Maximo Awayan v.

Sulu Resources Development Corporation,

G.R. 200474, 09 November 2020

The Secretary of the DENR has the authority to cancel a mineral production sharing
agreement upon showing that the license failed to comply with the terms of such
agreement. This authority is not contingent on a prior recommendation of the Mines and
Geosciences Bureau Director.

Facts:

Sulu Resources Development Corporation (Sulu) is a party to a Mineral Production

Sharing Agreement (MPSA) with the government for the development and utilization for
commercial purposes certain gold, precious and base metals, rock aggregates and
other minerals. The agreement was entered into on 07 April 1998, valid for a period of
25 years, renewable for another 25 years.

As required by the MPSA, Sulu is required to submit quarterly reports, as well as annual
accomplishment reports. However, on 16 April 2002 and 02 August 2002, Sulu state
that it could no longer submit the required reports, as well as the Declaration of Mining
Project Feasibility (DMPF) on account of force majeure.

Upon field investigation of the MGB, it was revealed that Sulu was prevented from
entering the mining/contract area due to a roadblock and checkpoint manned by well-
armed security force under the order of a certain Armando Carpio (Carpio), on issues of
right of way and conflict of ownership over the area. As such, the field investigation
team concluded the existence of force majeure and recommended that the dispute with
the surface owners be brought before the Panel of Arbitrators (Panel) to determine the
compensation for surface owners and right of way charges, as well as the amount to be
deposited in an escrow account pending resolution of the cases and disputes.

In 2003, Secretary Gozun and subsequently affirmed by Secretary Defensor, both

issuing an Order stating that the MPSA of Sulu has not been cancelled due to non-
performance and violation of the Mining Law. On September 2006, technical personnel
of MGB conducted an annual field validation which report stated that Sulu failed to
submit the reports due to force majeure – that is the subsisting dispute with the surface
owners.

On 16 February 2009, Maximo Awayan (Awayan) one of the surface owners of the
contract/mining area, filed before the DENR a petition seeking the cancellation of Sulu’s
MPSA on the following grounds:

1. Since 1998, the contract area has been non-operational and inactive.
 2. Inclusion of the private property without his consent deprived him of the right to
benefit from the said property.
3. The contractual obligations of Sulu such as performance of mining operation and
submission of the required reports, has not been complied with.
4. Sulu failed to comply with the filing of DMPF.
5. Sulu has over-extended the Exploration Period of the MPSA.
6. Sulu failed to comply with the minimum capital requirement.

On 19 September 2009, Secretary of DENR, Jose Atienza granted the petition and
canceled Sulu’s MPSA on account of Sulu’s violation of the terms and conditions of the
MPSA, namely:

1. Failure to file an application for renewal of the Exploration Period;

2. Failure to submit DMPF during the term of the EP from 1998-2000;
3. Failure to submit the required reports.

The decision of the DENR was affirmed by the Office of the President. Hence, Sulu filed
a Petition for Review before the Court of Appeals. The CA reverse the cancellation by
the DENR on account of grave abuse of discretion on the part of the DENR in
disregarding due process. According to the CA, several officers of the DENR (former
Secretary and MGB) recognized the existence of the force majeure justified the non-
compliances. Similarly, the CA ruled the in cancelling mining agreements the
recommendation of the MGB is required pursuant to Section 7(e) of Administrative
Order No. 96-42 of the IRR of RA 7942.

Thus, Awayan elevated the case to the Supreme Court.

Issues:

1. Whether or not the MGB’s recommendation is necessary for the Secretary’s

cancellation of a mineral agreement.
2. Whether or not there is grave abuse of discretion on the part of the Secretary in
ordering the cancellation of the Agreement.

Ruling:

1. The recommendation of the MGB is NOT necessary for cancellation of

mining agreements by the Secretary of the DENR.

Both the Mining Law and its implementing rules are silent on the procedure for
cancelling mineral agreements, as recognized in Celestial Nickel Mining
Exploration Corporation v. Marcoasia Corporation, where the Supreme Court
traced the history and development of statutes pertaining to the Environment
Secretary's power to cancel mineral agreements. In Celestial, the Court, citing
the Administrative Code of 1987, found that the Environment Secretary's
authority to cancel mineral agreements springs from their administrative
authority, supervision, management, and control over mineral resources. The
Environment Secretary's power to cancel or cause to cancel mineral agreements
is corollary to their power to approve mineral agreements.

