LA BUGAL B’LAAN TRIBAL ASSOCIATION INC., et. al. v. V. O.

RAMOS, Secretary Department of Environment and Natural

Resources; H. RAMOS, Director, Mines and Geosciences Bureau
(MGB-DENR); R. TORRES, Executive Secretary; and WMC
(PHILIPPINES) INC. 

Facts: The Petition for Prohibition and Mandamus before the Court challenges the
constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining Act of
1995); (2) its Implementing Rules and Regulations (DENR Administrative Order No.
[DAO] 96-40); and (3) the
FTAA dated March 30, 1995,6 executed by the government with Western Mining
Corporation (Philippines), Inc. (WMCP). On January 27, 2004, the Court en banc
promulgated its Decision granting the Petition and declaring the unconstitutionality of
certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed
between the government and WMCP, mainly on the finding that FTAAs are service
contracts prohibited by the 1987 Constitution. The Decision struck down the subject
FTAA for being similar to service contracts, which, though permitted under the 1973
Constitution, were subsequently denounced for being antithetical to the principle of
sovereignty over our natural resources, because they allowed foreign control over the
exploitation of our natural resources, to the prejudice of the Filipino nation. The
Decision quoted several legal scholars and authors who had criticized service
contracts for, inter alia, vesting in the foreign contractor exclusive management and
control of the enterprise, including operation of the field in the event petroleum was
discovered; control of production, expansion and development; nearly unfettered
control over the disposition and sale of the products discovered/extracted; effective
ownership of the natural resource at the point of extraction; and beneficial ownership
of our economic resources. According to the Decision, the 1987 Constitution (Section
2 of Article XII) effectively banned such service contracts. Subsequently, respondents
filed separate Motions for Reconsideration. In a Resolution dated March 9, 2004, the
Court required petitioners to comment thereon. In the Resolution of June 8, 2004, it
set the case for Oral Argument on June 29, 2004.

ISSUES:

1. Whether or not the Philippine Mining Act is unconstitutional for allowing

fully foreign-owned corporations to exploit the Philippine mineral resources.
2. 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 country‘s 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 nation‘s 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 nation‘s 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 by-
products 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.