With Annotation La BugalB’Laan Tribal Association, Inc. vs. Ramos

7/9/2015 SUPREMECOURTREPORTSANNOTATEDVOLUME445

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G.R. No. 127882. December 1, 2004.*

LA BUGALBLAAN TRIBAL ASSOCIATION, INC.,represented by its Chairman FLONG MIGUEL M.LUMAYONG WIGBERTO E. TAADA PONCIANOBENNAGEN JAIME TADEO RENATO R.CONSTANTINO, JR. FLONG AGUSTIN M. DABIEROBERTO P. AMLOY RAQIM L. DABIE SIMEON H.DOLOJO IMELDA M. GANDON LENY B. GUSANANMARCELO L. GUSANAN QUINTOL A. LABUAYANLOMINGGES D. LAWAY BENITA P.

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* EN BANC.

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2 SUPREME COURT REPORTS ANNOTATEDLa BugalBLaan Tribal Association, Inc. vs. Ramos

TACUAYAN Minors JOLY L. BUGOY, Represented by HisFather UNDERO D. BUGOY and ROGER M. DADINGRepresented by His Father ANTONIO L. DADING ROMYM. LAGARO, Represented by His Father TOTING A.LAGARO MIKENY JONG B. LUMAYONG, Representedby His Father MIGUEL M. LUMAYONG RENE T.MIGUEL, Represented by His Mother EDITHA T.MIGUEL ALDEMAR L. SAL, Represented by His FatherDANNY M. SAL DAISY RECARSE, Represented by HerMother LYDIA S. SANTOS EDWARD M. EMUY ALAN P.MAMPARAIR MARIO L. MANGCAL ALDEN S. TUSANAMPARO S. YAP VIRGILIO CULAR MARVIC M.V.F.LEONEN JULIA REGINA CULAR, GIAN CARLOCULAR, VIRGILIO CULAR, JR., Represented by Their



Father VIRGILIO CULAR PAUL ANTONIO P.VILLAMOR, Represented by His Parents JOSEVILLAMOR and ELIZABETH PUAVILLAMOR ANAGININA R. TALJA, Represented by Her Father MARIOJOSE B. TALJA SHARMAINE R. CUNANAN,Represented by Her Father ALFREDO M. CUNANANANTONIO JOSE A. VITUG III, Represented by HisMother ANNALIZA A. VITUG, LEAN D. NARVADEZ,Represented by His Father MANUEL E. NARVADEZ, JR.ROSERIO MARALAG LINGATING, Represented by HerFather RIO OLIMPIO A. LINGATING MARIO JOSE B.TALJA DAVID E. DE VERA MARIA MILAGROS L. SANJOSE Sr. SUSAN O. BOLANIO, OND LOLITA G.DEMONTEVERDE BENJIE L. NEQUINTO

1 ROSE

LILIA S. ROMANO ROBERTO S. VERZOLA EDUARDOAURELIO C. REYES LEAN LOUEL A. PERIA,Represented by His Father ELPIDIO V. PERIA

2 GREEN

FORUM PHILIPPINES GREEN FORUM WESTERNVISAYAS (GFWV) ENVIRONMENTAL LEGALASSISTANCE CEN

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1 Spelled as Nequito in the caption of the Petition, but Nequinto inthe body. Rollo, p. 12.

2 As spelled in the body of the Petition. Id., p. 13. The caption of thePetition does not include Louel A. Peria as one of the petitioners only thename of his father, Elpidio V. Peria, appears therein.

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VOL. 445, DECEMBER 1, 2004 3La BugalBLaan Tribal Association, Inc. vs. Ramos

TER (ELAC) KAISAHAN TUNGO SA KAUNLARAN NGKANAYUNAN AT REPORMANG PANSAKAHAN(KAISAHAN)

3 PARTNERSHIP FOR AGRARIAN

REFORM and RURAL DEVELOPMENT SERVICES, INC.(PARRDS) PHILIPPINE PARTNERSHIP FOR THEDEVELOPMENT OF HUMAN RESOURCES IN THERURAL AREAS, INC. (PHILDHRRA) WOMENS LEGALBUREAU (WLB) CENTER FOR ALTERNATIVEDEVELOPMENT INITIATIVES, INC. (CADI) UPLAND



