Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp.

G.R. No. 195580, [April 21, 2014]

Facts:
Redmont took interest in mining and exploring areas in Palawan. After inquiring, it learned that areas were already
covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro & McArthur.
Petitioner McArthur through its predecessor-in-interest Sara Marie Mining, Inc (SMMI) applied and was issued MPSA &
Exploration Permit (EP). These were later on transferred to Madridejos Mining Corp (MMC) and assigned to McArthur.
Petitioner Narra acquired its MPSA from Alpha Resources & Devt Corp and PLMDC which previously filed an application.
Subsequently, PLMDC assigned its rights and interests over the MPSA application in favour of Narra. Another
application of SMMI was filed and assigned such to Tesoro.
Total of
1.
2.
3.

3 MPSI are granted and transferred/assigned:

Sara Marie Mining Inc (SMMI) Madridejos Mining Corp (MMC) MacArthur
SMMI Tesoro
Patricia Louise Mining & Devt Corp (PLMDC) Narra

Thereafter, Redmont filed before POA 3 separate petitions for denial of applications alleging that at least 60% of the
capital stock of McArthur, Narra & Tesoro are owned by MBMI- a 100% Canadian corporation. Thus, they were
disqualified from engaging in mining through MPSAs which are reserved only for Filipinos. For the petitioners, they
averred that they were qualified pursuant to RA 7942 (Philippine Mining Act of 1995).
Respondent Redmont

invoked the grandfather rule

Petitioners Narra, Tesoro & McArthur

invoked the control test contending that issue on nationality should not be raised because 60% of their capital
is owned by Filipinos. For them, doubt only exists when the Filipino stockholdings are less than 60%

nationality as applicants immaterial because they also applied for Financial and Technical Assistance
Agreements (FTAA)

The shareholding of Olympic mines is 60%, thus should consider MMC as 100% Philippine national. Since MMC
is a Philippine national, and it has 60% of McArthur then McArthur as well is a Philippine national. So take a
look at our shareholdings- all 60%, the corporate layering is 60% and that is allowed by FIA. Further, they
contend that with the Foreign Investment Act, the grandfather rule is no longer applicable.
Issue:
The main issue in this case is centered on the issue of petitioners' nationality, whether Filipino or foreign.
Ruling:
Petitioners are NOT FILIPINO.
Two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
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. II of the 1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. 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.
When to apply:
According to SEC Rules and DOJ Opinion: 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 nationality," pertains to the control test or the
liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "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," pertains to the stricter, more stringent grandfather rule.
When doubt arise:
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 Filipinoforeign equity ownership is not in doubt, the Grandfather Rule will not apply.
Through a web of corporate layering, there is one common controlling investor. While corporate layering is
allowed under the Foreign Investment Act, but if it is issued to circumvent the Constitution and pertinent laws, then it
becomes illegal.

The framers of the Constitution intends to apply the grandfather rule in cases where corporate layering is present. The
basis of the 60% equity requirement is on the subscribed capital stock.
In this case, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since
their common investor, the 100% Canadian corporation MBMI, funded them. The grandfather rule must be used
because there is intention to circumvent the law..
Grandfathering of their Corporate Structure:
To establish actual ownership, interest or participation of MBMI
Major Stockholders:
Nationality
No.
of Amount Paid (in
Shares
PhP)
MacArthur
Madridejos
Filipino
5,997
825, 000
MBMI
Canadian
3,998
1,878,174.60
Madridejos Mining Olympic
Filipino
6,663
0
Corp
MBMI
Canadian
3,331
2,803,000
Tesoro
Sara Marie Mining
Filipino
5997
825,000
MBMI
Canadian
3998
1,878,174.60
SMMI
Olympic
Filipino
6663
0
MBMI
Canadian
3331
2,794,000
Narra
PLMDC
Filipino
5997
1,677,000
MBMI
Canadian
3998
1,116,000
PLMDC
Palawan Alpha
Filipino
6596
0
MDMI
Canadian
3396
2,796,000
Olympic did not pay any amount in their subscribed shares. Thus, McArthur, when it is "grandfathered," company
layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more
equity interest in McArthur, making the latter a foreign corporation. This is true in the case of Tesoro and Narra.
Thru grandfathering of the corporate owners (MMC, SMMI, PLMDC), petitioners are NOT Filipino since MBMI, 100%
Canadian, owns more than 60% of their equity interests. In other words, MBMI owned more than 60% = 40% DIRECT
Foreign ownership and 24% INDIRECT Foreign ownership. The ownership of the layered corporations boils down to
MBMI, Olympic, or Alpha Group where MBMI has JVA.