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LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC. v. RAMOS Supreme Court of the Philippines G.R. No.

127882 December 1, 2004 Petitioners: La Bugal-Blaan Tribal Association, Inc., et al. Respondents: DENR Secretary Victor Ramos, MGB-DENR Horacio Ramos, Executive Secretary Ruben Torres and WMC Philippines, Inc. Ponente: Justice Panganiban Nature of the Case: SC En Banc Resolution overturning its January 27, 2004 Decision, which ruled in favour of herein petitioners and declared the WMCP FTAA, RA 7942 and DAO 96-40 invalid for violating the Constitutional provisions of Art. XII, Sec. 2 Facts: La Bugal-BLaan Tribal Association filed a petition for prohibition and mandamus challenging the constitutionality of 1) RA 7942 or the Philippine Mining Act of 1995; 2) its implementing rules and regulations (DENR Administrative Order DAO 96-40); and 3) the Financial and Technical Assistance Agreement (FTAA), dated March 30, 1995, executed by the government with Western Mining Corporation Phil, Inc. (WMCP). On Jan. 27, 2004, the Court En Banc granted the petition declaring the unconstitutionality of certain provisions of the abovementioned RA 7942, DAO 96-40 as well as the entire FTAA executed between the government and WMCP. The FTAAs were found to be service contracts deemed to be prohibited in the 1987 Constitution, and though permitted in the 1973 Constitution, was said to contradict the principle of sovereignty over natural resources because the FTAA allows foreign control over the exploitation of our natural resources. Pursuant to the above decision, respondents Ramos, et al. filed separate Motions for Reconsideration, which ultimately led to this present Resolution by the Court. Issues and Ratio Decidendi: 1. WON the case has been rendered moot by the sale of WMC shares in WMCP to Sagittarius (a 60% Filipino-owned corporation) and by the subsequent transfer and registration of the FTAA from WMCP to Sagittarius a. The following are the specific arguments of the petitioners and the concurrent rebuttals made by the Court. PETITIONERS: Sale is invalid because it violates Par. 4 of Section 2 of Article XII of the Constitution, which limits the participation of Filipino corporations in the exploration, development and utilization (EDU) of natural resources to only three species of contractsproduction sharing, coproduction and joint venture to the exclusion of FTAAs. HELD: NO. Nowhere in the provision is there any express limitation or restriction insofar as arrangements other than the three aforementioned contractual schemes are concerned. There is no basis to believe that the framers of the Constitution, a majority of whom were obviously concerned with furthering the development and utilization of the countrys natural resources, could have wanted to restrict Filipino participation in that area. PETITIONERS: FTAA is limited only to foreign corporations. HELD: NO. Nowhere in the provision is FTAA limited only to foreign corporations. How petitioners can now argue that foreigners have the exclusive right to FTAAs totally overturns the entire basis of the Petition preference for the Filipino in the exploration, development and utilization of our natural resources. PETITIONERS: The transfer of shares from WMC to Sagittarius are suspicious and thus needed to be separately litigated and approved by the President pursuant to Sec. 40 of RA 7942.

HELD: NO. Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer of shares of stock in WMCP. Moreover, when the transferee of an FTAA is another foreign corporation, there is a logical application of the requirement of prior approval by the President of the Republic and notification to Congress in the event of assignment or transfer of an FTAA. On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need for such safeguard is not critical; hence, the lack of prior approval and notification may not be deemed fatal as to render the transfer invalid. Besides, Presidents approval in this case was present. PETITIONERS: Sale is invalid due to the financial capacity of the transferee. HELD: NO. Payment of the purchase price would take place only after Sagittarius commencement of commercial production from mining operations, if at all. Consequently, under the circumstances, it would not be reasonable to conclude, as petitioners did, that the transferees high debt-to-equity ratio per se necessarily carried negative implications for the enterprise and render the sale invalid. PETITIONERS: FTAA itself void, therefore it cannot be validly transferred. HELD: NO. Petitioners have assumed as fact that which has yet to be established. First and foremost, the Decision of this Court declaring the FTAA void has not yet become final. Second, FTAA does not vest in the foreign corporation full control and supervision over the EDU of mineral resources, to the exclusion of the government, which retains effective overall direction and control of the mining operations, without having to micro-manage the mining operations and dip its hands into the day-to-day management of the enterprise. reconsidered.