DEVELOPMENT INSTITUTE (UDI) KINAIYAHANFOUNDATION, INC. SENTRO NG ALTERNATIBONGLINGAP PANLIGAL (SALIGAN) and LEGAL RIGHTSAND NATURAL RESOURCES CENTER, INC. (LRC),petitioners, vs. VICTOR O. RAMOS, Secretary,Department of Environment and Natural Resources(DENR) HORACIO RAMOS, Director, Mines andGeosciences Bureau (MGBDENR) RUBEN TORRES,Executive Secretary and WMC (PHILIPPINES), INC.,

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respondents.

National Economy and Patrimony Natural ResourcesPhilippine Mining Act of 1995 (R.A. No. 7942) Financial andTechnical Assistance Agreements (FTAA) FTAAs not limited toforeignowned corporations only.On the first ground, petitionersassert that paragraph 4 of Section 2 of Article XII permits thegovernment to enter into FTAAs only with foreignownedcorporations. Petitioners insist that the first paragraph of thisconstitutional provision limits the participation of Filipinocorporations in the exploration, development and utilization ofnatural resources to only three species of contractsproductionsharing, coproduction and joint ventureto the exclusion of allother arrangements or variations thereof, and the WMCP FTAAmay therefore not be validly assumed and implemented bySagittarius. In short, petitioners claim that a Filipino corporationis not allowed by the Constitution to enter into an FTAA

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3 Stated as Kaisahan Tungo sa Kaunlaran at Repormang Pansakahan(KAISAHAN) in the caption of the Petition, but Philippine Kaisahan Tungo saKaunlaran at Repormang Pansakahan (KAISAHAN) in the body. Id., p. 14.

4 Erroneously designated in the Petition as Western Mining PhilippinesCorporation. Id., p. 212.

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4 SUPREME COURT REPORTS ANNOTATED

La BugalBLaan Tribal Association, Inc. vs. Ramos

with the government. However, a textual analysis of the first



paragraph of Section 2 of Article XII does not support petitionersargument. The pertinent part of the said provision states: Sec. 2.x x x The exploration, development and utilization of naturalresources shall be under the full control and supervision of theState. The State may directly undertake such activities, or it mayenter into coproduction, joint venture, or productionsharingagreements with Filipino citizens, or corporations or associationsat least sixty per centum of whose capital is owned by suchcitizens. x x x. Nowhere in the provision is there any expresslimitation or restriction insofar as arrangements other than thethree aforementioned contractual schemes are concerned.

Same Same Same Same Section 40 of R.A. No. 7942expressly applies to the assignment of the FTAA, not to the saleand transfer of shares of stock in a foreign corporation to aFilipino corporation When the transferee of the FTAA happens tobe a Filipino corporation, the need for the safeguard of securingthe prior approval of the President and notification to Congress isnot critical, and the lack of the same may not be deemed fatal as torender the transfer invalid.Section 40 expressly applies to theassignment or transfer of the FTAA, not to the sale and transfer ofshares of stock in WMCP. When the transferee of an FTAA isanother foreign corporation, there is a logical application of therequirement of prior approval by the President of the Republicand notification to Congress in the event of assignment ortransfer of an FTAA. In this situation, such approval andnotification are appropriate safeguards, considering that the newcontractor is the subject of a foreign government. On the otherhand, when the transferee of the FTAA happens to be a Filipinocorporation, the need for such safeguard is not critical hence, thelack of prior approval and notification may not be deemed fatal asto render the transfer invalid. Besides, it is not as if approval bythe President is entirely absent in this instance. As pointed out byprivate respondent in its Memorandum, the issue of approval isthe subject of one of the cases brought by Lepanto againstSagittarius in G.R. No. 162331. That case involved the review ofthe Decision of the Court of Appeals dated November 21, 2003 inCAG.R. SP No. 74161, which affirmed the DENR Order datedDecember 31, 2001 and the Decision of the Office of the Presidentdated July 23, 2002, both approving the assignment of the WMCPFTAA to Sagittarius.

