Tolentino, Harvin Jay C ATTY Danila Barde LLB.

,LLM

2nd yr - Commercial Law

Doctrine: Application of the Grandfather Rule. Based on the said SEC Rule
and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is in doubt
(i.e., in cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings or 59% invests in
other joint venture corporation which is either 60-40% Filipino-alien or the
59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the Grandfather Rule will not apply.

Case Title: Narra Nickel Mining vs. Redmont G.R. No. 195580, April 21,
2014

FACTS

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of

Arbitrators (POA) of the DENR separate petitions for denial of McArthur
Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc. (Tesoro),
and Narra Nickel Mining and Development Corporation (Narra) applications
Mineral Production Sharing Agreement (MPSA) on the ground that they are
not “qualified persons” and thus disqualified from engaging in mining
activities through MPSAs reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining

Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI
Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also
owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by

Sara Marie Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and
MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among

others, by Patricia Louise Mining & Development Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian)
owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000
shares of Patricia Louise Mining & Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.

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 pertains to the portion in 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.

(2) NO.

Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more of their equity interests.
Such conclusion is derived from grandfathering petitioners’ corporate
owners. xxx Noticeably, the ownership of the “layered” corporations boils
down to xxx group wherein MBMI has joint venture agreements with,
practically exercising majority control over the corporations mentioned. 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.

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.