Sec. 2, Art XII, 1987 Constitution).
 POA issued a Resolution disqualifying the petitioners from gaining MPSAs, considering them as foreign corporations being
“effectively controlled” by MBMI. Their MPSAs were declared null and void.
 Petitioners filed an appeal with the Mines Adjudication Board (MAB), claiming that they are qualified persons under the law.
Furthermore, their individual MPSA applications were converted into FTAAs; thus, the case is moot and academic.
 Pending the appeal, Redmont filed with RTC a Complaint for injunction with application for issuance of TRO and/or writ of
preliminary injunction, praying to defer MAB proceedings. Before this can be resolved, MAB issued an Order, reversing Resolution of
POA.
 RTC belatedly granted the TRO and, in another Order, the writ of preliminary injunction enjoining the MAB proceedings. But MAB still
issued an Order denying Redmont’s Motion for Reconsideration. Redmont then files before CA a petition for review, assailing the
Order of MAB. CA ruled that petitioners, being foreign corporations, are not entitled to MPSAs. In the meantime, the Office of the
President, upon petition of Redmont, canceled and revoked petitioners’ FTAAs.
 In Apr. 21, 2014, SC AFFIRMED the CA’s Decision:
o CONVERSION FROM MPSAs TO FTAAs ARE SUSPICIOUS. The application is a clear admission that petitioners are not
capable of conducting large scale mining operations; thus, they need financial and technical assistance of a FOREIGN
entity, such as MBMI, in their operation. This proves that MBMI will provide the finances and resources to operate the
mining areas, which is for their greater benefit and interest and not for the PH stockholders.
o THERE WAS DOUBT AS TO PETITIONERS’ NATIONALITY since MBMI effectively owns 60% of the common stocks of
petitioners. The “grandfather rule” was used to determine the nationality of petitioners. MBMI, in effect, owned majority of
the common stocks of petitioners as well as at least 60% equity interest of other majority shareholders of petitioners
through joint venture agreements.
o Two Tests to Help Determine Nationality of Corporation:
1. Control Test - At least 60% capital is owned by PH citizen, it is considered as of PH nationality,
2. Grandfather Test – If less than 60% Filipino ownership, only consider number of shares corresponding to such
percentage as of PH nationality
o In case of corporate layering, it is the intention of the framers of the Constitution to apply the grandfather rule.
Furthermore, in case of doubt as to 60-40 Filipino ownership of a corporation, the grandfather rule will apply.
 Corporate layering – using corporations as stockholders of other corporations in different stages of
organization; this is allowed, but if used to circumvent the Constitution and pertinent laws, it becomes illegal.
 TL; DR of 2014 Narra Case : Redmont filed before the POA-DENR petitions for denial of petitioners’ MPSA applications, alleging that
at least 60% of the petitioners’ capital stock are owned and controlled by the 100% Canadian Corporation, MBMI. The POA, CA and,
ultimately, the SC found that there is doubt as to the Filipino ownership of petitioners. Applying the grandfather rule, majority of the
common stock of petitioners as well as at least 60% equity interest of other majority shareholders of petitioners are owned by
MBMI.
2015 NARRA NICKEL CASE
 This is the Motion for Reconsideration of the SC’s Apr. 21, 2014 Decision. Petitioners claim that:
1. The case had been rendered moot by the conversion of the MPSA applications to an application for FTAA which were
granted.
2. MBMI had already divested itself and sold all its shareholdings in the petitioners, as well as in their corporate stockholder,
to a PH corporation, DMCI Mining Corporation.

Issue/s
W/N the conversion of
MPSA applications to
FTAA rendered the case
Rationale
NO. Such is irrelevant since the Office of the President itself had already cancelled and revoked the FTAAs
issued to petitioners.
Even if the case is moot and academic, the Court can still take cognizance if: (a) there is a grave violation of
the Constitution;(b) the situation is of exceptional character and paramount public interest is involved; (c) the
moot and academic?
W/N the SC erred in
applying the Grandfather
Rule instead of the Control
Test in the April 21, 2014
Decision (effectively
abandoning the latter)?
Comprehensive calculation of Filipino equity ownership of each petitioner is in the full text.
constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the
public; and (d) the case is capable of repetition yet evading review. SC’s April 21, 2014 Decision explained in
some detail that all 4 of these are present in the case.
NO. The Grandfather Rule, as applied in the Apr. 21, 2014 Decision, was used to SUPPLEMENT the Control
Test. 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. XII, 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. If the Court finds that 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."
Looking at the membership and control structures of petitioners, based on their common shareholding, it can
be found that MBMI owns the majority of their shares:
 Tesoro: Supposedly PH Corp. Sara Marie hold 59.97% of 10,000 commonshares while MBMI holds
39.98 of its shares. But Olympic Mines hold 66% of Sara Marie’s share while 33.31% of its shares
are held by MBMI. However, it is admitted that Olympic paid not a single peso for its share. MBMI
had actually paid for 99% of the paid-up capital of Sara Marie. The fact that MBMI had practically
provided all the funds in Sara Marie and Tesoro creates serious doubt as to the true extent of its
(MBMI) control and ownership over both Sara Marie and Tesoro. Thus, the grandfather rule shall be
applied which showed that it only has 40.01% Filipino ownership.
 McArthur: 59.97% of its 10, 000 common shares is owned by supposedly Filipino Madridejos Mining
Corporation (Madridejos), while 39.98% belonged to MBMI. 66.63% of Madridejos’ shares were held
by Olympic while 33.31% of its shares belonged to MBMI. Yet again, Olympic did not contribute to
the paid-up capital of Madridejos and it was MBMI that provided 99.79% of the paid-up capital of
Madridejos. There is now doubt since MBMI practically provided all funds in Madridejos and
McArthur, thus, application of Grandfather Rule is called for. Such shows only 40.01% Filipino
ownership.
 Narra: 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation
(PLMDC), while MBMI held 39.98% of its shares. PLMDC’s shares, in turn, were held by Palawan
Alpha South Resources Development Corporation (PASRDC), which subscribed to 65.96% of
PLMDC’s shares, and MBMI, which subscribed to 33.96% of PLMDC’s shares. Yet again, PASRDC did
not pay for any of its subscribed shares, while MBMI contributed 99.75% of PLMDC’s paid-up
capital. Due to the doubt, grandfather rule is applied which shows only 39.64% Filipino ownership.
RULING
DENIED
NOTES