La Bugal-B'Laan Tribal Assn vs Ramos G.R. No.

127882 January 27, 2004

Facts:
RA 7942 (The Philippine Mining Act) took effect on April 9, 1995. Before the
effectivity of RA 7942, or on March 30, 1995, the President signed a Financial and
Technical Assistance Agreement (FTAA) with WMCP, a corporation organized
under Philippine laws, covering close to 100,000 hectares of land in South
Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato. On August 15, 1995,
the Environment Secretary Victor Ramos issued DENR Administrative Order 9523, which was later repealed by DENR Administrative Order 96-40, adopted on
December 20, 1996.
Petitioners prayed that RA 7942, its implementing rules, and the FTAA between
the government and WMCP be declared unconstitutional on ground that they
allow fully foreign owned corporations like WMCP to exploit, explore and develop
Philippine mineral resources in contravention of Article XII Section 2 paragraphs 2
and 4 of the Charter.
In January 2001, WMC - a publicly listed Australian mining and exploration
company - sold its whole stake in WMCP to Sagittarius Mines, 60% of which is
owned by Filipinos while 40% of which is owned by Indophil Resources, an
Australian company. DENR approved the transfer and registration of the FTAA in
Sagittarius name but Lepanto Consolidated assailed the same. The latter case is
still pending before the Court of Appeals.
EO 279, issued by former President Aquino on July 25, 1987, authorizes the DENR
to accept, consider and evaluate proposals from foreign owned corporations or
foreign investors for contracts or agreements involving wither technical or
financial assistance for large scale exploration, development and utilization of
minerals which upon appropriate recommendation of the (DENR) Secretary, the
President may execute with the foreign proponent. WMCP likewise contended
that the annulment of the FTAA would violate a treaty between the Philippines
and Australia which provides for the protection of Australian investments.
Issues :
Whether or not the Philippine Mining Act is unconstitutional for allowing fully
foreign-owned corporations to exploit the Philippine mineral resources.
Whether or not the FTAA between the government and WMCP is a service
contract that permits fully foreign owned companies to exploit the Philippine
mineral resources.
Held:
First Issue: RA 7942 is Unconstitutional
RA 7942 or the Philippine Mining Act of 1995 is unconstitutional for permitting
fully foreign owned corporations to exploit the Philippine natural resources.
Article XII Section 2 of the 1987 Constitution retained the Regalian Doctrine which
states that All lands of the public domain, waters, minerals, coal, petroleum,
and other minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. The same section also states that, the

exploration and development and utilization of natural resources shall be under

the full control and supervision of the State.
Conspicuously absent in Section 2 is the provision in the 1935 and 1973
Constitution authorizing the State to grant licenses, concessions, or leases for the
exploration, exploitation, development, or utilization of natural resources. By
such omission, the utilization of inalienable lands of the public domain through
license, concession or lease is no longer allowed under the 1987 Constitution.
Under the concession system, the concessionaire makes a direct equity
investment for the purpose of exploiting a particular natural resource within a
given area. The concession amounts to complete control by the concessionaire
over the countrys natural resource, for it is given exclusive and plenary rights to
exploit a particular resource at the point of extraction.
The 1987 Constitution, moreover, has deleted the phrase management or other
forms of assistance in the 1973 Charter. The present Constitution now allows
only technical and financial assistance.The management and the operation of
the mining activities by foreign contractors, the primary feature of the service
contracts was precisely the evil the drafters of the 1987 Constitution sought to
avoid.
The constitutional provision allowing the President to enter into FTAAs is an
exception to the rule that participation in the nations natural resources is
reserved exclusively to Filipinos. Accordingly, such provision must be construed
strictly against their enjoyment by non-Filipinos. Therefore, RA 7942 is invalid
insofar as the said act authorizes service contracts. Although the statute employs
the phrase financial and technical agreements in accordance with the 1987
Constitution, its pertinent provisions actually treat these agreements as service
contracts that grant beneficial ownership to foreign contractors contrary to the
fundamental law.
The underlying assumption in the provisions of the law is that the foreign
contractor manages the mineral resources just like the foreign contractor in a
service contract. By allowing foreign contractors to manage or operate all the
aspects of the mining operation, RA 7942 has, in effect, conveyed beneficial
ownership over the nations mineral resources to these contractors, leaving the
State with nothing but bare title thereto.
The same provisions, whether by design or inadvertence, permit a circumvention
of the constitutionally ordained 60-40% capitalization requirement for
corporations or associations engaged in the exploitation, development and
utilization of Philippine natural resources.
When parts of a statute are so mutually dependent and connected as conditions,
considerations, inducements or compensations for each other as to warrant a
belief that the legislature intended them as a whole, then if some parts are
unconstitutional, all provisions that are thus dependent, conditional or
connected, must fail with them.
Under Article XII Section 2 of the 1987 Charter, foreign owned corporations are
limited only to merely technical or financial assistance to the State for large scale

exploration, development and utilization of minerals, petroleum and other

mineral oils.
Second Issue: RP Government-WMCP FTAA is a Service Contract
The FTAA between he WMCP and the Philippine government is likewise
unconstitutional since the agreement itself is a service contract.

Section 1.3 of the FTAA grants WMCP a fully foreign owned corporation, the
exclusive right to explore, exploit, utilize and dispose of all minerals and byproducts that may be produced from the contract area. Section 1.2 of the same
agreement provides that EMCP shall provide all financing, technology,
management, and personnel necessary for the Mining Operations.
These contractual stipulations and related provisions in the FTAA taken together,
grant WMCP beneficial ownership over natural resources that properly belong to
the State and are intended for the benefit of its citizens. These stipulations are
abhorrent to the 1987 Constitution. They are precisely the vices that the
fundamental law seeks to avoid, the evils that it aims to suppress. Consequently,
the contract from which they spring must be struck down.