La Bugal-B’Laan Tribal Association, Inc. vs.

Ramos
G.R. No. 127882

Chris Paredes; Law 116 – Leg. Met. Group A4

FACTS

• Resolution written by J. Panganiban.

• Petition for Prohibition and Mandamus challenges the constitutionality of:
o RA 7942 – The Philippine Mining Act of 1995
o IRR – DAO 96-40
o March 30, 1995 FTAA between the Gov’t and Western Mining Corporation
(Philippines), Inc. (WMCP)
• Jan. 23, 2001 – WMC Resources International Pty., Ltd. (WMC), an Australian
company wholly owning WMCP, sold all its shares in WMCP to Sagittarius (60%
Filipino & 40% Australian – Indophil Resources, NL). WMCP was then renamed
Tampakan Mineral Resources Corporation.
• Dec. 18, 2001 – DENR Secretary approved transfer and registration of FTAA from
WMCP to Sagittarius (Tampakan).
• Lepanto Consolidated Mining Co. appealed this order of DENR Secretary but the
President and C.A. upheld said order.
• Jan. 27, 2004 – SC declared unconstitutional certain provisions of RA 7942, DAO 96-
40, and entire FTAA mainly on the finding that FTAAs are service contracts
prohibited by the 1987 Constitution.
• Respondents filed separate Motions of Reconsideration.
• March 9, 2004 – SC required petitioners to comment.
• June 8, 2004 – SC set an Oral Argument on June 29, 2004.
• June 29, 2004 – Manifestation and Motion (in lieu of comment) by OSG on behalf of
public respondents that it did not object to the Motion for Intervention filed by the
Chamber of Mines of the Philippines, Inc. (CMP). OSG was in fact joining and
adopting CMP’s MR.

ISSUES / HELD

• Has the case been rendered moot by:

o The sale of WMC shares in WMCP to Sagittarius?
o And by the subsequent transfer of FTAA from WMCP to Sagittarius?
• Assuming mootness, is it still proper to resolve the constitutionality of the assailed
provisions of the Mining Law, DAO 96-40 & WMCP FTAA?
• What is the proper interpretation of the phrase Agreements Involving Either
Technical or Financial Assistance (Par. 4, Sec. 2, Art. XII)?
• Respondents’ and intervenor’s M.R. GRANTED.
RATIO (Solely based on the SC Resolution penned by J. PANGANIBAN)

