La Bugal Blaan Tribal Assoc. v. DENR , G.R. No.

127882, December 1, 2004, [Reconsideration].

Ponente: Panganiban, J.
Facts: Petition for prohibition and mandamus,
challenges the constitutionality of (1) RA 7942 (the
Philippine Mining Law), (2) its Implementing Rules and
Regulations (IRR) in DENR Administrative Order No.
9640 (3), the Financial and Technical Assistance
Agreement (FTAA) dated March 30, 1995 by the
government
and
Western
Mining
Corporation
Philippines Inc. (WMCP).

d.

2. Assuming case was rendered moot, WON it is proper

to resolve the constitutionality of assailed provisions of
RA 7942, DENR AO 9640, and the WMCP FTAA?
a.

On January 27, 2004, the Court en banc granted the

petition and declared the unconstitutionality of certain
provisions of RA 7942, DENR AO 9640, and the entire
FTAA between the government and WMCP mainly on
the finding that FTAAs are service contracts prohibited
by the 1987 Constitution.
b.
Held: The Court resolves to grant the respondents
and intervenors Motions for Reconsideration; reverse
and set aside this Courts January 27, 2004 decision; to
dismiss the petition; to issue new judgment declaring
constitutional (1) R.A. 7942, (2) IRR contained in DENR
AO 9640 insofar as they relate to financial and
technical assistance agreements referred to in Art. XII
Sec. 2 (4) of the Constitution; (3) the FTAA dated
March 30, 1995 executed by the government and
WMCP, except Sections 7.8 and 7.9 of the subject FTAA
which are hereby invalidated for being contrary to
public policy and for being grossly disadvantageous to
the government.

c.

d.

Issues/Ratio:
1. WON case is rendered moot by the sale of Western
Mining Corporation (WMC) shares in WMCP to
Sagittarius (60% of Sagittarius equity is owned by
Filipinos and/or Filipino-owned corporations) and
subsequent transfer and registration of the FTAA from
WMCP to Sagittarius?
a.

b.

c.

Nullity of FTAA is based on WMCP being a foreign

corporation. Had it been issued to a Filipino
corporation, there would not have been any issue
to its constitutionality.
Transfer of WMCP FTAA to a Filipino corporation
(Sagittarius) is like a sale of land to foreigner who
then acquires Filipino citizenship or who later
resells the land to a Filipino citizen.
Nowhere is it found that a Filipino Corporation is
not allowed by the Constitution to enter into an
FTAA with the government.

There is no need for separate litigation on

suspicious sale of WMCP to Sagittarius. Section
40 of RA 7942 expressly requiring the President to
notify Congress of applies to the assignment of a
FTAA does not apply to sale of shares of stock in
WMCP.

e.

f.

g.

Through several provisions of RA 7942, DENR AO

9640 and WMCP FTAA, the government agencies
are empowered to approve or disapprove various
work programs and corresponding expenditure
commitments for each of the EDU phases. Any
violation of the FTAA terms and conditions or noncompliance of the statutes may be penalized by
cancellation of the FTAA.
Section 3(aq) of RA7942, which allows foreign
corporations to hold exploration permits, is not
unconstitutional. There is no prohibition at all
against foreign or local corporations or contractors
holding exploration permits.
An exploration permit merely grants the right to
conduct exploration for all minerals in specified
areas. It does not amount to an authorization to
extract and carry off the mineral resources that
may be discovered. The exploration permit
protects the investment from claim-jumpers.
Clause 8.2, 8.3 and 8.5 of the WMCP FTAA do not
relinquish control. They only provide mechanisms
for preventing the business or mining operations
from grinding to a complete halt as a result of
possibly over-long and unjustified delays in
governments
processing
and
approval
of
submitted work programs and budgets.
In RA Section 91 (2), the inclusion of the phrase
among other things reveals the legislative intent
to have the State collect more than just the usual
taxes, duties and fees.
DENR AO 9956, Guidelines Establishing Fiscal
Regime of Financial or Technical Assistance
Agreements
spells
out
financial
benefits
government will receive from an FTAA. It contains
not only of basic government share, but also of an
additional government share such as share in the
earnings or cash flows of the mining enterprise, so
as to achieve a 50-50 sharing of net benefits from
mining between government and contractor.
Section 7.9 of the WMCP FTAA states that should
WMCPs foreign stockholders (originally owned
100% of equity) sell 60% or more of their equity to
a Filipino citizen or corporation, the State loses its

h.

i.

right to receive its share in net mining revenues

without offsetting compensation to the State.
Section 7.9 is declared INVALID for it constitutes
unjust enrichment on the part of local and foreign
stockholders
of
WMCP,
being
grossly
disadvantageous
to
the
government
and
detrimental to Filipino people and violative of
public policy.
Section 7.8(e) of the WMCP FTAA is likewise
INVALID, since by allowing the sums spent by
government for the benefit of the contractor to be
deductible from the States share in net mining
revenues, it results in benefiting the contractor
twice over. This constitutes unjust enrichment on
the part of the contractor.
Both Section 7.9 and 7.8(e) of the WMCP FTAA can
be stricken off without affecting the rest of the
FTAA.

3. What is the proper interpretation of the phrase

agreements involving either technical or financial
assistance contained in Art. XII Sec. 2 (4) of the
Constitution? Does it allow management of mining
operations to be given to foreign companies?
a.

b.

The use of the word involving signifies the

possibility of inclusion of other forms of assistance
or activities related to or compatible with financial
or technical assistance.
What petitioners seek (complete ban on foreign
participation in management of mining operations)
is brining significant change in economic policies
of our government. Omission of service contract
in the new Constitution cannot be meant to
prejudice existing service contracts.

c.

d.

e.

f.

g.

h.

If par. 4 permits only agreements of financial or

technical assistance, there is no point in requiring
that they be based on real contributions to the
economic growth and general welfare of the
country.
Technical or financial assistance recognizes that
foreign corporations have with the resources and
know-how
to
provide
technical,
financial
assistance
for
large-scale
exploration,
development, utilization (EDU) of these resources.
Drafters of the Constitution will have to be
credited with enough pragmatism and savvy to
know that these foreign entities will not enter into
such agreements involving assistance without
requiring arrangements for the protection of their
investments, gains and benefits.
The framers knew at the time they were
deliberating that there were various service
contracts in force and effect, including those in the
petroleum industry. If they intended to end service
contracts, they would have left instructions to
Congress to deal with these issues, similar to the
transitory guidelines found in Article XVIII of our
Constitution.
Pertinent portions of the deliberations show that
they discussed agreements involving either
technical or financial assistance in the same
breath as service contracts and use the terms
interchangeably.
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. Government does not
have to micro-manage the mining operations in
order for it to be considered as having full control
and supervision.