b. In ruling that the CASE HAS BECOME MOOT, the Court compared the case to Halili, in which the land acquired by a non-Filipino was re-conveyed to a qualified vendee and the original transaction was thereby cured. Thus, assuming arguendo the invalidity of its prior grant to a foreign corporation, the disputed FTAAbeing now held by a Filipino corporationcan no longer be assailed; the objective of the constitutional provisionto keep the exploration, development and utilization of our natural resources in Filipino handshas been served. 2. WON it would still be proper to resolve the constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA assuming that the case has been rendered moot HELD: YES. The Court must recognize the exceptional character of the situation and the paramount public interest involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing the mining industry and the affected communities as a result of doubts cast upon the constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of suits. o There exists the distinct possibility that one or more of the future FTAAs will be the subject of yet another suit grounded on constitutional issues. o Of equal if not greater significance is the cloud of uncertainty hanging over the mining industry, which is even now scaring away foreign investments o Case is capable of repetition, yet evading review

3. The proper interpretation of the phrase Agreements Involving Either Technical or Financial Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution PETITIONERS: The abovementioned phrase in Par. 4, Sec. 2 of Art. XII shall be interpreted in a strict and literal sense (verba legis) to mean technical assistance or financial assistance agreements, nothing more and nothing else. Thus, a foreign-owned corporation may only enter into an agreement with the government for either financial or technical assistance only, in line with the general policy reserving to Filipino citizens and corporations the use and enjoyment of the countrys natural resources. HELD: NO. The drafters choice of words does not indicate the intent to exclude other modes of assistance. The drafters opted to use involving when they could have simply said agreements for financial or technical assistance, if that was their intention to begin with. The use of the word involving signifies the possibility of the inclusion of other forms of assistance or activities having to do with, otherwise related to or

compatible with financial or technical assistance. Moreover, the word involving, when understood in the sense of including, as in including technical or financial assistance, necessarily implies that there are activities other than those that are being included. In other words, if an agreement includes technical or financial assistance, there is apart from such assistancesomething else already in, and covered or may be covered by, the said agreement. If the real intention of the drafters was to confine foreign corporations to financial or technical assistance and nothing more, their language would have certainly been so unmistakably restrictive and stringent as to leave no doubt in anyones mind about their true intent. Also, if merely financial or technical assistance agreements are allowed, there would be no need to limit them to large-scale mining operations, as there would be far greater need for them in the smaller scale mining activities (and even in non-mining areas). Obviously, the provision in question was intended to refer to agreements other than those for mere financial or technical assistance. Finally, there would be no need to require the President of the Republic to report to Congress, if only financial or technical assistance agreements are involved, since such agreements are in the nature of foreign loans that the President may contract or guarantee, merely with the prior concurrence of the Monetary Board. Neither will there be a need to require that said assistance be based on real contributions to the economic growth and general welfare of the country, which would make sense when applied to a major investment and not a mere loan. PETITIONERS: The deletion or omission from the 1987 Constitution of the term service contracts found in the 1973 Constitution sufficiently proves the drafters intent to exclude foreigners from the management of the affected enterprises. HELD: NO. Mere omission or failure to include the term service contracts in the 1987 Constitution does not provide a conclusive proof of said intent. This assertion is supported by the following: o The framers knew at the time they were deliberating that there were various service contracts extant and in force and effect, including those in the petroleum industry. Many of these service contracts were long-term (25 years) and had several more years to run. If they had meant to ban service contracts altogether, they would have had to provide for the termination or pretermination of the existing contracts. o The deliberations of the members of the Constitutional Commission (ConCom) conclusively show that they discussed agreements involving either technical or financial assistance in the same breadth as service contracts and used the terms interchangeably. The intention then, was not to ban service contracts altogether but to set up safeguards that would prevent abuses that were prevalent on these contracts during the Marcos era. These safeguards are (1) limiting EDU of foreign corporations to only minerals, petroleum and other mineral oils, while reserving all other natural resources to corporations at least 60% of which are owned by Filipinos; (2) being the subject of the Presidents approval; (3) being subject to review by Congress.

4. How State Control is to be understood in the Constitutional mandate in Par. 1, Sec. 2, Art. XII, which states that the State should exercise full control and supervision over the EDU of natural resources HELD: The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State may be on a macro level, through the establishment of policies, guidelines, regulations, industry standards and similar measures that would enable the government to control the conduct of affairs in various enterprises and restrain undesirable activities.

5. WON RA 7942 and its Implementing Rules (DAO 96-40) enable the government to exercise that degree of control sufficient to direct and regulate the conduct of affairs of individual enterprises and restrain undesirable activities HELD: YES. The gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA contractor by the statute and regulations easily overturns petitioners contention. The setup under RA 7942 and DAO 96-40 hardly relegates the State to the role of a passive regulator dependent on submitted plans and reports. On the contrary, the government agencies concerned are empowered to approve or disapprovehence, to influence, direct and changethe various work programs and the corresponding minimum expenditure commitments for each of the exploration, development and utilization phases of the mining enterprise. Once these plans and reports are approved, the contractor is bound to comply with its commitments therein. Thus, the FTAA contractor is not free to do whatever it pleases and get away with it; on the contrary, it will have to follow the government line if it wants to stay in the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a sufficient degree of control and supervision over the conduct of mining operations.

6. WON the WMCP FTAA provides deference to State Control HELD: YES. A perusal of the WMCP FTAA reveals a slew of stipulations providing for State control and supervision. These provisions, taken together, far from constituting a surrender of control and a grant of beneficial ownership of mineral resources to WMCP, bestow upon the State more than adequate control and supervision over the activities of the contractor and the enterprise. Neither is there surrender of State Control under Clauses 8.2, 8.3, and 8.5 the WMCP FTAA. Clauses 8.2 and 8.3 merely provides for ways to prevent the business or mining operations from grinding to a complete halt as a result of possibly over-long and unjustified delays in the governments handling, processing and approval of submitted work programs and budgets, or in the in the event a disagreement over the submitted work program or budget arises between the State and the contractor and results in a stalemate or impasse. Under these circumstances, the DENR maintains the authority to disapprove the contractors work program, and ultimately, the State may terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breach thereof. Meanwhile, the permission under Clause 8.5 allowing the contractor to move ahead and make changes without the express or implicit approval of the DENR secretary is merely an acknowledgment of the parties need for flexibility. These are still subject to certain conditions that will serve to limit or restrict the variance and prevent the contractor from straying very far from what has been approved. Finally, that the contractor has full discretion to select the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA is likewise no form of State control abdication. It is a mere acknowledgment of the fact that the contractor will have determined, after appropriate exploration works, which portions of the contract area do not contain minerals in commercial quantities sufficient to justify developing the same and ought therefore to be relinquished. 7. WON certain provisions of the WMCP FTAA are unconstitutional a. Section 7.9 of the WMCP FTAA (Should WMCPs foreign shareholderswho originally owned 100% of the equitysell 60% or more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right to receive its 60% share in net mining revenues under Section 7.7.) - HELD: YES. IT IS UNCONSTITUTIONAL. What Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without any offsetting compensation to the State. Thus, it would seem that what is given to the State in Section 7.7 is by mere tolerance of WMCPs foreign stockholders, who can at any time cut off the governments entire 60% by simply selling 60% of WMCPs outstanding capital stock to a Philippine citizen or corporation. Moreover, the proceeds of such sale will of course accrue to the foreign stockholders of WMCP,

not to the State. This outcome constitutes unjust enrichment on the part of the local and foreign stockholders of WMCP. It is without a doubt grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative of public policy and the anti-graft and corruption law. However, since the offending provision is very much separable from Section 7.7 and the rest of the FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of the WMCP FTAA itself. b. Section 7.8(e) of the WMCP FTAA (The Government Share shall be deemed to include all of the following sums: an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to financial or technical assistance agreement contractors in general.) - HELD: YES. IT IS UNCONSTITUTIONAL. It makes no sense why, for instance, money spent by the government for the benefit of the contractor in building roads leading to the mine site should still be deductible from the States share in net mining revenues. Allowing this deduction results in benefiting the contractor twice over. It constitutes unjust enrichment on the part of the contractor at the expense of the government. Fortunately, this provision can also easily be stricken off without affecting the rest of the FTAA. c. Section 3.3 of the WMCP FTAA (Agreement shall be renewed by the Government for a further period of twenty-five (25) years) - HELD: NO. IT IS NOT UNCONSTITUTIONAL. It does not run counter to the 25-year limit in Par. 1 Sec. 2 of Art. XII, since the same does not apply to FTAAs. The reason is that the above provision covers mineral agreements that the government may enter into with Filipino citizens and corporations, at least 60% owned by Filipino citizens. Specifically, FTAAs are covered by Pars. 4 and 5 of Sec. 2 of Art. XII, which no term limitations are provided. Nonetheless, the government did not have to agree to Section 3.3. But the fact that it did not, then neither may the Court intervene into the States prerogative. 8. WON Section 3(aq) of RA 7942, for allowing contractors to apply for and hold an exploration permit is unconstitutional - HELD: NO. IT IS NOT UNCONSTITUTIONAL. While the Constitution mandates the State to exercise full control and supervision over the exploitation of mineral resources, nowhere does it require the government to hold all exploration permits and similar authorizations. In fact, there is no prohibition at all against foreign or local corporations or contractors holding exploration permits. Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right to conduct exploration for all minerals in specified areas. Such a permit does not amount to an authorization to extract and carry off the mineral resources that may be discovered. Ruling: The Court resolved to GRANT the respondents and the intervenors Motions for Reconsideration; to REVERSE and SET ASIDE the January 27, 2004 Decision; to DISMISS the Petition; and to issue a new judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the Philippine Mining Law), (2) its Implementing Rules and Regulations contained in DENR Administrative Order (DAO) No. 9640; and (3) the Financial and Technical Assistance Agreement (FTAA) executed by the government and Western Mining Corporation Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are INVALIDATED for being contrary to public policy and for being grossly disadvantageous to the government. Obiter: a. Government does not act as a subcontractor in acquiring surface areas for and on behalf of the Contractor. This provision does not call for the exercise of the power of eminent domain; rather, it merely gives the state the exercise of facilitating the transaction and enabling the parties to avoid a technical violation of the Anti-Dummy Law. b. The absence of a provision requiring sale at posted prices is not problematic since Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of the minerals and by-products at the highest market price and to register with the MGB a copy of the sales agreement.