This Court then briefly discussed in Celestial the Environment Secretary's

authority in relation to the Mines and Geosciences Bureau's functions. It held that
under the Philippine Mining Act, the Environment Secretary's power of control
and supervision over the Mines and Geosciences Bureau "to cancel or
recommend cancellation of mineral rights clearly demonstrates the authority of
the [Environment] Secretary to cancel or approve the cancellation of mineral
agreements. The DENR Secretary has the authority to cancel mineral
agreements based on the recommendation of the MGB Director. As a matter of
fact, the power to cancel mining rights can even be delegated by the DENR
Secretary to the MGB Director.

Nevertheless, the Court did not delineate the authority between the Environment
Secretary and the MGB. In ruling that the Secretary rightfully possessed the
power to cancel mineral agreements, the Court cited the power of the MGB to
cancel the same. It then concluded that considering MGB is under the
Environment Secretary’s supervision, the logical conclusion is that it is the
Environment Secretary who can cancel the mineral agreements.

But here, the question is not the person authorized to cancel, but rather the
proper procedure for cancellation. The Court ruled that the DENR Secretary has
the statutory authority to cancel mineral agreements even without the
recommendation of the MGB.

A review of how the mining laws developed shows that the Environment
Secretary was originally conferred the authority to cancel mineral agreements
upon showing that the licensee failed to comply with the terms of the agreement.
This authority is not qualified by a prior recommendation from the MGB. When
PD 463 was enacted, it implementing rules specifically provided for the authority
of the Secretary to warn the lessee, suspend his operations or cancel the lease
contract. Subsequent mining laws including the present one, Republic Act 7942,
neither removed nor amended such authority of the Secretary.

Second, the Secretary has direct control and supervision over the exploration,
development, utilization and conservation of the country’s natural resources. The
Environment Secretary is mandated to regulate the disposition, extraction and
exploration of mineral resources, to assume responsibility for all the assessment,
 development, protection, licensing and regulation of all energy and natural
resources, and to regulate and monitor service contractors, licensees, lessees,
and permit for the extraction, exploration, development and use of natural
resources.

Given the broad and explicit power and functions, the Environment Secretary as
the head of the DENR, can monitor and determine whether a license violated any
provision of the mineral agreement. The Secretary need not wait for a
recommendation from the MGB to cancel the agreement.

2. There is no grave abuse of discretion on the part of the Secretary of DENR.

The contention on grave abuse of discretion on the part of the Secretary is

premised on the fact that Sulu is allegedly excused from submitting the required
reports on account of force majeure under Section 16.4 of the Agreement. The
Court rules otherwise.

Article 1174 of the Civil Code defines force majeure which refers to those
extraordinary events that “could not be foreseen, or which, though foreseen,
were inevitable.” To successfully invoke force majeure, the following requisites
must concur:

a) The cause of the unforeseen and unexpected occurrence, or the failure of

the debtors to comply with their obligations, must have been independent
of human will;
b) The event that constituted the force majeure must have been impossible
to foresee or, if foreseeable, impossible to avoid;
c) The occurrence must have been such as to render it impossible for the
debtors to fulfill their obligation in a normal manner; and
d) The obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor.

When the event is found to be partly the result of a party’s participation – whether
by active intervention, neglect or failure to act – the incident is humanized and
removed from the ambit of force majeure. Hence, there must be no human
intervention.

In this case, Sulu failed to avail of the remedies to resolve its dispute with the
surface owners. Under Section 76 of the Agreement, Sulu can ensure that it
would be allowed entry to the areas by posting a bond, which would answer any
damage that may be caused to the surface owners’ properties. Moreover, Sulu
disregarded the recommendation of MGB to bring the dispute before the Panel of
Arbitrators to determine the reasonable compensation rate and right-of-way
charges to be paid to the surface owners.

Thus, Sulu cannot claim that the dispute is force majeure as it failed to implement
the recommendations and available remedies to immediately resolve the dispute.
The dispute party resulted from Sulu’s neglect and failure to remedy the situation.

Accordingly, the automatic period of extension for force majeure events does not
apply. Since respondent failed to comply with the reportorial requirements, which
constitute violations of the Agreement, there is nothing arbitrary on the part of the
Secretary to cancel the MPSA.