Corporation Law, Mercantile Law

Narra Nickel Mining v. Redmont Consolidated Mines Corp., G.R. No. 195580, April 21, 2014 The Grandfather Rule

FACTS:

Redmont, a domestic corporation, took interest in mining and exploring certain areas of the province of Palawan. However, the areas where it wanted to undertake exploration and mining activities were already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Redmont filed with the DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA, alleging that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc., a 100% Canadian corporation. 

In their Answers, petitioners averred that they were qualified persons, they stated that their nationality as applicants is immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA).

The DENR issued a Resolution disqualifying petitioners from gaining MPSAs.

In the same Resolution, it gave due course to Redmont’s Exploration Permit Applications (EPAs).

Aggrieved, McArthur, Tesoro and Narra filed their Notice of Appeal and Memorandum of Appeal with the Mines Adjudication Board (MAB).

The MAB issued an Order finding the appeal of McArthur, Tesoro and Narra meritorious.

Redmont filed an MR before the MAB.

Redmont also filed a Supplemental Complaint before the RTC. The RTC issued an Order granting the issuance of a writ of preliminary injunction enjoining the MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s MR.

However, the MAB issued a second Order denying Redmont’s MR and Supplemental MR and resolving the appeals filed by petitioners.

Thus, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. 

The CA partially granted the petition. It upheld the findings of the Panel of Arbitrators of the DENR that respondents McArthur, Tesoro and Narra are foreign corporations, and recommended to the Secretary of the DENR the denial of their application for MPSAs.

Hence, this petition.

ISSUE:

Whether petitioners’ nationality is Filipino or foreign.

RULING:

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.

Shares 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, 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. 

Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The Strict Rule or the Grandfather Rule Proper pertains to the portion in said Paragraph 7 of the 1967 SEC Rules 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 traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership.

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since, as ruled by the Panel of Arbitrators of the DENR and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them.

It is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.

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