Unformatted text preview: EN BANC
[G.R. No. 127882. December 1, 2004.]
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its
Chairman F'LONG MIGUEL M. LUMAYONG; WIGBERTO E. TAÃ‘ADA;
PONCIANO BENNAGEN; JAIME TADEO; RENATO R. CONSTANTINO
JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L.
DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B.
GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN;
LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors JOLY L.
BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER
M. DADING; Represented by His Father ANTONIO L. DADING; ROMY
M. LAGARO, Represented by His Father TOTING A. LAGARO;
MIKENY JONG B. LUMAYONG, Represented by His Father MIGUEL
M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother
EDITHA T. MIGUEL; ALDEMAR L. SAL, Represented by His Father
DANNY M. SAL; DAISY RECARSE, Represented by Her Mother LYDIA
S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L.
MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR;
MARVIC M.V.F. LEONEN; JULIA REGINA CULAR, GIAN CARLO
CULAR, VIRGILIO CULAR JR., Represented by Their Father VIRGILIO
CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His Parents
JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R.
TALJA, Represented by Her Father MARIO JOSE B. TALJA;
SHARMAINE R. CUNANAN, Represented by Her Father ALFREDO M.
CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His Mother
ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His
Father MANUEL E. NARVADEZ JR.; ROSERIO MARALAG LINGATING,
Represented by Her Father RIO OLIMPIO A. LINGATING; MARIO
JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE;
Sr. SUSAN O. BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE
L. NEQUINTO; 1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA;
EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented
by His Father ELPIDIO V. PERIA; 2 GREEN FORUM PHILIPPINES;
GREEN FORUM WESTERN VISAYAS (GF-WV); ENVIRONMENTAL
LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN); 3 PARTNERSHIP FOR AGRARIAN REFORM and RURAL
PARTNERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES IN
THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU
(WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES,
KINAIYAHAN FOUNDATION, INC.; SENTRO NG ALTERNATIBONG
LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES CENTER, INC. (LRC), petitioners, vs . VICTOR O. RAMOS,
Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau
(MGB-DENR); RUBEN TORRES, Executive Secretary; and WMC
CD Technologies Asia, Inc. © 2018 cdasiaonline.com (PHILIPPINES), INC., 4 respondents.
RESOLUTION PANGANIBAN , J :
p All mineral resources are owned by the State. Their exploration, development and
utilization (EDU) must always be subject to the full control and supervision of the State.
More speci cally, given the inadequacy of Filipino capital and technology in large-scale
EDU activities, the State may secure the help of foreign companies in all relevant
matters —” especially nancial and technical assistance —” provided that, at all times,
the State maintains its right of full control. The foreign assistor or contractor assumes
all nancial, technical and entrepreneurial risks in the EDU activities; hence, it may be
given reasonable management, operational, marketing, audit and other prerogatives to
protect its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor,
provided that the State retains the power to direct overall strategy; and to set aside,
reverse or modify plans and actions of the contractor. The idea of full control is similar
to that which is exercised by the board of directors of a private corporation: the
performance of managerial, operational, nancial, marketing and other functions may
be delegated to subordinate o cers or given to contractual entities, but the board
retains full residual control of the business.
Who or what organ of government actually exercises this power of control on
behalf of the State? The Constitution is crystal clear: the President. Indeed, the Chief
Executive is the o cial constitutionally mandated to "enter into agreements with
foreign owned corporations." On the other hand, Congress may review the action of the
President once it is noti ed of "every contract entered into in accordance with this
[constitutional] provision within thirty days from its execution." In contrast to this
express mandate of the President and Congress in the EDU of natural resources, Article
XII of the Constitution is silent on the role of the judiciary. However, should the
President and/or Congress gravely abuse their discretion in this regard, the courts may
—” in a proper case —” exercise their residual duty under Article VIII. Clearly then, the
judiciary should not inordinately interfere in the exercise of this presidential power of
control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be
used to strangulate economic growth or to serve narrow, parochial interests. Rather, it
should be construed to grant the President and Congress su cient discretion and
reasonable leeway to enable them to attract foreign investments and expertise, as well
as to secure for our people and our posterity the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of
the Philippine Mining Law, its Implementing Rules and Regulations —” insofar as they
relate to nancial and technical agreements —” as well as the subject Financial and
Technical Assistance Agreement (FTAA). 5 Background
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);
CD Technologies Asia, Inc. © 2018 cdasiaonline.com (2) its Implementing Rules and Regulations (DENR Administrative Order No. [DAO] 9640); and (3) the FTAA dated March 30, 1995, 6 executed by the government with
Western Mining Corporation (Philippines), Inc. (WMCP). 7
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 9640, 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, 1 0 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 eld 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 led 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 ampli cation 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 latter's Motion for Reconsideration.
Memoranda were accordingly led 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 —” led a Compliance submitting copies of more
FTAAs entered into by the government. Three Issues Identified by the Court
During the Oral Argument, the Court identi ed the three issues to be resolved in
the present controversy, as follows:
1.Has the case been rendered moot by the sale of WMC shares in WMCP to
Sagittarius (60 percent of Sagittarius' equity is owned by Filipinos and/or Filipinoowned corporations while 40 percent is owned by Indophil Resources NL, an Australian
company) and by the subsequent transfer and registration of the FTAA from WMCP to
2.Assuming that the case has been rendered moot, would it still be proper to
resolve the constitutionality of the assailed provisions of the Mining Law, DAO 96-40
and the WMCP FTAA?
CD Technologies Asia, Inc. © 2018 cdasiaonline.com 3.What is the proper interpretation of the phrase Agreements Involving Either
Technical or Financial Assistance contained in paragraph 4 of Section 2 of Article XII of
the Constitution? Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted,
for the reasons discussed below. The foregoing three issues identi ed by the Court
shall now be taken up seriatim. First Issue:
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the
WMCP FTAA, the majority Decision agreed with petitioners' contention that the subject
FTAA had been executed in violation of Section 2 of Article XII of the 1987 Constitution.
According to petitioners, the FTAAs entered into by the government with foreign-owned
corporations are limited by the fourth paragraph of the said provision to agreements
involving only technical or nancial assistance for large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Furthermore, the foreign
contractor is allegedly permitted by the FTAA in question to fully manage and control
the mining operations and, therefore, to acquire "bene cial ownership" of our mineral
The Decision merely shrugged off the Manifestation by WMPC informing the
Court (1) that on January 23, 2001, WMC had sold all its shares in WMCP to Sagittarius
Mines, Inc., 60 percent of whose equity was held by Filipinos; and (2) that the assailed
FTAA had likewise been transferred from WMCP to Sagittarius. 1 1 The ponencia
declared that the instant case had not been rendered moot by the transfer and
registration of the FTAA to a Filipino-owned corporation, and that the validity of the said
transfer remained in dispute and awaited nal judicial determination. 1 2 Patently
therefore, the Decision is anchored on the assumption that WMCP had remained a
The crux of this issue of mootness is the fact that WMCP, at the time it entered
into the FTAA , happened to be wholly owned by WMC Resources International Pty., Ltd.
(WMC), which in turn was a wholly owned subsidiary of Western Mining Corporation
Holdings Ltd., a publicly listed major Australian mining and exploration company.
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
quali ed Filipino company. Considering that there is no longer any justiciable
controversy, the plea to nullify the Mining Law has become a virtual petition for
CD Technologies Asia, Inc. © 2018 cdasiaonline.com declaratory relief, over which this Court has no original jurisdiction. DCcTHa In their Final Memorandum, however, petitioners argue that the case has not
become moot, considering the invalidity of the alleged sale of the shares in WMCP from
WMC to Sagittarius, and of the transfer of the FTAA from WMCP to Sagittarius,
resulting in the change of contractor in the FTAA in question. And even assuming that
the said transfers were valid, there still exists an actual case predicated on the invalidity
of RA 7942 and its Implementing Rules and Regulations (DAO 96-40). Presently, we
shall discuss petitioners' objections to the transfer of both the shares and the FTAA.
We shall take up the alleged invalidity of RA 7942 and DAO 96-40 later on in the
discussion of the third issue. No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, rst , that the alleged invalidity of the transfer of the WMCP
shares to Sagittarius violates the fourth paragraph of Section 2 of Article XII of the
Constitution; second, that it is contrary to the provisions of the WMCP FTAA itself; and
third, that the sale of the shares is suspect and should therefore be the subject of a
case in which its validity may properly be litigated.
On the rst ground, petitioners assert that paragraph 4 of Section 2 of Article XII
permits the government to enter into FTAAs only with foreign-owned corporations.
Petitioners insist that the rst paragraph of this constitutional provision limits the
participation of Filipino corporations in the exploration, development and utilization of
natural resources to only three species of contracts —” production sharing, coproduction and joint venture —” to the exclusion of all other arrangements or variations
thereof, and the WMCP FTAA may therefore not be validly assumed and implemented
by Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed by
the Constitution to enter into an FTAA with the government.
However, a textual analysis of the rst paragraph of Section 2 of Article XII does
not support petitioners' argument. The pertinent part of the said provision states: "Sec.
2. . . . The exploration, development and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. . . ." Nowhere in the provision is
there any express limitation or restriction insofar as arrangements other than the three
aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides,
there is no basis to believe that the framers of the Constitution, a majority of whom
were obviously concerned with furthering the development and utilization of the
country's natural resources, could have wanted to restrict Filipino participation in that
area. This point is clear, especially in the light of the overarching constitutional principle
of giving preference and priority to Filipinos and Filipino corporations in the
development of our natural resources.
Besides, even assuming (purely for argument's sake) that a constitutional
limitation barring Filipino corporations from holding and implementing an FTAA actually
exists, nevertheless, such provision would apply only to the transfer of the FTAA to
Sagittarius, but de nitely not to the sale of WMC's equity stake in WMCP to Sagittarius.
Otherwise, an unreasonable curtailment of property rights without due process of law
would ensue. Petitioners' argument must therefore fail.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners —” that the
FTAA was intended to apply solely to a foreign corporation, as can allegedly be seen
from the provisions therein. They manage to cite only one WMCP FTAA provision that
can be regarded as clearly intended to apply only to a foreign contractor: Section 12,
which provides for international commercial arbitration under the auspices of the
International Chamber of Commerce, after local remedies are exhausted. This
provision, however, does not necessarily imply that the WMCP FTAA cannot be
transferred to and assumed by a Filipino corporation like Sagittarius, in which event the
said provision should simply be disregarded as a superfluity. No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to
Sagittarius; hence, the need to litigate it in a separate case. Section 40 of RA 7942 (the
Mining Law) allegedly requires the President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. " Sec.
40. Assignment/Transfer —” A nancial or technical assistance agreement may be
assigned or transferred, in whole or in part, to a quali ed person subject to the prior
approval of the President: Provided, That the President shall notify Congress of every
nancial or technical assistance agreement assigned or converted in accordance with
this provision within thirty (30) days from the date of the approval thereof ." Section 40 expressly applies to the assignment or transfer of the FTAA, not to
the sale and transfer of shares of stock in WMCP. Moreover, when the transferee of an
FTAA is another foreign corporation, there is a logical application of the requirement of
prior approval by the President of the Republic and noti cation to Congress in the event
of assignment or transfer of an FTAA. In this situation, such approval and noti cation
are appropriate safeguards, considering that the new contractor is the subject of a
On the other hand, when the transferee of the FTAA happens to be a Filipino
corporation, the need for such safeguard is not critical; hence, the lack of prior approval
and noti cation may not be deemed fatal as to render the transfer invalid. Besides, it is
not as if approval by the President is entirely absent in this instance. As pointed out by
private respondent in its Memorandum, 1 3 the issue of approval is the subject of one of
the cases brought by Lepanto against Sagittarius in GR No. 162331. That case involved
the review of the Decision of the Court of Appeals dated November 21, 2003 in CA-GR
SP No. 74161, which a rmed the DENR Order dated December 31, 2001 and the
Decision of the O ce of the President dated July 23, 2002, both approving the
assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the nancial capacity of the
transferee. According to the Deed of Absolute Sale dated January 23, 2001, executed
between WMC and Sagittarius, the price of the WMCP shares was xed at
US$9,875,000, equivalent to P553 million at an exchange rate of 5...
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