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VOL. 445, DECEMBER 1, 2004 5




Same Same Same Same Assuming arguendo the invalidityof a FTAAs prior grant to a foreigncorporation, where saidAgreement has been transferred to, and is now held by, a Filipinocorporation, the FTAA can no longer be assailedthe objective ofthe constitutional provision to keep the exploration, developmentand utilization of our natural resources in Filipino hands wouldhave been served.We believe that this case is clearly analogousto Halili, in which the land acquired by a nonFilipino was reconveyed to a qualified vendee and the original transaction wasthereby cured. Paraphrasing Halili, the same rationale applies tothe instant case: assuming arguendo the invalidity of its priorgrant to a foreign corporation, the disputed FTAAbeing nowheld by a Filipino corporationcan no longer be assailed theobjective of the constitutional provisionto keep the exploration,development and utilization of our natural resources in Filipinohandshas been served. More accurately speaking, the presentsituation is one degree better than that obtaining in Halili, inwhich the original sale to a nonFilipino was clearly andindisputably violative of the constitutional prohibition and thusvoid ab initio. In the present case, the issuance/grant of thesubject FTAA to the then foreignowned WMCP was not illegal,void or unconstitutional at the time. The matter had to be broughtto court, precisely for adjudication as to whether the FTAA andthe Mining Law had indeed violated the Constitution. Since, up tothis point, the decision of this Court declaring the FTAA void hasyet to become final, for all intents and purposes, the FTAA mustbe deemed valid and constitutional.

Same Same Same Same The Court finds outlandishpetitioners contention that an FTAA could be entered into by thegovernment only with a foreign corporation, never with a Filipinoenterprise It does not take deep knowledge of law and logic tounderstand that what the Constitution grants to foreigners shouldbe equally available to Filipinos.At bottom, we find completelyoutlandish petitioners contention that an FTAA could be enteredinto by the government only with a foreign corporation, never witha Filipino enterprise. Indeed, the nationalistic provisions of theConstitution are all anchored on the protection of Filipinointerests. How petitioners can now argue that foreigners have theexclusive right to FTAAs totally overturns the entire basis of thePetitionpreference for the Filipino in the exploration,development and utilization of our natural resources. It does nottake deep knowledge of law and logic to under



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stand that what the Constitution grants to foreigners should beequally available to Filipinos.

Same Same Same Same Moot Questions The Court,recognizing the exceptional character of the situation and theparamount public interest involved, as well as the necessity for aruling to put an end to the uncertainties plaguing the miningindustry and the affected communities as a result of doubts castupon the constitutionality and validity of the Mining Act, thesubject FTAA and future FTAAs, and the need to avert amultiplicity of suits, must now resolve the constitutionality issueraised.The Court must recognize the exceptional character ofthe situation and the paramount public interest involved, as wellas the necessity for a ruling to put an end to the uncertaintiesplaguing the mining industry and the affected communities as aresult of doubts cast upon the constitutionality and validity of theMining Act, the subject FTAA and future FTAAs, and the need toavert a multiplicity of suits. Paraphrasing Gonzales v.Commission on Elections, it is evident that strong reasons ofpublic policy demand that the constitutionality issue be resolvednow. In further support of the immediate resolution of theconstitutionality issue, public respondents cite Acop v. Guingona,to the effect that the courts will decide a questionotherwisemoot and academicif it is capable of repetition, yet evadingreview. Public respondents ask the Court to avoid a situation inwhich the constitutionality issue may again arise with respect toanother FTAA, the resolution of which may not be achieved untilafter it has become too late for our mining industry to grow out ofits infancy. They also recall Salonga v. Cruz Pao, in which thisCourt declared that (t)he Court also has the duty to formulateguiding and controlling constitutional principles, precepts,doctrines or rules. It has the symbolic function of educating thebench and bar on the extent of protection given by constitutionalguarantees. x x x.

