The high court, in a 31-page decision, found that Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc., and McArthur Mining, Inc. are effectively controlled by MBMI Resources, Inc. a Canadian firm.
“We of this Court note that a grave violation of the Constitution… is being committed by a foreign corporation right under our country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations,” Associate Justice Presbitero J. Velasco wrote.
The case originated from Redmont Consolidated Mines Corp.’s decision to seek exertion concessions in Palawan province, only to find that the three companies had Mineral Production Sharing Agreement (MPSA) applications with the Department of Environment and Natural Resources (DENR), which were later granted.
A year later, Redmont questioned the mining company’s ownership before DENR’s panel of arbitrators and sought the revocation of their MPSAs. The arbitrators, in a December 2007 ruling, revoked the MPSAs granted to the three firms for “being foreign corporations.”
The Mines and Adjudication Board (MAB), however, reversed the arbitrators, which led Redmont to seek a review of the MAB decision before the Court of Appeals (CA).
The CA granted Redmont’s plea, ruling the MBMI “owned majority of the common stocks of the three firms as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements.”
The appellate court decision led the mining companies to seek relief before the Supreme Court.
In its ruling, the Supreme Court said: “Corporate layering is admittedly allowed by the FIA (Foreign Investments Act); but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal.”
Applying the “grandfather rule,” the Supreme Court ruled MBMI owns 60% or more of their equity interests.
“In effect, whether looking at the capital structure or the underlying relationships between and among corporations, petitioners are not Filipino nationals and must be considered foreign since 60% or more of their capital stock or equity interest are owned by MBMI,” the Supreme Court said.
In determining Filipino ownership, the stricter “grandfather rule” examines the nationality of stockholders. The more lenient “control test” on the other hand declares a corporation of Philippine nationality if its capital is at least 60% owned by Filipinos.
“Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect of MBMI, the grandfather rule must be used,” the high court said.
The MPSA, under the Mining Act of 1995, allows 60% foreign ownership while a financial or technical assistance agreement (FTAA) allows for 100% foreign ownership.
The Office of the President, in a 2010 decision, likewise canceled MBMI’s FTAA for violating the Constitution. -- Mikhail Franz E. Flores
source: Businessworld