• The Constitution should be read in broad, life-giving strokes. It should not be used to
strangulate economic growth or to serve narrow, parochial interests.
• Service contract – a contractual arrangement for engaging in the exploitation and
development of petroleum, mineral, energy, land and other natural resources.
• Mootness
o Original decision shrugged off the Manifestation by WMPC informing the SC
of the sale of its shares to Sagittarius. “Patently therefore, the Decision is
anchored on the assumption that WMCP had remained a foreign
corporation.”
o Conveyance of WMCP FTAA to a Filipino corp. can be likened to the sale of
land to a foreigner who subsequently acquires Filipino citizenship, or who
later resells the same to a Filipino citizen.
o Case pending in C.A. is between Lepanto and Sagittarius, which are both
Filipinos. Whatever the result is, FTAA will still be in Filipino hands.
o There is no more justiciable controversy, therefore, the plea to nullify the
Mining Law has become a virtual petition for declaratory relief. The SC has
no original jurisdiction over such petition.
§ No Transgression of the Constitution by the Transfer of the WMCP Shares
§ FTAA Not Intended Solely for Foreign Corporation
v The provision for arbitration by the International Chamber of
Commerce after local remedies are exhausted does not imply that
FTAA cannot be transferred to a Filipino corp.
§ No Need for a Separate Litigation of the Sale of Shares
v Sec. 40 (Assignment/Transfer) of RA 7942 applies to FTAAs and not to
sale & transfer of shares.
v If the FTAA is transferred to a Filipino corp., the lack of approval of
the President and notification to Congress are not fatal to the validity
of such transfer.
v It is not reasonable to conclude that the transferee’s high debt-to-
equity ratio per se carries negative implications for the enterprise.
§ FTAA Not Void Thus Transferrable
v The decision of the SC that the FTAA is void has yet to become final.
v FTAA does not vest in the foreign corp. full control over the EDU of
mineral resources to the exclusion of the government.
v FTAA is not per se defective or unconstitutional. It was questioned
only because it had been issued to an allegedly non-qualified foreign-
owned corp.
• Whether the Court Can Still Decide the Case, Even Assuming It Is Moot
o “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 … upon the constitutionality and validity of
the Mining Act, … and future FTAAs, and the need to avert a multiplicity of
suits.”
o The courts will decide a question – otherwise moot and academic – if it is
“capable of repetition, yet evading review.”
 o The entry of the Chamber of Mines of the Philippines has put into focus the
seriousness of the allegations of unconstitutionality of RA 7942 and DAO 96-
40 and converts the case from a virtual petition for declaratory relief to
prohibition in the enforcement of the said law and IRR.
o “Where an action of the legislative branch is seriously alleged to have
infringed the Constitution, it becomes not only the right but in fact the duty
of the judiciary to settle the dispute.” (Tañada v. Angara)
• The Proper Interpretation of the Constitutional Phrase “Agreements
Involving Either Technical or Financial Assistance”
§ No Restriction of Meaning by a Verba Legis Interpretation
v Principles of constitutional construction:
o Verba legis – ordinary meaning
o Ratio legis est anima – in accordance with the intent of the
framers
o Ut magis valeat quam pereat – interpreted as a whole
v “agreements … involving either technical or financial assistance”
does not indicate the intent to exclude other modes of assistance. The
use of “involving” signifies the possibility of the inclusion of other
forms of assistance or activities. Such word does not connote a sense of
exclusivity. Agreements with foreign corps. are thus not limited to
mere financial or technical assistance.
v 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 bee so unmistakably restrictive and stringent as
to leave no doubt in anyone’s mind about their true intent.
§ Deletion of “Service Contracts” to Avoid Pitfalls of Previous Constitutions, Not
to Ban Service Contracts Per Se
v The intention to exclude foreigners from the management cannot be
definitively and conclusively established from the mere failure to carry
the same expression or tem over to the new Constitution.
v There has never been any constitutional or statutory provision that
reserved to Filipino citizens or corps (60% Filipino) the rendition of
financial or technical assistance to companies engaged in mining or
the development of any other natural resource.
v A verba legis construction shows that Par. 4 in not to be understood as
one limited only to foreign loans and to technical assistance.
§ A More Reasonable Look at the Charter’s Plain Language
v By specifying such “agreements … involving … assistance,” the
drafter necessarily gave implied assent to everything that these
arrangements necessarily entailed, provided that Philippine
sovereignty over natural resources and full control over the enterprise
undertaking the EDU activities remain firmly in the State.
§ Petitioners’ Theory Deflated by the Absence of Closing-Out Rules or Guidelines
v There are no transitory provisions providing for the termination or
pre-termination of existing service contracts. It is inconceivable that
the drafters of the Constitution would leave such an important matter
indefinitely hanging in the air in a formless and ineffective state.
§ Petitioners’ Posture Also Negated by Ratio Legis Est Anima
 v Service Contracts Not “Deconstitutionalized”
o An exchange between Commissioners Jamir and Suarez
irrefutably proves that the “agreements involving technical or
financial assistance” were none other than service contracts.
v More Than Mere Financial and Technical Assistance Entailed by the
Agreements
o The drafters knew that the agreements with foreign corps.
were going to entail not mere technical or financial assistance
but rather, foreign investment in and management of an
enterprise.
v Agreements Involving Technical or Financial Assistance are Service
Contracts with Safeguards
v “As written by the framers and ratified and adopted by the people, the
Constitution allows the continued use of service contracts with foreign
corporations – as contractors who would invest in and operate and
manage extractive enterprises, subject to the full control and
supervision of the State – sans the abuses of the past regime. The
purpose in clear: to develop and utilize our mineral, petroleum and
other resources on a large scale for the immediate and tangible benefit
of the Filipino people.”
§ Ultimate Test: State’s “Control” Determinative of Constitutionality
v Ut Magis Valeat Quam Pereat
o Every part of the Constitution is to be given effect, and the
Constitution is to be read and understood as a harmonious
whole.
v Sufficient Control Over Mining Operations Vested in the State by RA
7942 and DAO 96-40
o The numerous requirements, regulations, restrictions and
limitations imposed upon the FTAA contractor by the statute
and IRR easily overturns petitioners’ contention that the State
merely plays the role of a “passive regulator.”
o 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.
v Section 3(aq) of RA 7942 Not Unconstitutional
o Sec. 3(aq) allows a foreign contractor to apply for and hold an
exploration permit.
o In fact, there is no prohibition at all against foreign or local
corps. or contractors holding exploration permits. Such a
permit does not amount to an authorization to extract and
carry off the mineral resources that may be discovered.
o The exploration permit serves a practical and legitimate
purpose in that it protects the interests and preserves the
rights of the exploration permit grantee (the would-be
contractor) – foreign or local – during the period of time that it
is spending heavily on exploration works, without yet being
able to earn revenues to recoup any of its investments and
expenditures. Without such permit, the exploration works and
expenditures may end up benefiting only claim-jumpers.
v The Terms of the WMCP FTAA A Deference to State Control
o The many provisions of the WMCP FTAA taken together, far
from constituting a surrender of control and a grant of
beneficial ownership of mineral resources to the contractor in
question, bestow upon the State more than adequate control
and supervision over the activities of the contractor and the
enterprise.
v No Surrender of Control Under the WMCP FTAA
o Clause 8.2 – Work Program or Budget deemed approved by
Secretary unless he provides a Rejection Notice within 60 days.
o Clause 8.3 – If Secretary & Contractor fail to agree within 30
days from delivery of Rejection Notice, Work Program or
Budget of Contractor deemed approved.
o Clause 8.5 – Contractor may make changes w/o Secretary
approval as long as there is no change in general objective of
Work Program, nor any downward variance exceeding 20% of
budget. 8.3 is a stop-gap to avoid long delays and therefore
redound to the benefit of both State and Contractor. 8.5 allows
the Contractor, as the “insider”, to determine what work
program or budget would be appropriate, more effective, or
more suitable under the circumstances.
o The above provisions do not manifest relinquishment of control.
o The State still has control over the contract area and it may, as
sovereign authority, prohibit work thereon until the dispute is
solved.
v Discretion to Select Contract Area Not an Abdication of Control
o The contractor has full discretion to select part of the contract
area to be relinquished. A mining company tries to relinquish
as much non-mineral areas as soon as possible to save in
occupation fees paid to the gov’t.
v Government Not a Subcontractor
o Clause 10.2 – Contractor has right to require Gov’t (at
contractor’s own cost) to purchase/acquire surface areas for the
contractor. At the end of the agreement, such areas will be sold
by public auction and contractor entitled to “reimbursement of
the costs of acquisition and maintenance, adjusted for inflation,
from the proceeds of sale.”
o The above provision contemplates a situation applicable to
foreign corps who cannot own land. The government doesn’t act
as a subcontractor, rather, it only facilitates the transaction
and enable the parties to avoid a technical violation of the Anti-
Dummy Law.
o This provision will not be applicable to Sagittarius, being a
Filipino corp.
v Absence of Provision Requiring Sale at Posted (Market) Prices Not
Problematic
o Books of accounts and records open for inspection.
o Contractor required to dispose minerals at highest market
price.
v Contractor’s Right to Mortgage Not Objectionable Per Se
o A mortgage or encumbrance on goods produced (mineral
products extracted) is not out of the ordinary or objectionable.
o The contractor’s right to mortgage the minerals does not negate
the State’s right to receive its basic & additional share of net
mining revenues.
v Shareholders Free to Sell Their Stocks
o Regardless of the identity, nationality and percentage
ownership of the various shareholders of the contractor – the
foreign contractor is always in a position to render the services
required under the FTAA, under the direction and control of
the gov’t.
v Contractor’s Right to Ask For Amendment Not Absolute
o Clause 10.4(i) – “the Government shall favorably consider any
request from [the] Contractor for amendments of this
Agreement which are necessary in order for the Contractor to
successfully obtain the financing.”
o “Favorably consider” does not mean automatic approval by
gov’t. In the exercise of it’s power of control, the gov’t has the
final say on whether to approve/disapprove requested
amendments.
v Financial Benefits Not Surrendered to the Contractor
o 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. All
lawful contracts require such mutual prestations.
v Equitable Sharing of Financial Benefits
o Equitable sharing between:
§ Government
§ Contractor
§ Affected communities
o After the contractor has recovered its initial investment, it will