Same Same Same Same Same Judicial Review When anact of the legislative department is seriously alleged to haveinfringed the Constitution, settling the controversy becomes theduty of this Courtby the mere enactment of the questioned law or



the approval of the challenged action, the dispute is said to haveripened into a judicial controversy even without any other overtact.The mootness of the case in relation to the WMCP FTAA ledthe undersigned ponente to state in his dissent to the Decisionthat there was no more justiciable

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VOL. 445, DECEMBER 1, 2004 7


controversy and the plea to nullify the Mining Law has become avirtual petition for declaratory relief. The entry of the Chamber ofMines of the Philippines, Inc., however, has put into focus theseriousness of the allegations of unconstitutionality of RA 7942and DAO 9640 which converts the case to one for prohibition inthe enforcement of the said law and regulations. Indeed, thisCMP entry brings to fore that the real issue in this case iswhether paragraph 4 of Section 2 of Article XII of theConstitution is contravened by RA 7942 and DAO 9640, notwhether it was violated by specific acts implementing RA 7942and DAO 9640. [W]hen an act of the legislative department isseriously alleged to have infringed the Constitution, settling thecontroversy becomes the duty of this Court. By the mereenactment of the questioned law or the approval of the challengedaction, the dispute is said to have ripened into a judicialcontroversy even without any other overt act.

Same Same Same Same Statutory Construction Words andPhrases The drafters choice of wordstheir use of the phraseagreements *** involving either technical or financial assistancedoes not indicate the intent to exclude other modes of assistanceThe use of the word involving signifies the possibility of theinclusion of other forms of assistance or activities having to dowith, otherwise related to or compatible with financial or technicalassistance.We do not see how applying a strictly literal or verbalegis interpretation of paragraph 4 could inexorably lead to theconclusions arrived at in the ponencia. First, the drafters choiceof wordstheir use of the phrase agreements x x x involvingeither technical or financial assistancedoes not indicate theintent to exclude other modes of assistance. The drafters opted touse involving when they could have simply said agreements forfinancial or technical assistance, if that was their intention to



begin with. In this case, the limitation would be very clear and nofurther debate would ensue. In contrast, the use of the wordinvolving signifies the possibility of the inclusion of other formsof assistance or activities having to do with, otherwise related toor compatible with financial or technical assistance. The wordinvolving as used in this context has three connotations that canbe differentiated thus: one, the sense of concerning, having todo with, or affecting two, entailing, requiring, implying ornecessitating and three, including, containing orcomprising.

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Same Same Same Same Same Same The wordinvolving, when understood in the sense of including, as inincluding technical or financial assistance, necessarily impliesthat there are activities other than those that are being includedthe use of the word involving implies that these agreements withforeign corporations are not limited to mere financial or technicalassistance.The word involving, when understood in the senseof including, as in including technical or financial assistance,necessarily implies that there are activities other than thosethat are being included. In other words, if an agreement includestechnical or financial assistance, there isapart from suchassistancesomething else already in, and covered or may becovered by, the said agreement. In short, it allows for thepossibility that matters, other than those explicitly mentioned,could be made part of the agreement. Thus, we are now led to theconclusion that the use of the word involving implies that theseagreements with foreign corporations are not limited to merefinancial or technical assistance. The difference in sense becomesvery apparent when we juxtapose agreements for technical orfinancial assistance against agreements including technical orfinancial assistance. This much is unalterably clear in a verbalegis approach.

Same Same Same Same Same Same If the real intentionof the drafters was to confine foreign corporations to financial ortechnical assistance and nothing more, their language would havecertainly been so unmistakably restrictive and stringent as to leaveno doubt in anyones mind about their true intent.If the real



intention of the drafters was to confine foreign corporations tofinancial or technical assistance and nothing more, their languagewould have certainly been so unmistakably restrictive andstringent as to leave no doubt in anyones mind about their trueintent. For example, they would have used the sentence foreigncorporations are absolutely prohibited from involvement in themanagement or operation of mining or similar ventures or wordsof similar import. A search for such stringent wording yieldsnegative results. Thus, we come to the inevitable conclusion thatthere was a conscious and deliberate decision to avoid the use ofrestrictive wording that bespeaks an intent not to use theexpression agreements x x x involving either technical or financialassistance in an exclusionary and limiting manner.

