Narra Nickel Mining and Development Corp.

vs Redmont Consolidated Mines Corporation

G.R. No. 195580 April 21, 2014

Facts: Respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining in Palawan. After inquiring with the DENR, it learned that the areas where it
wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement
(MPSA) applications of petitioners Narra, Tesoro and McArthur. Petitioner McArthur, through its predecessor-in-interest
Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-
Sciences Bureau (MGB), Region IV-B, Office of the DENR. Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering
an area of over 1,782 hectares in Barangay Sumbiling and EPA-IVB-44 which includes an area of 3,720 hectares in
Barangay Malatagao. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on
November 2006, assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an
application for an MPSA with the DENR on 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering
an area of 3.277 hectares in barangays Calategas and San Isidro. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra. Another MPSA application of SMMI was
filed with the DENR, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and
Princesa Urduja. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro. On January 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and
MPSA IV-1-12. In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over
the areas covered by applications since it knows that it can only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by
MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for
Filipino citizens.

Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA and EP.

Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among
others, of determining compliance with nationality requirements (the ‘Investee Corporation’). Such manner of
computation is necessary since the shares in the Investee Corporation may be owned both by individual stockholders
(‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for
the determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.

Under the SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is the
‘liberal rule’ which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper which states, “but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee Corporation must be to determine the total percentage of
Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee Corporation.

Based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when
the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino
and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.

Narra Nickel Mining and Development Corp. vs Redmont Consolidated Mines Corporation

G.R.No. 195580 January 28, 2015

Facts:

Narra and its co-petitioner corporations – Tesoro and MacArthur, filed a motion before the SC to reconsider its April 21,
2014 Decision which upheld the denial of their MPSA applications. The SC affirmed the CA ruling that there is a doubt to
their nationality, and that in applying the Grandfather Rule, the finding is that MBMI, a 100% Canadian-owned
corporation, effectively owns 60% of the common stocks of petitioners by owning equity interests of the petitioners’
other majority corporate shareholders. Narra, Tesoro and MacArthur argued that the application of the Grandfather
Rule to determine their nationality is erroneous and allegedly without basis in the Constitution, the FIA, the Philippine
Mining Act, and the Rules issued by the SEC. These laws and rules supposedly espouse the application of the Control
Test in verifying the Philippine nationality of corporate entities for purposes of determining compliance with Sec. 2, Art.
XII of the Constitution that only corporations or associations at least 60% of whose capital is owned by such Filipino
citizens may enjoy certain rights and privileges, like the exploration and development of natural resources.

Issue: W/N the application by the SC of the grandfather resulted to the abandonment of the ‘control test’

Held:

No. The ‘control test’ can be applied jointly with the Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not
incompatible ownership-determinant methods that can only be applied alternative to each other. Rather, these
methods can, if appropriate, be used cumulatively in the determination of the ownership and control of corporations
engaged in fully or partly nationalized activities, as the mining operation involved in this case or the operation of public
utilities.

The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or partly
nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule may be
applied. Put in another manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule
disappears.

In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to have satisfied the 60-40 equity requirement.
But the nationality of these corporations and the foreign-owned common investor that funds them was in doubt, hence,
the need to apply the Grandfather Rule.

WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES

G.R. No. 176579, promulgated June 28, 2011

THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company
(PLDT).
The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3
percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%.

ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to the
total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

RULING

The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of directors of a public utility, or in the instant case, to the total
common shares of PLDT.

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public
utilities. The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred shares [of PLDT].

Mere legal title is insufficient to meet the 60 percent Filipino-owned “capital” required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The
legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals
in accordance with the constitutional mandate. Otherwise, the corporation is “considered as non-Philippine national[s].

To construe broadly the term “capital” as the total outstanding capital stock, including both common and non-voting
preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-reliant
and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control of the public utility.

The Court partly grant the petition and rule that the term “capital” in Section 11, Article XII of the 1987 Constitution
refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term “capital” in
determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and
if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:

The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million shares of
the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus, First Pacific’s common
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. The petitioner contends that it violates the Constitutional provision on filipinazation
of public utility, stated in Section 11, Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the
capital of a public utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence
this new case, resolving the motion for reconsideration for the 2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011 decision?

Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an economy
‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to achieve, that is – to
conserve and develop our patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting rights,
as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to vote in the election of directors,
coupled with benefits, is tantamount to an effective control. Therefore, the Court’s interpretation of the term ‘capital’
was not erroneous. Thus, the motion for reconsideration is denied.

G.R. No. 207246, November 22, 2016

JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, AND
PHILILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondents.

FACTS OF THE CASE:

This is a case of special civil action for certiorari under Rule 65 of the Rules of Court seeking to annul Memorandum
Circular No. 8, Series of 2013 (SEC-MC No. 8) issued by the SEC for allegedly being in violation of the Court's Decision
("Gamboa Decision") and Resolution ("Gamboa Resolution") in Gamboa v. Finance Secretary Teves, G.R. No. 176579
which jurisprudentially established the proper interpretation of Section 11, Article XII of the Constitution.

On June 28, 2011, the Court partly grant the petition and rule that the term "capital" in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the election of directors.

On May 20, 2013, the SEC, through Chairperson Herbosa, issued SEC-MC No. 8 entitled "Guidelines on Compliance with
the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations
Engaged in Nationalized and Partly Nationalized Activities."

On June 10, 2013, Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of SEC-MC No. 8 for not
conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with
grave abuse of discretion. Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long Distance
Telephone Company ("PLDT") is compliant with the constitutional rule on foreign ownership. He prays that the Court
declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines regarding the determination of
compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.

ISSUE: Whether the petitioner has standing to question the validity of the subject act or issuance, i.e., he has a personal
and substantial interest in the case that he has sustained, or will sustain, direct injury as a result of the enforcement of
the act or issuance

RULING: