Republic of the Philippines

SUPREME COURT
Manila
En Banc
G.R. No. 127882. December 1, 2004
LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., et.al, petitioner,
vs.
VICTOR O. RAMOSet.al, respondents,

Facts:
The Petition for Prohibition and Mandamus before the Court challenges the
constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its
Implementing Rules and Regulations (DENR Administrative Order No. [DAO] 96-40); and (3)
the FTAA dated March 30, 1995, executed by the government with Western Mining Corporation
(Philippines), Inc. (WMCP)
On January 27, 2004, the Court en banc promulgated its Decision[8] granting the Petition
and declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of
the entire FTAA executed between the government and WMCP, mainly on the finding that
FTAAs are service contracts prohibited by the 1987 Constitution.

The Decision struck down the subject FTAA for being similar to service contracts,[9]
which, though permitted under the 1973 Constitution,[10] were subsequently denounced for
being antithetical to the principle of sovereignty over our natural resources, because they allowed
foreign control over the exploitation of our natural resources, to the prejudice of the Filipino
nation.

The Decision quoted several legal scholars and authors who had criticized service
contracts for, inter alia, vesting in the foreign contractor exclusive management and control of
the enterprise, including operation of the field in the event petroleum was discovered; control of
production, expansion and development; nearly unfettered control over the disposition and sale
of the products discovered/extracted; effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic resources. According to the Decision, the
1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.

Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution
dated March 9, 2004, the Court required petitioners to comment thereon. In the Resolution of
June 8, 2004, it set the case for Oral Argument on June 29, 2004.

After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. In a Resolution issued later the same day, June
29, 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by
the Office of the Solicitor General (OSG) on behalf of public respondents. The OSG said that it
was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines
of the Philippines, Inc. (CMP) and was in fact joining and adopting the latters Motion for
Reconsideration.

Memoranda were accordingly filed by the intervenor as well as by petitioners, public
respondents, and private respondent, dwelling at length on the three issues discussed below.
Later, WMCP submitted its Reply Memorandum, while the OSG -- in obedience to an Order of
this Court -- filed a Compliance submitting copies of more FTAAs entered into by the
government.

Issue:
Whether or not (1) Republic Act No. 7942 (the Philippine Mining Law), (2) its
Implementing Rules and Regulations contained in DENR Administrative Order (DAO) No. 9640
-- insofar as they relate to financial and technical assistance agreements referred to in paragraph
4 of Section 2 of Article XII of the Constitution

Ruling:
This Court upholds the constitutionality of the Philippine Mining Law, its Implementing
Rules and Regulations -- insofar as they relate to financial and technical agreements -- as well as
the subject Financial and Technical Assistance Agreement (FTAA).

RA 7942 provides for the States control and supervision over mining operations. The
FTAA contractor is not free to do whatever it pleases and get away with it; on the contrary, it
will have to follow the government line if it wants to stay in the enterprise. Ineluctably then, RA
7942 and DAO 96-40 vest in the government more than a sufficient degree of control and
supervision over the conduct of mining operations.

The nullity of the FTAA was obviously premised upon the contractor being a foreign
corporation. Had the FTAA been originally issued to a Filipino-owned corporation, there would
have been no constitutionality issue to speak of. Upon the other hand, the conveyance of the
WMCP FTAA to a Filipino corporation can be likened to the sale of land to a foreigner who
subsequently acquires Filipino citizenship, or who later resells the same land to a Filipino citizen.
The conveyance would be validated, as the property in question would no longer be owned by a
disqualified vendee.

And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no
longer possible for the Court to declare it unconstitutional. The case pending in the Court of
Appeals is a dispute between two Filipino companies (Sagittarius and Lepanto), both claiming
the right to purchase the foreign shares in WMCP. So, regardless of which side eventually wins,
the FTAA would still be in the hands of a qualified Filipino company. Considering that there is
no longer any justiciable controversy, the plea to nullify the Mining Law has become a virtual
petition for declaratory relief, over which this Court has no original jurisdiction.

The Proper Interpretation of the Constitutional Phrase
Agreements Involving Either Technical or Financial Assistance
The constitutional provision at the nucleus of the controversy is paragraph 4 of
Section 2 of Article XII of the 1987 Constitution:

The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and utilization
of minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.