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VOL. 445, DECEMBER 1, 2004 9


Same Same Same Same Same Same Service Contracts Anintent to eradicate service contracts cannot be definitively andconclusively established from the mere failure to carry the sameexpression or term over to the new Constitution, absent a morespecific, explicit and unequivocal statement to that effect.We donot see how a verba legis approach leads to the conclusion thatthe management or operation of mining activities by foreigncontractors, which is the primary feature of service contracts, wasprecisely the evil that the drafters of the 1987 Constitution soughtto eradicate. Nowhere in the abovequoted Section can bediscerned the objective to keep out of foreign hands themanagement or operation of mining activities or the plan toeradicate service contracts as these were understood in the 1973Constitution. Still, petitioners maintain that the deletion oromission from the 1987 Constitution of the term servicecontracts found in the 1973 Constitution sufficiently proves thedrafters intent to exclude foreigners from the management of theaffected enterprises. To our mind, however, such intent cannot bedefinitively and conclusively established from the mere failure tocarry the same expression or term over to the new Constitution,absent a more specific, explicit and unequivocal statement to thateffect. What petitioners seek (a complete ban on foreignparticipation in the management of mining operations, aspreviously allowed by the earlier Constitutions) is nothing short ofbringing about a momentous sea change in the economic and



developmental policies and the fundamentally capitalist, freeenterprise philosophy of our government. We cannot imagine sucha radical shift being undertaken by our government, to the greatprejudice of the mining sector in particular and our economy ingeneral, merely on the basis of the omission of the terms servicecontract from or the failure to carry them over to the newConstitution. There has to be a much more definite and evenunarguable basis for such a drastic reversal of policies.

Same Same Same Same Same Same Same If merelyfinancial or technical assistance agreements are allowed, therewould be no need to limit them to largescale mining operations, asthere would be far greater need for them in the smallerscalemining activities (and even in nonmining areas).There wastherefore no need for a constitutional provision specificallyallowing foreignowned corporations to render financial ortechnical assistance, whether in respect of mining or some otherresource development or commercial activity in the Philippines.The last point needs to be emphasized: if merely

10



financial or technical assistance agreements are allowed, therewould be no need to limit them to largescale mining operations, asthere would be far greater need for them in the smallerscalemining activities (and even in nonmining areas). Obviously, theprovision in question was intended to refer to agreements otherthan those for mere financial or technical assistance.

Same Same Same Same Same Same Same JudicialNotice It is of common knowledge, and of judicial notice as well,that the government is and has for many many years beenfinancially strapped, to the point that even the most essentialservices have suffered serious curtailmentseducation and healthcare, for instance, not to mention judicial serviceshave had tomake do with inadequate budgetary allocations.It is argued thatSection 2 of Article XII authorizes nothing more than a renditionof specific and limited financial service or technical assistance bya foreign company. This argument begs the question To whom orfor whom would it be rendered? or Who is being assisted? If theanswer is The State, then it necessarily implies that the State



itself is the one directly and solely undertaking the largescaleexploration, development and utilization of a mineral resource, soit follows that the State must itself bear the liability and cost ofrepaying the financing sourced from the foreign lender and/or ofpaying compensation to the foreign entity rendering technicalassistance. However, it is of common knowledge, and of judicialnotice as well, that the government is and has for many manyyears been financially strapped, to the point that even the mostessential services have suffered serious curtailmentseducationand health care, for instance, not to mention judicial serviceshave had to make do with inadequate budgetary allocations.Thus, government has had to resort to buildoperatetransfer andsimilar arrangements with the private sector, in order to get vitalinfrastructure projects built without any governmental outlay.

Same Same Same Same Same Same Same After thereality check, one will have to admit the implausibility of a directundertakingby the State itselfof largescale exploration,development and utilization of minerals, petroleum and othermineral oils.The very recent brouhaha over the gargantuanfiscal crisis or budget deficit merely confirms what theordinary citizen has suspected all along. After the reality check,one will have to admit the implausibil

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VOL. 445, DECEMBER 1, 2004 11


ity of a direct undertakingby the State itselfof largescaleexploration, development and utilization of minerals, petroleumand other mineral oils. Such an undertaking entails not onlyhumongous capital requirements, but also the attendant risk ofnever finding and developing economically viable quantities ofminerals, petroleum and other mineral oils.

