Title
Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp.
Case
G.R. No. 195580
Decision Date
Apr 21, 2014
Redmont contested Narra, Tesoro, and McArthur's MPSAs, alleging foreign control via MBMI. CA ruled petitioners foreign-owned, voiding MPSAs but deferring FTAAs to DENR.

Case Summary (G.R. No. 195580)

Factual Background

Redmont sought to explore and mine areas in Palawan but learned those areas were subject to pending MPSA applications of petitioners. McArthur, Narra and Tesoro are successors or transferees of earlier applicants (SMMI, PLMDC, MMC, Alpha Resources, etc.) and maintain capital structures showing Filipino and foreign shareholders. MBMI Resources, Inc. (MBMI), a 100% Canadian corporation, was a significant investor connected through a web of corporate relationships to petitioners’ corporate parents or major shareholders.

Original Administrative Proceedings before POA and MAB

On January 2, 2007, Redmont filed three petitions with the DENR POA to deny petitioners’ MPSA applications alleging effective foreign control by MBMI and therefore disqualification under constitutional and statutory nationality requirements. On December 14, 2007, the POA found petitioners effectively foreign-controlled by MBMI, declared them disqualified and their MPSAs null and void, and gave due course to Redmont’s EPA applications. The POA denied reconsideration on February 7, 2008. Petitioners appealed to the Mines Adjudication Board (MAB); on September 10, 2008 the MAB reversed and set aside the POA resolution and dismissed Redmont’s petition. Redmont sought relief before the RTC and the SEC and later before the OP.

Parallel Proceedings and Actions (SEC, RTC, OP)

While MAB proceedings were ongoing, Redmont filed a complaint with the SEC seeking revocation of petitioners’ certificates of registration on grounds of foreign ownership or control. Redmont also filed a civil injunction action in the RTC to enjoin MAB proceedings; the RTC issued TRO and then a writ of preliminary injunction enjoining the MAB from finally disposing of the appeals. Redmont later filed a petition with the Office of the President seeking cancellation of petitioners’ FTAAs; the OP on April 6, 2011 cancelled and revoked petitioners’ FTAAs, finding violations and misrepresentations.

Court of Appeals Decision and Reasoning

Redmont petitioned the CA to review MAB orders. The CA (October 1, 2010) reversed the MAB, upheld the POA finding that petitioners were foreign corporations effectively controlled by MBMI through corporate layering, and recommended rejection of petitioners’ MPSA applications to the DENR Secretary. The CA declined to decide the fate of converted FTAA applications, deferring those to the DENR Secretary and the President. The CA applied the “grandfather rule” (as described in DOJ Opinion No. 020, Series of 2005 and the 1967 SEC Rules) to trace ultimate Filipino ownership through layers where doubt as to 60% Filipino ownership existed.

Issues Presented to the Supreme Court

Petitioners raised six principal errors: (I) mootness because MPSA applications had been converted to and granted as FTAAs; (II) lack of POA jurisdiction to determine corporate nationality; (III) Redmont’s alleged forum shopping; (IV) improper use of the grandfather rule contrary to the FIA and SEC rules favoring the control test; (V) improper application of res inter alios acta exceptions; and (VI) wrongful characterization of the MPSA→FTAA conversions as suspicious and strategically motivated.

Supreme Court: Case Not Moot and Exceptions to Mootness Doctrine

The Supreme Court held the case was not moot. It applied four established exceptions permitting adjudication despite supervening events: (1) grave constitutional violation involved (Article XII, Section 2); (2) exceptional character and paramount public interest (protection of national patrimony and natural resources); (3) need for formulation of controlling principles to guide bench, bar, and public; and (4) capability of repetition yet evading review (risk of continued circumvention by corporate layering). The Court found these exceptions present and declined to dismiss the case as moot despite FTAA conversions and later OP revocations.

Conversion of MPSA Applications to FTAAs: Suspicion and Strategic Timing

The Court considered conversion of petitioners’ MPSA applications into FTAA applications while nationality challenges were pending as evidence of manipulation. It found the timing and context suspicious: conversions occurred after Redmont’s petitions, suggesting an attempt to render the controversy moot and to evade the nationality challenge. The Court relied on the POA’s and the OP’s findings that such conversions were admissions petitioners sought foreign participation for financing and technical assistance, supporting the conclusion of effective foreign control.