Petitioners Contention:
Petitioners claim that the phrase agreements x x x involving either technical or
financial assistance simply means technical assistance or financial assistance agreements,
nothing more and nothing else. They insist that there is no ambiguity in the phrase, and that a
plain reading of paragraph 4 quoted above leads to the inescapable conclusion that what a
foreign-owned corporation may enter into with the government is merely an agreement for either
financial or technical assistance only, for the large-scale exploration, development and utilization
of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes foreign
management and operation of a mining enterprise.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4
could inexorably lead to the conclusions arrived at in the ponencia. First, the drafters choice of
words -- their use of the phrase agreements x x x involving either technical or financial
assistance -- does not indicate the intent to exclude other modes of assistance. The drafters opted
to use involving when they could have simply said agreements for financial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very
clear and no further debate would ensue.
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the
word involving, when understood in the sense of including, as in including technical or
financial assistance, necessarily implies that there are activities other than those that are being
included. In other words, if an agreement includes technical or financial assistance, there is apart
from such assistance -- something else already in, and covered or may be covered by, the said
agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned,
could be made part of the agreement. Thus, we are now led to the conclusion that the use of the
word involving implies that these agreements with foreign corporations are not limited to mere
financial or technical assistance. The difference in sense becomes very apparent when we
juxtapose agreements for technical or financial assistance against agreements including
technical or financial assistance. This much is unalterably clear in a verba legis approach.

Second, if the real intention of the drafters was to confine foreign corporations to
financial or technical assistance and nothing more, their language would have certainly been so
unmistakably restrictive and stringent as to leave no doubt in anyones mind about their true
intent. For example, they would have used the sentence foreign corporations are absolutely
prohibited from involvement in the management or operation of mining or similar ventures or
words of similar import. A search for such stringent wording yields negative results. Thus, we
come to the inevitable conclusion that there was a conscious and deliberate decision to
avoid the use of restrictive wording that bespeaks an intent not to use the expression
agreements x x x involving either technical or financial assistance in an exclusionary and
limiting manner.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 are in fact service contracts, but such new service contracts
are between foreign corporations acting as contractors on the one hand, and on the other hand
government as principal or owner (of the works), whereby the foreign contractor provides the
capital, technology and technical know-how, and managerial expertise in the creation and
operation of the large-scale mining/extractive enterprise, and government through its agencies
(DENR, MGB) actively exercises full control and supervision over the entire enterprise.

Such service contracts may be entered into only with respect to minerals, petroleum and
other mineral oils. The grant of such service contracts is subject to several safeguards, among
them: (1) that the service contract be crafted in accordance with a general law setting standard or
uniform terms, conditions and requirements; (2) the President be the signatory for the
government; and (3) the President report the executed agreement to Congress within thirty days.

Ultimate Test: States Control
Determinative of Constitutionality

Under the third principle of constitutional construction laid down in Francisco -- ut magis
valeat quam pereat -- every part of the Constitution is to be given effect, and the Constitution is
to be read and understood as a harmonious whole. Thus, full control and supervision by the
State must be understood as one that does not preclude the legitimate exercise of management
prerogatives by the foreign contractor. Before any further discussion, we must stress the primacy
and supremacy of the principle of sovereignty and State control and supervision over all aspects
of exploration, development and utilization of the countrys natural resources, as mandated in the
first paragraph of Section 2 of Article XII.

But in the next breadth we have to point out that full control and supervision cannot be
taken literally to mean that the State controls and supervises everything involved, down to the
minutest details, and makes all decisions required in the mining operations. This strained
concept of control and supervision over the mining enterprise would render impossible the
legitimate exercise by the contractors of a reasonable degree of management prerogative and
authority necessary and indispensable to their proper functioning.

For one thing, such an interpretation would discourage foreign entry into large-scale
exploration, development and utilization activities; and result in the unmitigated stagnation of
this sector, to the detriment of our nations development. This scenario renders paragraph 4
inoperative and useless. And as respondents have correctly pointed out, the government does not
have to micro-manage the mining operations and dip its hands into the day-to-day affairs of the
enterprise in order for it to be considered as having full control and supervision.

The concept of control adopted in Section 2 of Article XII must be taken to mean less
than dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power
to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the
State may be on a macro level, through the establishment of policies, guidelines, regulations,
industry standards and similar measures that would enable the government to control the conduct
of affairs in various enterprises and restrain activities deemed not desirable or beneficial.

To repeat, the primacy of the principle of the States sovereign ownership of all mineral
resources, and its full control and supervision over all aspects of exploration, development and
utilization of natural resources must be upheld. But full control and supervision cannot be
taken literally to mean that the State controls and supervises everything down to the minutest
details and makes all required actions, as this would render impossible the legitimate exercise by
the contractor of a reasonable degree of management prerogative and authority, indispensable to
the proper functioning of the mining enterprise. Also, government need not micro-manage
mining operations and day-to-day affairs of the enterprise in order to be considered as exercising
full control and supervision.

Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control
sufficient to enable the State to direct, restrain, regulate and govern the affairs of the extractive
enterprises. Control by the State may be on a macro level, through the establishment of policies,
guidelines, regulations, industry standards and similar measures that would enable government to
regulate the conduct of affairs in various enterprises, and restrain activities deemed not desirable
or beneficial, with the end in view of ensuring that these enterprises contribute to the economic
development and general welfare of the country, conserve the environment, and uplift the well-
being of the local affected communities. Such a degree of control would be compatible with
permitting the foreign contractor sufficient and reasonable management authority over the
enterprise it has invested in, to ensure efficient and profitable operation.