La Bugal-B’Laan v. Ramos
G.R. No. 127882.
December 1, 2004
Facts:
The Petition for Prohibition and Mandamus before the Court challenges the
constitutionality of (1) Republic Act 7942 (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 30 March 1995, executed by the government with Western
Mining Corporation (Philippines), Inc. (WMCP).
On 27 January 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,[9] 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, Victor O. Ramos
(Secretary, Department of Environment and Natural Resources [DENR]),
Horacio Ramos (Director, Mines and Geosciences Bureau [MGB-DENR]),
Ruben Torres (Executive Secretary), and the WMC (Philippines) Inc. filed
separate Motions for Reconsideration.
Issue:
Whether or not the Court has a role in the exercise of the power of control
over the EDU of our natural resources?
Held:
The Chief Executive is the official constitutionally mandated to “enter into
agreements with foreign owned corporations.” On the other hand, Congress
may review the action of the President once it is notified of “every contract
entered into in accordance with this [constitutional] provision within thirty days
from its execution.” In contrast to this express mandate of the President and
Congress in the exploration, development and utilization (EDU) of natural
resources, Article XII of the Constitution is silent on the role of the judiciary.
However, should the President and/or Congress gravely abuse their
discretion in this regard, the courts may -- in a proper case -- exercise their
residual duty under Article VIII. Clearly then, the judiciary should not
inordinately interfere in the exercise of this presidential power of control over
the EDU of our natural resources.
Under the doctrine of separation of powers and due respect for co-equal and
coordinate branches of government, the Court must restrain itself from
intruding into policy matters and must allow the President and Congress
maximum discretion in using the resources of our country and in securing the
assistance of foreign groups to eradicate the grinding poverty of our people
and answer their cry for viable employment opportunities in the country. “The
judiciary is loath to interfere with the due exercise by coequal branches of
government of their official functions.” As aptly spelled out seven decades ago
by Justice George Malcolm, “Just as the Supreme Court, as the guardian of
constitutional rights, should not sanction usurpations by any other department
of government, so should it as strictly confine its own sphere of influence to
the powers expressly or by implication conferred on it by the Organic Act.” Let
the development of the mining industry be the responsibility of the political
branches of government. And let not the Court interfere inordinately and
unnecessarily. The Constitution of the Philippines is the supreme law of the
land. It is the repository of all the aspirations and hopes of all the people.

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.
Rather, it should be construed to grant the President and Congress sufficient
discretion and reasonable leeway to enable them to attract foreign
investments and expertise, as well as to secure for our people and our
posterity the blessings of prosperity and peace. The Court fully sympathize
with the plight of La Bugal B’laan and other tribal groups, and commend their
efforts to uplift their communities. However, the Court cannot justify the
invalidation of an otherwise constitutional statute along with its implementing
rules, or the nullification of an otherwise legal and binding FTAA contract. The
Court believes that it is not unconstitutional to allow a wide degree of
discretion to the Chief Executive, given the nature and complexity of such
agreements, the humongous amounts of capital and financing required for
large-scale mining operations, the complicated technology needed, and the
intricacies of international trade, coupled with the State’s need to maintain
flexibility in its dealings, in order to preserve and enhance our country’s
competitiveness in world markets. On the basis of this control standard, the
Court upholds the constitutionality of the Philippine Mining Law, its
Implementing Rules and Regulations - insofar as they relate to financial and
technical agreements - as well as the subject Financial and Technical
Assistance Agreement (FTAA).
JANUARY
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.
The constitutional provision allowing the President to enter into FTAA is a
exception to the rule that participation in the nation’s natural resources is
reserved exclusively to Filipinos. Provision must be construed strictly against
their enjoyment by non-Filipinos.
RA 7942 (The Philippine Mining Act) took effect on April 9, 1995. Before the
effectivity of RA 7942, or on March 30, 1995, the President signed a Financial
and Technical Assistance Agreement (FTAA) with WMCP, a corporation
organized under Philippine laws, covering close to 100,000 hectares of land in
South Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato. On
August 15, 1995, the Environment Secretary Victor Ramos issued DENR
Administrative Order 95-23, which was later repealed by DENR Administrative
Order 96-40, adopted on December 20, 1996.
Petitioners prayed that RA 7942, its implementing rules, and the FTAA
between the government and WMCP be declared unconstitutional on ground
that they allow fully foreign owned corporations like WMCP to exploit, explore
and develop Philippine mineral resources in contravention of Article XII
Section 2 paragraphs 2 and 4 of the Charter.
In January 2001, WMC – a publicly listed Australian mining and exploration
company – sold its whole stake in WMCP to Sagittarius Mines, 60% of which
is owned by Filipinos while 40% of which is owned by Indophil Resources,
an Australian company. DENR approved the transfer and registration of the
FTAA in Sagittarius‘ name but Lepanto Consolidated assailed the same. The
latter case is still pending before the Court of Appeals.
EO 279, issued by former President Aquino on July 25, 1987, authorizes the
DENR to accept, consider and evaluate proposals from foreign owned
corporations or foreign investors for contracts or agreements involving wither
technical or financial assistance for large scale exploration, development and
utilization of minerals which upon appropriate recommendation of the (DENR)
Secretary, the President may execute with the foreign proponent. WMCP
likewise contended that the annulment of the FTAA would violate a treaty
between the Philippines and Australia which provides for the protection
of Australian investments.
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. properly belong to the State and are intended for the benefit of its citizens.
The constitutional provision allowing the President to enter into FTAAs is an These stipulations are abhorrent to the 1987 Constitution. They are precisely
exception to the rule that participation in the nation‘s natural resources is the vices that the fundamental law seeks to avoid, the evils that it aims to
reserved exclusively to Filipinos. Accordingly, such provision must be suppress. Consequently, the contract from which they spring must be struck
construed strictly against their enjoyment by non-Filipinos. Therefore, RA down.
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