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[G.R. No. 195580.

January 28, 2015]


NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and McARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
FACTS:
This is a motion for reconsideration regarding the April 21, 2014 Decision wherein
the Court denies the petition for review on Certiotrari (Rule 45) by Narra, Tesoro,
and McArthur and affirmed the October 1, 2010 Decision as resolved by the CA on
February 15, 2011. The contention of the respondent is that the petitioners are
foreign corporations and that they are not entitled to Mineral Production Sharing
Agreements. MBMI Resources, Inc. effectively owns 60% of the common stocks of
the petitioners by owning equity interests. The petitioners countered that this issue
is already moot and academic as their application for MPSA has already been
converted to a Financial Technical Assistance Agreement and has sold all it
shareholdings to a Filipino Corporation, DMCI Mining Corporation. However, the
Court clarified in its decision that the Office of the President has already cancelled
the grant of the FTAA. The petitioners further argue that the rule to be followed is
the control test in order to determine whether there is compliance to the
Constitution regarding Sec. 2 Article 12 which states that only corporations at least
sixty per centum of whose capital is owned by Filipino citizens may enjoy certain
rights and privileges like the exploration and development of natural resources. The
petitioners argue that the Grandfather Rule was erroneously applied in place of the
Control Test.
ISSUES:
1. W/N the issue regarding MPSA is moot and academic due to its subsequent
conversion to an FTAA application and sale of shareholdings to a Filipino
Corporation
2. W/N the court erred in applying the Grandfather Rule
HELD:
1. The case is not moot and academic. The Court ruled that it may still take
cognizance of an otherwise moot and academic case, if it finds that (a) there
is a grave violation of the Constitution;(b) the situation is of exceptional
character and paramount public interest is involved; (c) the constitutional
issue raised requires formulation of controlling principles to guide the bench,
the bar, and the public; and (d) the case is capable of repetition yet evading
review. There is an elaborate corporate layering to make it appear that there
is minimum Filipino ownership. The case is of paramount public interest, as
the corporate layering employed by petitioners was evidently designed to
circumvent the constitutional caveat allowing only Filipino citizens and
corporations 60%-owned by Filipino citizens to explore, develop, and use the
countrys natural resources.
2. The Court did not err in applying the Grandfather Rule as it used such only to
serve as a supplement to the Control Test. The Grandfather test was originally
intended to look into the citizenship of the individuals who ultimately own
and control the shares of stock of a corporation for purposes of determining
compliance with the constitutional requirement of Filipino ownership. The

Supreme Court recognized the intention of the framers of the Constitution to


apply the Grandfather Rule in cases where there is corporate layering. It
likewise noted that corporate layering, while admittedly allowed by the
Foreign Investment Act, becomes illegal if used to circumvent the
Constitution and other applicable laws. The Supreme Court found that while
the petitioning corporations complied with the Control Test, factual
circumstances nonetheless raise doubt as to their true nationality and
therefore requires the application of the Grandfather Rule. Some of the
indicators of doubt found by the Court in the said case are the following: (1)
the three mining corporations had the same 100% Canadian owned foreign
investor, (2) the similar corporate structure and shareholder composition of
the three corporations, (3) a major Filipino shareholder within the corporate
layering did not pay any amount with respect to its subscription, and (4) the
dubious act of the foreign investor in conveying its interests in the mining
corporations to another domestic corporation, among others. There is a
certain Olympic Mines and Development Corp which posed as a Filipino
corporation owning shares in TESORO and MCARTHUR while a certain
Palawan Alpha South Resource Development Corp. in Narra. All of which
having Filipino shares amounting to 6663, 6663 and 6596, respectively.
However, all of which have a paid up capital of 0 peso. These instances
demonstrate that corporate layering was utilized to allow a foreign
corporation to gain control of these mining corporations in the Philippines. In
total, the Court ruled that the control test is still the prevailing mode and it is
only in cases of doubt that the Grandfather Rule is applied. (PLEASE REFER
TO THE CHARTS IN THE ORIGINAL TEXTS)

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