Same Same Same Same Same Same Same By specifyingsuch agreements involving assistance, the drafters necessarilygave implied assent to everything that these agreementsnecessarily entailed.By specifying such agreements involvingassistance, the drafters necessarily gave implied assent toeverything that these agreements necessarily entailed or thatcould reasonably be deemed necessary to make them tenable andeffective, including management authority with respect to the



daytoday operations of the enterprise and measures for theprotection of the interests of the foreign corporation, PROVIDEDTHAT Philippine sovereignty over natural resources and fullcontrol over the enterprise undertaking the EDU activitiesremain firmly in the State.

Same Same Same Same Same Same Same In regard tothe plainlanguage approach, one of the practical difficulties thatresults from it is the fact that there is nothing by way of transitoryprovisions that would serve to confirm the theory that the omissionof the term service contract from the 1987 Constitution signaledthe demise of service contractsif the framers had intended to putan end to service contracts, they would have at least left specificinstructions to Congress to deal with these closingout issues,perhaps by way of general guidelines and a timeline within whichto carry them out.Regarding the plainlanguage approach, oneof the practical difficulties that results from it is the fact thatthere is nothing by way of transitory provisions that would serveto confirm the theory that the omission of the term servicecontract from the 1987 Constitution signaled the demise ofservice contracts. The framers knew at the time they weredeliberating that there were various service contracts extant andin force and effect, including those in the petroleum industry.Many of these service contracts were longterm (25 years) and hadseveral more years to run. If they had meant to ban servicecontracts altogether, they would have had to provide for thetermination or pretermination of the existing contracts.Accordingly, they would have supplied the specifics and the whenand how of effecting

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the extinguishment of these existing contracts (or at least themechanics for determining them) and of putting in place themeans to address the just claims of the contractors forcompensation for their investments, lost opportunities, and so on,if not for the recovery thereof. If the framers had intended to putan end to service contracts, they would have at least left specificinstructions to Congress to deal with these closingout issues,perhaps by way of general guidelines and a timeline within which



to carry them out.

Same Same Same Same Same Same Same Pertinentportions of the deliberations of the members of the ConstitutionalCommission (ConCom) conclusively show that they discussedagreements involving either technical or financial assistance in thesame breadth as service contracts and used the termsinterchangeably.Pertinent portions of the deliberations of themembers of the Constitutional Commission (ConCom)conclusively show that they discussed agreements involving eithertechnical or financial assistance in the same breadth as servicecontracts and used the terms interchangeably. The followingexchange between Commissioner Jamir (sponsor of the provision)and Commissioner Suarez irrefutably proves that theagreements involving technical or financial assistance werenone other than service contracts.

Same Same Same Same Same Same Same The phraseagreements involving either technical or financial assistance,referred to in paragraph 4, are in fact service contracts.We areimpelled to conclude that the phrase agreements involving eithertechnical or financial assistance, referred to in paragraph 4, are infact service contracts. But unlike those of the 1973 variety, thenew ones are between foreign corporations acting as contractorson the one hand and on the other, the government as principal orowner of the works. In the new service contracts, the foreigncontractors provide capital, technology and technical knowhow,and managerial expertise in the creation and operation of largescale mining/extractive enterprises and the government, throughits agencies (DENR, MGB), actively exercises control andsupervision over the entire operation.

Same Same Same Same Same Same Same ConstitutionalCommission We cannot completely denigrate the value orusefulness of the record of the Constitutional Commission simplybecause certain members chose not to speak out.The notion thatthe deliberations

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reflect only the views of those members who spoke out and not theviews of the majority who remained silent should be clarified. We



must never forget that those who spoke out were heard by thosewho remained silent and did not react. If the latter were silentbecause they happened not to be present at the time, they arepresumed to have read the minutes and kept abreast of thedeliberations. By remaining silent, they are deemed to havesignified their assent to and/or conformity with at least some ofthe views propounded or their lack of objections thereto. It wasincumbent upon them, as representatives of the entire Filipinopeople, to follow the deliberations closely and to speak their mindson the matter if they did not see eye to eye with the proponents ofthe draft provisions. In any event, each and every one of thecommissioners had the opportunity to speak out and to vote onthe matter. Moreover, the individual explanations of votes are onrecord, and they show where each delegate stood on the issues. Insum, we cannot completely denigrate the value or usefulness of therecord of the ConCom, simply because certain members chose notto speak out.

