NARRA NICKEL MINING AND DEVELOPMENT CORP. vs.
REDMONT
CONSOLIDATED MINES CORPORATION
Ponente: J. VELASCO,JR.
DOCTRINE: Under the Strict Rule or Grandfather Rule Proper, the combined totals in
the Investing Corporation and the Investee Corporation must be traced to determine the
total percentage of Filipino ownership. Where the 60-40 Filipino-foreign equity ownership
is not in doubt, the Grandfather Rule will not apply
FACTS: Redmont, a domestic corporation took interest in mining and exploring certain
areas in Palawan. After an inquiry with the DENR, it learned that the areas where it wanted
to undertake such were already covered by Mineral Production Sharing Agreement
applications of Narra, Tesoro and McArthur.
McArthur’s MPSA stems from the application of its predecessor-in-interest SMMI where
SMMI was issued a MPSA covering an area of over 1,782 hectares of land in Brgy.
Sumbling, Bataraza, Palawan and an area of 3,720 hectares of land in Brgy.
Malataao, Bataraza, Palawan. These were later on transferred to MMC which eventually
came into the hands of McArthur. Narra acquired its MPSA from PLMDC which covers
3,277 hectares of land in Calategas and San Isidro, Narra, Palawan. Tesoro acquired its
MPSA from SMMI which covered 3,402 hectares of land in Brgys. Malinao and Urduja,
Narra, Palawan.
Redmont later on filed arbitration proceedings to deny the applications for MPSA
designated for the three companies on the ground that the capital stock of the three
companies are owned by MBMI Resources Inc., a 100% Canadian Corporation.
Redmont claims that MBMI was the driving force behind the three companies’ filing of
MPSA as it knows it can only participate in mining activities through corporations which
are Domestic in nature.
The Panel of Arbitrators(POA) denied the applications of the three companies which
prompted them to elevate the case to the RTC. The RTC of Quezon City denied their
petition, upholding the ruling that they were not Domestic Corporations fit to engage in a
nationalized industry which was upheld by the CA.
ISSUE: Whether or not the Grandfather rule is applicable.
HELD: Yes.
The Court finds that this case calls for the application of the grandfather rule since, as ruled
by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership
of petitioners.
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.
Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to
determine the total percentage of Filipino ownership. The ultimate Filipino ownership of
the shares must first be traced to the level of the Investing Corporation and added to the
shares directly owned in the Investee Corporation.
Based on the said SEC Rule and DOJ Opinion, the Grandfather Rule applies only when
the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign stockholders with less than 60%
Filipino stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino).
Where the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather
Rule will not apply. After a scrutiny of the evidence extant on record, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur
and Tesoro, since their common investor, the 100% Canadian corporation––MBMI,
funded them.
When in the mind of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then
it may apply the "grandfather rule."
In addition, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines.