La Bugal v. DENR Petitioner: La Bugal B’laan Tribal Association, et al. Respondent: Victor O. Ramos, Sec. of DENR, et al. Date: December 1, 2004 | Panganiban, J. Summary: This case assails the constitutionality of RA 7942 or the Philippine Mining Act of 1995 and its IRR issued by the DENR. In a previous case, SC held RA 7942 as invalid for authorizing service contract and for allowing management of mining operations by foreign corporations, which were excluded from the 1987 Constitution but were expressly allowed under the 1973 Constitution. This is from an MR filed by Respondents. SC held that the term “agreements involving either technical or financial assistance” under par. 4, Sec. 2 of Art 12 does not exclude other modes of assistance, like management assistance. Also, FTAAs under the 1987 Constitution are basically service contracts but with safeguards. Now, foreign corporations are contractors who provide capital, technology, technical know-how, and managerial expertise in large scale exploration, development, and utilization of minerals, petroleum, and other mineral oils while the government is the owner who exercises full control and supervision over the entire enterprise. The grant of such service contracts is subject to several safeguards, among them: (1) that the service contract be crafted in accordance with a general law setting standard or uniform terms, conditions and requirements; (2) the President be the signatory for the government; and (3) the President report the executed agreement to Congress within thirty days. Control and supervision by the State means sufficient to enable it to direct, restrain, regulate, and govern the affairs of the extractive enterprises, which may be on a macro level, through the establishment of policies, guidelines, regulations, industry standards, and similar measures to restrain activities deemed not desirable or beneficial. The SC concluded that RA 794, its IRR, and the FTAA entered into with WMCP grant full control to the Government over mining operations because government agencies are empowered to approve or disapprove the various work programs and ensure or monitor compliance of the Contractor. Facts: 1. 2.
Issue: 1.
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) RA 7942 (The Philippine Mining Act of 1995); (2) its IRR (DAO 96-40); and (3) the FTAA executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). On January 27, 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. a. The Decision struck down the subject FTAA for being similar to service contracts, 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. What is the proper interpretation of the phrase “agreements involving either technical or financial assistance contained in par. 4, Sec. 2 of Art. XII of the Constitution?
Held: WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions for Reconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision; to DISMISS the Petition; and to issue this 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 -- insofar as they relate to financial and technical assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the Financial and Technical Assistance Agreement (FTAA) dated March 30, 1995 executed by the government and Western Mining Corporation Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being contrary to public policy and for being grossly disadvantageous to the government. Backgrounder: The premise of the issue is the fact that WMCP, at the time of the execution of the FTAA, was a foreign-owned corporation. The point is that under the 1973 Constitution, the government was allowed to enter into service contracts with foreign corporation for the exploration, development, and utilization of natural resources. Now, the 1987 Constitution states that foreign corporations may only be involved if it’s through agreements involving either financial or technical assistance agreements for the exploitation of minerals, petroleum, and other mineral oils. The FTAA entered into between WMCP and the Government was struck down in the January Decision because the Court said that it was just like a service contract, which it opined, was disallowed under the current Constitution. Now the Court will completely reverse its pronouncement for the following reasons. Note also the pending the Resolution of this case, WMCP, transferred all its shares to Sagittarius, Inc., a domestic corporation. But Court said not moot. Proper interpretation of par. 4, Sec. 2, Art 12 Verba Legis
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First, the drafters' choice of words -- their use of the phrase agreements x x x involving either technical or financial assistance -- 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. In this case, the limitation would be very clear and no further debate would ensue. Intent to exclude foreigners from the management of the enterprises cannot be definitively and conclusively established from the mere failure to carry the same expression or term over to the new Constitution, absent a more specific, explicit and unequivocal statement to that effect.
Intent of the Framers 1. Pertinent portions of 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. 2. 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 is 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. FTAAs are Service Contracts with Safeguards 1. From the foregoing, we are impelled to conclude that the phrase agreements involving either technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But unlike those of the 1973 variety, the new ones are between foreign corporations acting as contractors on the one hand; and on the other, the government as principal or "owner" of the works. In the new service contracts, the foreign contractors provide capital, technology and technical know-how, and managerial expertise in the creation and operation of large-scale mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively exercises control and supervision over the entire operation. 2. Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. The grant thereof is subject to several safeguards, among which are these requirements: a. The service contract shall be crafted in accordance with a general law that will set standard or uniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions and avoid the possible insertion of terms disadvantageous to the country. b. The President shall be the signatory for the government because, supposedly before an agreement is presented to the President for signature, it will have been vetted several times over at different levels to ensure that it conforms to law and can withstand public scrutiny. c. Within thirty days of the executed agreement, the President shall report it to Congress to give that branch of government an opportunity to look over the agreement and interpose timely objections, if any. Ultimate Test: State's "Control" Determinative of Constitutionality 1. "Full control and supervision" cannot be taken literally to mean that the State controls and supervises everything involved, down to the minutest details, and makes all decisions required in the mining operations. This strained concept of control and supervision over the mining enterprise would render impossible the legitimate exercise by the contractors of a reasonable degree of management prerogative and authority necessary and indispensable to their proper functioning. 2. The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial, allencompassing 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 activities deemed not desirable or beneficial. 3. The end in view is ensuring that these enterprises contribute to the economic development and general welfare of the country, conserve the environment, and uplift the well-being of the affected local communities. Such a concept of control would be compatible with permitting the foreign contractor sufficient and reasonable management authority over the enterprise it invested in, in order to ensure that it is operating efficiently and profitably, to protect its investments and to enable it to succeed. RA 7942 and its IRR enable the Government to exercise full control and supervision 1. The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA contractor by the statute and regulations easily overturns petitioners' contention. On the contrary, the government agencies concerned are empowered to approve or disapprove -- hence, to influence, direct and change -- the various work programs and the corresponding minimum expenditure commitments for each of the exploration, development and utilization phases of the mining enterprise.
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Once these plans and reports are approved, the contractor is bound to comply with its commitments therein. Figures for mineral production and sales are regularly monitored and subjected to government review, in order to ensure that the products and by-products are disposed of at the best prices possible; even copies of sales agreements have to be submitted to and registered with MGB. And the contractor is mandated to open its books of accounts and records for scrutiny, so as to enable the State to determine if the government share has been fully paid. The State may likewise compel the contractor's compliance with mandatory requirements on mine safety, health and environmental protection, and the use of anti-pollution technology and facilities. Moreover, the contractor is also obligated to assist in the development of the mining community and to pay royalties to the indigenous peoples concerned. Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of millions of dollars sunk into a mining project. Also, 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.
Beneficial Ownership 1. One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in the Decision that beneficial ownership of the mineral resources had been conveyed to the contractor. This finding was based on the underlying assumption, common to the said provisions, that the foreign contractor manages the mineral resources in the same way that foreign contractors in service contracts used to. 2. Beneficial ownership has been defined as ownership recognized by law and capable of being enforced in the courts at the suit of the beneficial owner. Black's Law Dictionary indicates that the term is used in two senses: first, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder is not registered in the corporation's books as the owner. Usually, beneficial ownership is distinguished from naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against possession of the bare title to property. 3. An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP ownership, beneficial or otherwise, of the mining property it is to develop, the minerals to be produced, or the proceeds of their sale, which can be legally asserted and enforced as against the State. 4. As public respondents correctly point out, 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, and the WMCP FTAA is no different. The contractor commits to perform certain services for the government in respect of the mining operation, and in turn it is to be compensated out of the net mining revenues generated from the sale of mineral products. 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. 5. On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements" aims to ensure an equitable sharing of the benefits derived from mineral resources. These benefits are to be equitably shared among the government (national and local), the FTAA contractor, and the affected communities. The purpose is to ensure sustainable mineral resources development; and a fair, equitable, competitive and stable investment regime for the large-scale exploration, development and commercial utilization of minerals. The general framework or concept followed in crafting the fiscal regime of the FTAA is based on the principle that the government expects real contributions to the economic growth and general welfare of the country, while the contractor expects a reasonable return on its investments in the project. 6. Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its share from the taxes and fees normally paid by a mining enterprise. On the other hand, the FTAA contractor is granted by the government certain fiscal and non-fiscal incentives64 to help support the former's cash flow during the most critical phase (cost recovery) and to make the Philippines competitive with other mineral-producing countries. After the contractor has recovered its initial investment, it will pay all the normal taxes and fees comprising the basic share of the government, plus an additional share for the government based on the options and formulae set forth in DAO 99-56.
