Name: Cris Angeli V.

Tacuboy
Topic: Nationality, Citizenship and Foreign Equity
Law or Provision Cited: Section 2, Article XII of the Philippine Constitution
Title: Narra Nickel Mining and Development, Inc and McArthur Mining Inc vs.
Redmont Consolidated Mines Corp.
Source, Date: GR No. 195580; 28 January 2015

Facts:
Narra, Tesoro and McArthurt filed a Motion for Reconsideration before the Court
challenging a decision which sustained the appellate court’s ruling that petitioners, being foreign
corporations, are not entitled to Mineral Production Agreements (MPSAs).
The Court upheld with approval the appellate court’s finding and after the application of
the Grandfather Rule, that there was doubt as to petitioners’ nationality since a 100% Canadian-
owned firm, MBMI Resources, Inc, owns 60% of the common stocks of petitioners by owning
equity interest of petitioners’ other majority corporate shareholders.
Narra, Tesoro and McArthur argued that the application of the Grandfather Rules to
determine their nationality is erroneous and allegedly without basis in the Constitution, the FIA,
The Philippine Mining Act, and the Rules issued by the SEC. The laws and rules supposedly
espouse the application of the Control Test in verifying the Philippine Nationality of corporate
entities for purposes of determining compliance with Sec 2, Art XII of the Constitution.
Issue:
Whether or not the application of Grandfather Rule is justified to determine the
nationality of petitioners
Held:
Yes
Ruling:
Sec. 2, Art. XII of the Constitution reserves the exploration, development, and utilization of
natural resources to Filipino citizens and „corporations or associations at least 60% of whose
capital is owned by such citizens.”
Aligned with this objective, the Grandfather Rules was originally conceived 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 constitutionals requirement of
Filipino ownership. Hence, it cannot be denied that the framers of the Constitution have not
foreclosed the Grandfather Rule as a tool in verifying the nationality of corporations for purposes
of ascertaining their right to participate in nationalized or partly nationalized activities.
The Grandfather Rule is a method by which the percentage of Filipino equity in a
corporation is computed. To arrive at the actual Filipino ownership and control in a corporation,
both direct and indirect shareholdings in the corporation are determined. It employs the method
of attributing the shareholdings of a given corporate shareholder to the second or even the
subsequent tier of ownership hews with the rule that the “beneficial ownership” of corporations
engaged in nationalized activities must reside in the hands of Filipino citizens. Even if the 60-40
Filipino equity is satisfied, an agreement that may distort the actual economic or beneficial
ownership of a mining corporation may be struck down as violative of the constitutional
requirement.
In this case, using the control test, Narra, Tesoro and MacArthur appear to have satisfied
the 60-40 equity requirement. But the nationality of these corporations and the foreign-owned
common investor that funds them was in doubt, hence, the need to apply the Grandfather Rule.