pay all the normal taxes and fees comprising the basic and
additional share for the gov’t.
o Basic gov’t share – all direct taxes, fees & royalties
o Additional gov’t share – Sec. 81 of RA 7942 provides that “The
Gov’t share in a FTAA shall consist of, among other things,
the contractor’s corp. income tax, excise tax,…”
o Additional gov’t share – computed using one of three schemes
as provided by DAO 99-56:
§ 50-50 sharing in cumulative present value of cash
flows
§ Sharing based on excess profits
§ Sharing based on cumulative net mining revenue
o The State’s share in not limited to taxes, duties and fees only.
The DENR/MGB interpretation of the phrase among other
things is correct.
v Collections Not Made Uncertain by the Third Paragraph of Section 81
 o Sec. 81. “The collection of Government share in FTAA shall
commence after the FTAA contractor has fully recovered its pre-
operating expenses, exploration, and development
expenditures, inclusive.”
o The period of recovery shall be for a period not exceeding 5
years, or until the date of actual recovery, whichever comes
earlier.
v Approval of Pre-Operating Expenses Required by RA 7942
o § 23 of RA 7942 states “The permittee shall undertake
exploration work … based on an approved work program.”
Next proviso reads “Any expenditure in excess of the yearly
budget of the approved work program may be carried
forward and credited to the succeeding years covering the
duration of the permit.”
o After commercial viability, the exploration permit holder must
file with the MGB the following:
§ Declaration of mining project feasibility
§ Work program for development
v No Deprivation of Beneficial Rights
o “This Court – on considerations of due process – cannot rule
upon them here. Anyway, if later on these Sections are
declared unconstitutional, such declaration will not affect the
other portions since they are clearly separable from the rest.”
v Our Mineral Resources Not Given Away for Free by RA 7942
o The amount of money spent in the exploration, pre-feasibility,
feasibility, development, and construction phases translate into
a lot of “pump-priming” for the local economy.
o It is a mistaken belief that since foreign contractors are
allowed to recover their investments and costs, the end result
is that they practically get the minerals for free.
o There can be no recovery without commencing actual
commercial operations. Money is continually infused into the
economy in order for the enterprise to meet its operating needs.
v All Businesses Entitled to Cost Recovery
v Repatriation of After-Tax Income
o It is not correct to say that all the after-tax income will accrue
to the FTAA contractor, as the government effectively receives
a significant portion thereof (additional share of gov’t).
o No sane business person, concerned with maintaining the
mining enterprise as a going concern and keeping a foothold in
its market, can afford to repatriate the entire after-tax income
to the home country.
§ The State’s Receipt of 60% of an FTAA Contractor’s After-Tax Income Not
Mandatory
v The Charter did not intend to fix an iron-clad rule on the 60% share,
applicable to all situations at all times and in all circumstances.
v Fairness is a credo not only in law, but also in business.
v The 60% rule in the petroleum industry cannot be insisted upon at all
times in the mining business.
 § The Mining and the Oil Industries Different From Each Other
v There is simply no constitutional or legal provision fixing the
minimum share of the government in an FTAA at 60% of the net
profit.
§ Capital and Expertise Provided, Yet All Risks Assumed by Contractor
v This setup cannot be regarded as disadvantageous to the State or the
Filipino people; it certainly cannot be said to convey beneficial
ownership of our natural resources to foreign contractors.
§ Deductions Allowed to WMCP FTAA Reasonable
v More facts are needed. Mere “suspicions” (i.e. suspicious deductions to
arrive at net mining revenue, development outside the contract area,
consulting fees & admin overhead incurred outside the Philippines)
will not suffice to propel this Court into taking action.
• Section 7.9 of the WMCP FTAA Invalid and Disadvantageous
§ The provision provides that should WMCP’s foreign shareholders sell 60% or
more of its outstanding capital stock to a Filipino citizen or corporation, the
State loses its right to receive its 60% share (i.e. for every 1% ownership
interest of a ‘Qualified Entity’, percentage of Net Mining Revenue of gov’t
shall likewise be reduced by 1%)
§ This has the effect of depriving the State of its 60% share in the net mining
revenues of WMCP without any offset or compensation whatsoever. This
constitutes unjust enrichment.
§ Violates anti-graft provisions and contrary to public policy, therefore
unconstitutional.
• Section 7.8(e) of the WMCP FTAA Also Invalid and Disadvantageous
§ The provision states: “The Gov’t Share shall be deemed to include all the
following sums: … an amount equivalent to whatever benefits that may be
extended in the future by the Gov’t to the Contractor or to FTAA contractors
in general.”
§ It makes no sense why money spent by the gov’t for the benefit of the
contractor should still be deductible from the State’s share in mining
revenue.
• Nothing Left Over After Deductions?
§ The fiscal arrangement under the WMCP FTAA is very similar to that under
DAO 99-56
• Section 3.3 of the WMCP FTAA Constitutional
§ Term limit of 25 years applies to CPAs, JVAs, and MPSAs. Such limit does
not apply to FTAAs being sui generis.
• Financial Benefits for Foreigners Not Forbidden by the Constitution
• FTAA More Advantageous Than Other Schemes Like CPA, JVA and MPSA
§ CPA – Gov’t provides inputs to the mining operations
§ JVA – A JV company is organized by the gov’t and the contractor (granted
with exclusive right to conduct mining operations
§ MPSA – Gov’t shares in the gross output
§ Under CPA, JVA, and MPSAs, the management and control of the operations
of the enterprise are in the hands of the contractor.