c. Contractors right to mortgage the mineral products is not objectionable per se since it probably has to do with the conditions imposed by the creditor-banks of the contractor, and nonetheless, the contractor is not freed of its obligation to pay the government its basic and additional shares in the net mining revenue, which is the essential thing to consider. d. The shareholders are free to sell their stocks. Considering that WMCP then was 100% foreign-owned, any change would mean that such percentage would either stay unaltered or be decreased in favor of Filipino ownership. We believe it is not necessary for government to attempt to limit or restrict the freedom of the shareholders in the contractor to freely transfer, dispose of or encumber their shareholdings, consonant with the unfettered exercise of their business judgment and discretion. Rather, what is critical is that the foreignowned contractor is always in a position to render the services required under the FTAA, under the direction and control of the government e. The contractors right to ask for an amendment of the FTAA is not absolute. It does not say that the government shall grant any request for amendment, but merely that the State must favorably consider any such request. f. There is no surrender of financial benefits to the contractor. Any interest the contractor may have in the proceeds of the mining operation is merely the equivalent of the consideration the government has undertaken to pay for its services. It must be stressed that the Constitution has never prohibited foreign corporations from acquiring and enjoying beneficial interest in the development of Philippine natural resources. What would be objectionable is a contractual provision that unduly benefits the contractor far in excess of the service rendered or value delivered, if any, in exchange therefor. g. There is equitable sharing of financial benefits. The financial benefits that the government will receive from an FTAA, referred to as the Government Share, is composed of a basic government share, comprised of all direct taxes, fees and royalties, as well as other payments made by the contractor during the term of the FTAAm and an additional government share, which covers other things than taxes, such as a share in the earnings or cash flows of the mining enterprise. h. Collections are not made uncertain by the scheme. The reason Congress did not set any time limit for the grace period is that recovery periods are determined, to a great extent, by technical and technological factors peculiar to the mining industry. Nonetheless, the 1995 and 1996 IRR of RA 7942 specify that the period of recovery, reckoned from the date of commercial operation, shall be for a period not exceeding five years, or until the date of actual recovery, whichever comes earlier. i. Our mineral resources are not given away for free by RA 7942. Foreign contractors do not just waltz into town one day and leave the next, taking away mineral resources without paying anything. They invest huge sums of money and incur a lot of risks in the process. The fact that the state does not share in this risk but only partakes in the proceeds by way of government and additional shares makes the FTAA more advantageous than other EDU schemes like CPA, JVA and MPSA j. The States receipt of 60% of an FTAA Contractors after-tax income should not be made mandatory as such would be grossly unfair to contractors and discourage investments. It is wrong to equate the mining industry with the petroleum industry, where such 60% rule is required because there are way more risks and expenditures involved in the former. Also, for the to decree imperiously that the governments share should be not less than 60% of the after-tax income of FTAA contractors at all times is nothing short of dictating upon the government. To avoid compromising the States full control and supervision over the exploitation of mineral resources, the Court must back off from insisting upon such rule. Otherwise, it would be wading into judicial legislation, and thereby inordinately impinge on the control power of the State. k. The petitioners repeated urging for the Court to consider whether mining as an industry and economic activity deserved to be accorded priority, preference and government support as against other activities in which Filipinos and the Philippines may have an economic advantage is untenable. Such is a question of policy that the President and Congress will have to address; it is not for the Court to decide.