Same Same Same Same Same Same Same Same Verily,whether we like it or not, it is a bit too much to assume that everyone of those who voted to ratify the proposed Charter did so onlyafter carefully reading and mulling over it, provision by provisionwe believe that in reality, a good percentage of those who votedin favor of it did so more out of faith and trust.It is contendedthat the deliberations therein did not necessarily reflect thethinking of the voting population that participated in thereferendum and ratified the Constitution. Verily, whether we likeit or not, it is a bit too much to assume that every one of thosewho voted to ratify the proposed Charter did so only aftercarefully reading and mulling over it, provision by provision.Likewise, it appears rather extravagant to assume that every oneof those who did in fact bother to read the draft Charter actuallyunderstood the import of its provisions, much less analyzed it visvis the previous Constitutions. We believe that in reality, a goodpercentage of those who voted in favor of it did so more out offaith and trust. For them, it was the product of the hard work andcareful deliberation of a group of intelligent, dedicated andtrustworthy men and women of integrity and conviction, whoselove of country and fidelity to duty could not be questioned.

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Same Same Same Same Same Same Same Same Byvoting yes, many of the voters may be deemed to have signifiedtheir voluntary adoption of the understanding and interpretationof the delegates with respect to the proposed Charter and itsparticular provisions Fundamentally speaking, in the process ofrewriting the Charter, the members of the ConCom as a group weresupposed to represent the entire Filipino people.A largeproportion of the voters voted yes because the drafters, or amajority of them, endorsed the proposed Constitution. What thisfact translates to is the inescapable conclusion that many of thevoters in the referendum did not form their own isolatedjudgment about the draft Charter, much less about particularprovisions therein. They only relied or fell back and acted uponthe favorable endorsement or recommendation of the framers as agroup. In other words, by voting yes, they may be deemed to havesignified their voluntary adoption of the understanding andinterpretation of the delegates with respect to the proposedCharter and its particular provisions. If its good enough forthem, its good enough for me or, in many instances, If its goodenough for President Cory Aquino, its good enough for me. Andeven for those who voted based on their own individualassessment of the proposed Charter, there is no evidence availableto indicate that their assessment or understanding of itsprovisions was in fact different from that of the drafters. Thisunwritten assumption seems to be petitioners as well. For all weknow, this segment of voters must have read and understood theprovisions of the Constitution in the same way the framers had,an assumption that would account for the favorable votes.Fundamentally speaking, in the process of rewriting the Charter,the members of the ConCom as a group were supposed torepresent the entire Filipino people. Thus, we cannot but regardtheir views as being very much indicative of the thinking of thepeople with respect to the matters deliberated upon and to theCharter as a whole.

Same Same Same Same Same Same Same Same Aswritten by the framers and ratified and adopted by the people, theConstitution allows the continued use of service contracts withforeign corporationsas contractors who would invest in andoperate and manage extractive enterprises, subject to the fullcontrol and supervision of the Statesans the abuses of the pastregime.It is therefore reasonable and unavoidable to make thefollowing conclusion, based on the above arguments. As written bythe framers and ratified and

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VOL. 445, DECEMBER 1, 2004 15


adopted by the people, the Constitution allows the continued useof service contracts with foreign corporationsas contractors whowould invest in and operate and manage extractive enterprises,subject to the full control and supervision of the Statesans theabuses of the past regime. The purpose is clear: to develop andutilize our mineral, petroleum and other resources on a largescale for the immediate and tangible benefit of the Filipino people.

