Narra nickel mining, Tesoro Mining, Mcarthur
Mining
Vs Redmont Consolidated Mining
Case Law:
the Grandfather Rule or the second part of the
SEC 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). Stated
differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the
Grandfather Rule will not apply.
Facts:
Redmont was a domestic corporation organized
and existing under Philippine laws, which took
interest in mining and exploration of certain
areas in the province of Palawan. After inquiry
with DENR, it learned that the places it wanted
to undertake are already covered by Mineral
Production Sharing agreement, of three mining
corporations, namely, Narra Nickel, Tesoro, and
Mcarthur Mining.
Redmont filed before the Panel of Arbitrators
(POA) of the DENR three separate petitions for
denial of petitioners applications for MPSA,
alleging that the Petitioner mining corporations
are owned and controlled by MBMI resources
Inc, a 100% canadian corporation
Redmont alleges that MBMi was the driving
force behind the petitioners filing of MPSA for
MMC (madridejos mining corporation),
Redmont further argues that the NNM, TM, MM
should be disqualified in engaging in mining
activities which are reserved only for Filipino
Citizens, as their capital stocks are mostly owned
by a Foreign Corporation.
Petitioners Defense: they contend that they are
actually filipino owned corporations and thus the
control test shall be used, as they actually have
60 filipino equity in their investing and investee
corporations, that although:
McArthur Mining, Inc., is composed, among
others, by Madridejos Mining Corporation
(Filipino) owning 5,997 out of 10,000 shares, and
MBMI Resources, Inc. (Canadian) owning 3,998
out of 10,000 shares; MBMI also owns 3,331 out
of 10,000 shares of Madridejos Mining
Corporation;
Tesoro and Mining and Development, Inc., is
composed, among others, by Sara Marie Mining,
Inc. (Filipino) owning 5,997 out of 10,000 shares,
and MBMI Resources, Inc. (Canadian) owning
3,998 out of 10,000 shares; MBMI also owns
3,331 out of 10,000 shares of Sara Marie Mining,
Inc.;
Narra Nickel Mining and Development
Corporation, is composed, among others, by
Patricia Louise Mining & Development
Corporation (Filipino) owning 5,997 out of
10,000 shares, and MBMI Resources, Inc.
(Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,396 out of 10,000 shares of
Patricia Louise Mining & Development
Corporation;
POA held in favor of Redmont, but upon Mines
adjudication board issued an order reversing the
decision of POA-DENR
The CA used the Grandfather Rule. Under the
control test or liberal rule, Shares belonging to
corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall
be considered as of Philippine nationality, but if
the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only
the number of shares corresponding to such
percentage shall be counted as of Philippine
nationality, thus the Grandfather rule or Strict
Rule was applied.
Ca held that MBMI in effect owned majority of
the common stocks of the petitioners as well as
at least 60% equity interest of other majority
shareholders of petitioners through joint
venture agreements. The CA found that through
a "web of corporate layering, it is clear that one
common controlling investor in all mining
corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-
interest of, MBMI.
CA found in favor of Redmont
Issue:
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."
The Grandfather Rule implements the intent of
the Filipinization provisions of the Constitution.
The grandfather Rule is merely a supplementary
to the determination of Filipino Ownership, it is
still the control test that prevails, save if the
Equity threshold is below 60%, or when there is
corporate layering aimed to circumvent the laws
in Filipinazation, the GFR shall apply

W/N CA erred in the application of Grandfather The 60-40 ratio shall be patently seen, or at first
Rule, allegedly contrary to the express mandate glance there would be no doubt to exist or give
of Foreign Investment Acts of 1991 rise to a reasonable suspicion, of the
Filipinazation
Petitioners further claim that the Grandfather
rule has been abandoned and is no longer the Under the Strict Rule or Grandfather Rule
applicable rule. Proper, the combined totals in the Investing
Corporation and the Investee Corporation must
Ruling:
be traced (i.e., grandfathered) to determine
No, the Grandfather Rule is justified. SEC Rule the total percentage of Filipino ownership
and DOJ Opinion, the Grandfather Rule or the
"Corporate layering" is admittedly allowed by
second part of the SEC Rule applies only when
the FIA; but if it is used to circumvent the
the 60-40 Filipino-foreign equity ownership is in
Constitution and pertinent laws, then it becomes
doubt (i.e., in cases where the joint venture
illegal.
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). Stated
differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the
Grandfather Rule will not apply.

In ending, 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. XII of the 1987 Constitution,
entitled to undertake the exploration,
development and utilization of the natural
resources of the Philippines. When in the mind
Gamboa v. Teves etal., GR No. 176579, October
9, 2012
Facts:
The issue started when petitioner Gamboa
questioned the indirect sale of shares involving
almost 12 million shares of the Philippine Long
Distance Telephone Company (PLDT) owned by
PTIC(Philippine Trade and Investment Center) to
First Pacific. Thus, First Pacifics common
shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the
total common shareholdings of foreigners in
PLDT to about 81.47%. The petitioner contends
that it violates the Constitutional provision on
nationalization requirement of public utility,
stated in Section 11, Article XII of the 1987
Philippine Constitution, which limits foreign
ownership of the capital of a public utility to not
more than 40%.
Then there has been an equity arrangement
which would place ownership of 60%11 of the
common (voting) shares in the Japanese group,
while retaining 60% of the total percentage of
common and preferred shares in Filipino hands
would amount to circumvention of the principle
of control by Philippine stockholders that is
implicit in the 60% Philippine nationality
requirement in the Constitution.,
It was settled that the preferred non-voting
shares were mostly held by Filipinos, this is due
to the requiring of MARCOS requiring every
applicant of a PLDT telephone line to subscribe
to non-voting preferred shares to pay for the
investment cost of installing the telephone line.
Thus even if the foreigners only own 40% of the
capital, but it is voting, then the effective control
of filipinos are diminished, which was
controverted by Gamboa.
And in 2011, the court ruled the case in favor of
the petitioner, hence this new case, resolving the
motion for reconsideration for the 2011 decision
filed by the respondents.
(1) the Philippine Stock Exchange's (PSE)
President, (2) Manuel V. Pangilinan
(Pangilinan), (3) Napoleon L. Nazareno
(Nazareno ), and ( 4) the Securities and Exchange
Commission (SEC)(collectively, movants.
The movants contend that the capital defined in
Sec 11 art 12 of the consti has long been settled
as outstanding shares of stock, WHETHER
VOTING OR NON-VOTING
Issue:
Whether or not the Court made an erroneous
interpretation of the term capital in its 2011
decision?
Held/Reason:
No, motion denied! Both the Voting Control Test
and the Beneficial Ownership Test must be
applied to determine whether a corporation is a
"Philippine national."
The Court said that the Constitution is clear in
expressing its State policy of developing an
economy effectively controlled by Filipinos.
Asserting the ideals that our Constitutions
Preamble want to achieve, that is to conserve
and develop our patrimony , hence, the State
should fortify a Filipino-controlled economy.
In the 2011 decision, the Court finds no wrong in
the construction of the term capital which
refers to the shares with voting rights, as well as
with full beneficial ownership (Art. 12, sec. 10)
which implies that the right to vote in the
election of directors, coupled with benefits, is
tantamount to an effective control.
Therefore, the Courts interpretation of the term
capital was not erroneous. Thus, the motion for
reconsideration is denied.