BUSINESS ORGANIZATION I | CASE SUMMARIES | 3-MANRESA 2018-2019
NARRA v. REDMONT MAB: Reversed and set aside POA's order finding
GR 195580, April 21, 2014
Digest by Ergel Rosal
Petitioners: Narra Nickel Mining Development Corp.,
Tesoro Mining and Developmen, Inc., McArthur Mining,
Inc.
Facts: On December 2006, Redmont (domestic
corporation) took interest in mining and exploring certain
areas of the province of Palawan. However, after inquiry
with the DENR, it learned that the areas it wanted to
undertake exploration and mining activities were already
covered by Mineral Production Sharing Agreement
(MPSA) applications of petitioners.
McArthur: Filed through its predecessor-in-interest Sara
Marie Mining, Inc. (SMMI) an application for an MPSA
and Exploration Permit (EP). An MPSA was
subsequently issued to SMMI and this, together with the
EP, were transfered to MMC which then assigned them
to McArthur.
Narra: Acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining
Development Corporation (PLMDC).
Tesoro: Acquired its MPSA from SMMI.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) and DENR three (3) separate petitions
for the denial of petitioners' application for MPSA
designated as AMA-IVB-153, AMA-IVB-154, and MPSA
IV-1-12.
Redmont alleges:
1. At least 60% of the capital stock of petitioners
are owned and controlled by MBMI Resources
Inc., (MBMI), a 100% Canadian corporation.
Thus, petitioners are disqualified from engaging
in mining activities through MPSAs, which were
reserved only for Filipino citizens.
Narra, et al:
1. They are qualified persons under Sec. 3(aq) of
RA No. 7942 or the Philippine Mining Act of
1995.
2. Their nationality as applicant is immaterial
because they also applied for Financial or
Technical Assistance Agreements (FTAA) on
June 15, 2007 (which was signed and issued by
then President Macapagal-Arroyo in favor of
petitioners on April 5, 2010). Nevertheless, they
claim that they are Philippine Nationals as 60%
of their capital is owned by citizens of the
Philippines.
POA: Disqualified petitioners from gaining MPSA, for
being considered as foreign corporations.
1
petitioners disqualified.
CA: Upheld POA's finding of petitioners being foreign
corporations using the "grandfather rule”.
In determining the nationality of petitioners, the CA
looked into the corporate structures and their
corresponding common shareholders. CA discovered
that MBMI in effect owned majority of the common
stocks of the petitioners as well as at least 60% equity
interest of other majority shareholderd of petitioners
through joint venture agreements (JVA).
The CA also viewed the conversion of the MPSA
applications of petitioners into FTAA applications
suspicious in nature and, as a consequence,
recommended the rejection of peitioners' MPSA
applications by the Secretary of DENR.
On April 6, 2011, while the case was pending, the OP
cancelled and revoked the FTAAs.
Issue: Whether or not petitioners are Filipino
corporations allowed to engage in exploration and
mining activities in the Philippines - NO.
Held: There are 2 acknowledged tests in determining
the nationality of a corporation: the control test and the
grandfather rule.
Par. 7 of DOJ Opinion No. 020, Series of 2005:
Control Test: "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,"
Grandfather Rule: "if the percentage of the Filipino
ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality,"
The Grandfather Rule applies in the case at bar. This
rule applies only when the 60-40 Filipino-foreign equity
ownership is in doubt. Stated otherwise, where the 60-40
Filipino-foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
In this case, there is doubt in the corporate ownership of
petitioners. As found by the CA, doubt is present in the
60-40 Filipino-foreign equity ownership of petitioners
since their common investor, the 100% Canadian
corporation - MBMI - funded them. The instant case
presents a situation which exhibits a scheme employed
by stockholders to circumvent the law. To determine the
actual participation, direct or indirect, of MBMI, the
grandfather Rule must be hsed.
In sum, the Court found that petitioners are not Filipino
since MBMI, a 100% Canadian Corporation, owns 60%
or more of their equity interest. Such conclusion is
derived from grandfathering petitioners’ corporate
 BUSINESS ORGANIZATION I | CASE SUMMARIES | 3-MANRESA 2018-2019 2

owners, namely: MMI, SMMI and PLMDC. Going further,
MBMI's Summary of Significant Accounting Policies
Statement - regarding the joint venture agreements it
entered into with the "Olympic" and "Alpha" groups -
involved SMMI, Tesoro, PLMDC and Narra. Noticeably,
the ownership of the "layered" corporations boils down to
MBMI, Olympic or corporations under "Alpha" group
wherein MBMI has joint venture agreements with,
practically exercising majority control over the
corporations mentioned.
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its
stockholders in their head office in Canada suggest that
they are conducting operation only through their local
counterparts.

In effect, whether looking at the capital structure or the

underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and
must be considered foreign since 60% or more of their
capital sticks or equity interest are owned by MBMI.

Partnerships vs JVA

Petitioners claim that the CA erred in ruling that by

entering into a join venture, MBMI have a joint interest
with petitioners. They also assert that since there is no
evidence of written agreement to form partnership
between petitioners and MBMI, no partnership was
created.

The Court ruled that the relationships entered between

and among petitioners and MBMI are no simple "joint
venture agreements". As the intricate web of "ventures"
entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against
corporations entering into partnerships then the
relationship created should be deemed as
"partnerships", and the laws on partnerships should be
applied. Thus, a joint venture agreements between and
among corporations may be seen as similar to
partnerships since the elements of partnership are
present.

As to the conversion of MPAs into FTAA:

The filing of the Financial or Technical Assistance

Agreement application is a clear admission that the
respondents are not capable of conducting a large scale
mining operation and that they need the financial and
technical assistance of a foreign entity in their operation
that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources
to operate the mining areas for the greater benefit and
interest of the same and not the Filipino stockholders
who only have a less substantial financial stake in the
corporation.

xxxx

The filing of the FTAA application on June 15, 2007,

during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA