Narra Nickel Mining vs Redmont

G.R. No. 195580, January 28, 2015

Facts:
Narra and its co-petitioner corporations Tesoro and MacArthur, filed a motion before the SC to reconsider
its April 21, 2014 Decision which upheld the denial of their MPSA applications. The SC affirmed the CA ruling
that there is a doubt to their nationality, and that in applying the Grandfather Rule, the finding is that MBMI, a
100% Canadian-owned corporation, effectively owns 60% of the common stocks of petitioners by owning equity
interests of the petitioners other majority corporate shareholders. Narra, Tesoro and MacArthur argued that the
application of the Grandfather Rule to determine their nationality is erroneous and allegedly without basis in the
Constitution, the FIA, the Philippine Mining Act, and the Rules issued by the SEC. These laws and rules
supposedly espouse the application of the Control Test in verifying the Philippine nationality of corporate entities
for purposes of determining compliance with Sec. 2, Art. XII of the Constitution that only corporations or
associations at least 60% of whose capital is owned by such Filipino citizens may enjoy certain rights and
privileges, like the exploration and development of natural resources.
Issue: W/N the application by the SC of the grandfather resulted to the abandonment of the control test
Held:
No. The control test can be applied jointly with the Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not
incompatible ownership-determinant methods that can only be applied alternative to each other. Rather, these
methods can, if appropriate, be used cumulatively in the determination of the ownership and control of
corporations engaged in fully or partly nationalized activities, as the mining operation involved in this case or the
operation of public utilities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather
Rule may be applied. Put in another manner, if the subject corporations Filipino equity falls below the threshold
60%, the corporation is immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears.
In this case, using the control test, Narra, Tesoro and MacArthur appear to have satisfied the 60-40 equity
requirement. But the nationality of these corporations and the foreign-owned common investor that funds them
was in doubt, hence, the need to apply the Grandfather Rule.

Narra Nickel Mining vs Redmont

Facts:
Redmont is a domestic corporation interested in the mining and exploration of some areas in Palawan. Upon
learning that those areas were covered by MPSA applications of other three (allegedly Filipino) corporations
Narra, Tesoro, and MacArthur, it filed a petition before the Panel of Arbitrators of DENR seeking to deny their
permits on the ground that these corporations are in reality foreign-owned. MBMI, a 100% Canadian
corporation, owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 40% of the shares of MMC
(which owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of
Tesoro).
Aside from the MPSA, the three corporations also applied for FTAA with the Office of the President. In their
answer, they countered that (1) the liberal Control Test must be used in determining the nationality of a
corporation as based on Sec 3 of the Foreign Investment Act which as they claimed admits of corporate
layering schemes, and that (2) the nationality question is no longer material because of their subsequent
application for FTAA.

Commercial / Political Law

Issue 1: W/N the Grandfather Rule must be applied in this case
Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where corporate
layering is present.
First, as a rule in statutory construction, when there is conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of application. Corporate
layering is admittedly allowed by the FIA, but if it is used to circumvent the Constitution and other pertinent laws,
then it becomes illegal.
Second, under the SEC Rule 1 and DOJ Opinion2 , the Grandfather Rule must be applied when the 60-40
Filipino-foreign equity ownership is in doubt. Doubt is present in the Filipino equity ownership of Narra, Tesoro,
and MacArthur since their common investor, the 100% Canadian-owned corporation MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the required 60% Filipino
stockholdings at face value. To determine the percentage of the ultimate Filipino ownership, it must first be
traced to the level of the investing corporation and added to the shares directly owned in the investee
corporation. Applying this rule, it turns out that the Canadian corporation owns more than 60% of the equity
interests of Narra, Tesoro and MacArthur. Hence, the latter are disqualified to participate in the exploration,
development and utilization of the Philippines natural resources.

1 DOJ Opinion No. 020 Series of 2005 (paragraph 7)

2 SEC Opinion May 13, 1990

Remedial Law

Issue 2: W/N the case has become moot as a result of the MPSA conversion to FTAA
No. There are certain exceptions to mootness principle and the mere raising of an issue of mootness will not
deter the courts from trying a case when there is a valid reason to do so.
The SC noted that a grave violation of the Constitution is being committed by a foreign corporation through a
myriad of corporate layering under different, allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional character and involves paramount public interest
since it undeniably affects the exploitation of our Countrys natural resources. The corresponding actions of
petitioners during the lifetime and existence of the instant case raise questions as what principle is to be applied
to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence, the
disposition of the issues or errors in the instant case will serve as a guide to the bench, the bar and the public.
Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI, can
keep on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign mining in Philippine soil.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP.
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 Courts 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.
[P]etitioners 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.