Grandfather Rule versus Control Test: Legal Framework and Application

Two recognized methods for determining corporate nationality were outlined: the control test (liberal rule) and the grandfather rule (strict rule). The DOJ Opinion No. 020 (2005) and the 1967 SEC Rules describe both: the control test treats a corporation as Philippine if 60% of the capital of an investing corporation is Filipino-owned, thereby considering the entire block Filipino for purposes of the investee; the grandfather rule requires tracing beneficial ownership through layers (“grandfathering”) so that indirect foreign participation is accounted for. Petitioners argued the FIA and its IRR mandate the control test; the petitioners asserted the grandfather rule has been abandoned. The Court concluded that where doubt exists about the 60-40 Filipino-foreign equity split because of corporate layering, the grandfather rule must be applied to trace ultimate participation. The Court grounded this conclusion in the Constitution’s Article XII, Section 2 and the framers’ deliberations, reading those as endorsing the grandfather approach in cases of multi-layer investments designed to circumvent nationality rules. The Court therefore applied the grandfather rule in the present case because facts raised persistent doubt about petitioners’ claimed Filipino ownership due to MBMI’s financing and corporate layering.

Application of Grandfathering to Petitioners’ Corporate Structures

The Court examined the capital structures and share ownership of petitioners and their predecessor/transferee corporations (Madridejos MMC, SMMI, PLMDC, Olympic, Palawan Alpha South, etc.). It identified recurring patterns: MBMI’s shareholdings, similar nominal Filipino shareholders across multiple entities, and joint venture arrangements (e.g., Olympic and Alpha groups) in which MBMI held direct or effective interests. Using the grandfather method the Court concluded MBMI effectively owned 60% or more of petitioners’ equity interests through the web of corporate layering and joint venture arrangements, rendering petitioners foreign corporations for purposes of the constitutional and statutory nationality requirements.

Partnership, Joint Venture, and Use of Res Inter Alios Acta Evidence

Petitioners challenged the CA’s use of admissions and evidence attributable to MBMI under res inter alios acta exceptions (admissions by co-partner/agent; admissions by privies). The Court reasoned that corporate layerings and joint-venture arrangements functioned like partnerships or “pseudo-partnerships” for substantive purposes; joint ventures are akin to partnerships and often share the same fiduciary incidents. Because petitioners’ relationships with MBMI were structured to produce effective foreign control and to act as vehicles for MBMI’s participation, the Court justified applying Secs. 29 and 31, Rule 130 (admissions by co-partner/agent; admissions by privies) to treat MBMI statements and documents as evidentially operating against petitioners.

POA Jurisdiction: Scope and Limits

The Court affirmed the POA’s jurisdiction to resolve disputes involving rights to mining areas and disputes involving mineral agreements or permits under Section 77 of RA 7942. It reiterated prior holdings that the POA’s authority includes resolving adverse claims, protests, or oppositions to pending mineral agreement applications. However, the Court clarified POA’s jurisdiction does not include the power to approve or reject MPSAs; that power rests with the DENR Secretary (upon recommendation of MGB Director) and, for FTAA approvals, involves the President. The Court therefore upheld the POA’s factual findings on nationality as valid determinations within its dispute-settlement role, while noting that formal approval or cancellation of agreements is an executive function.

Forum Shopping and Petitioners’ and Redmont’s Procedural Conduct

The Court addressed Redmont’s multiple filings (POA, SEC, RTC, OP), finding the controversy presented exceptions to dismissal for mootness and concluding that petitioners’ arguments asserting the case was moot were undermined by OP proceedings. The Court also criticized petitioners’ efforts to claim mootness based on subsequent divestitures (MBMI’s alleged sale to DMCI) as factual developments beyond the Court’s power to verify in the instant petition. The majority viewed procedural maneuvering by both sides, but ultimately denied petitioners’ motion to dismiss as moot and found the

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