Same Same Same Same Same Same Same Every part ofthe Constitution is to be given effect, and the Constitution is to beread and understood as a harmonious wholefull control andsupervision by the State must be understood as one that does notpreclude the legitimate exercise of management prerogatives by theforeign contractor Full control and supervision cannot be takenliterally to mean that the State controls and supervises everythinginvolved, down to the minutest details, and makes all decisionsrequired in the mining operations.Under the third principle ofconstitutional construction laid down in Franciscout magisvaleat quam pereatevery part of the Constitution is to be giveneffect, and the Constitution is to be read and understood as aharmonious whole. Thus, full control and supervision by theState must be understood as one that does not preclude thelegitimate exercise of management prerogatives by the foreigncontractor. Before any further discussion, we must stress theprimacy and supremacy of the principle of sovereignty and Statecontrol and supervision over all aspects of exploration,development and utilization of the countrys natural resources, asmandated in the first paragraph of Section 2 of Article XII. But inthe next breadth we have to point out that full control andsupervision cannot be taken literally to mean that the Statecontrols and supervises everything involved, down to the minutestdetails, and makes all decisions required in the miningoperations. This strained concept of control and supervision overthe mining enterprise would render impossible the legitimateexercise by the contractors of a reasonable degree of managementprerogative and authority necessary and indispensable to theirproper functioning.

Same Same Same Same Same Same The concept ofcontrol adopted in Section 2 of Article XII must be taken to meanless than dictatorial, allencompassing control, but nevertheless



sufficient to give the State the power to direct, restrain, regulateand govern the affairs of the extractive enterprises.The conceptof control adopted

16



in Section 2 of Article XII must be taken to mean less thandictatorial, allencompassing control but nevertheless sufficientto give the State the power to direct, restrain, regulate and governthe affairs of the extractive enterprises. Control by the State maybe on a macro level, through the establishment of policies,guidelines, regulations, industry standards and similar measuresthat would enable the government to control the conduct of affairsin various enterprises and restrain activities deemed notdesirable or beneficial. The end in view is ensuring that theseenterprises contribute to the economic development and generalwelfare of the country, conserve the environment, and uplift thewellbeing of the affected local communities. Such a concept ofcontrol would be compatible with permitting the foreigncontractor sufficient and reasonable management authority overthe enterprise it invested in, in order to ensure that it is operatingefficiently and profitably, to protect its investments and to enableit to succeed.

Same Same Same Same RA 7942 and DAO 9640 vest inthe government more than a sufficient degree of control andsupervision over the conduct of mining operations.Consideringthe provisions of the statute and the regulations just discussed,we believe that the State definitely possesses the means by whichit can have the ultimate word in the operation of the enterprise,set directions and objectives, and detect deviations andnoncompliance by the contractor likewise, it has the capability toenforce compliance and to impose sanctions, should the occasiontherefor arise. In other words, the FTAA contractor is not free todo whatever it pleases and get away with it on the contrary, it willhave to follow the government line if it wants to stay in theenterprise. Ineluctably then, RA 7942 and DAO 9640 vest in thegovernment more than a sufficient degree of control andsupervision over the conduct of mining operations.

Same Same Same Same Exploration Permits While the



Constitution mandates the State to exercise full control andsupervision over the exploitation of mineral resources, nowheredoes it require the government to hold all exploration permits andsimilar authorizations.An objection has been expressed thatSection 3(aq) of RA 7942which allows a foreign contractor toapply for and hold an exploration permitis unconstitutional. Thereasoning is that Section 2 of Article XII of the Constitution doesnot allow foreignowned

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corporations to undertake mining operations directly. They mayact only as contractors of the State under an FTAA and the State,as the party directly undertaking exploitation of its naturalresources, must hold through the government all explorationpermits and similar authorizations. Hence, Section 3(aq), inpermitting foreignowned corporations to hold explorationpermits, is unconstitutional. The objection, however, is not wellfounded. While the Constitution mandates the State to exercisefull control and supervision over the exploitation of mineralresources, nowhere does it require the government to hold allexploration permits and similar authorizations. In fact, there is noprohibition at all against foreign or local corporations orcontractors holding exploration permits. The reason is not hard tosee.

Same Same Same Same Same An exploration permitmerely grants to a qualified person the right to conduct explorationfor all minerals in specified areasit does not amount to anauthorization to extract and carry off the mineral resources thatmay be discovered.Pursuant to Section 20 of RA 7942, anexploration permit merely grants to a qualified person the right toconduct exploration for all minerals in specified areas. Such apermit does not amount to an authorization to extract and carryoff the mineral resources that may be discovered. This phaseinvolves nothing but expenditures for exploring the contract areaand locating the mineral bodies. As no extraction is involved,there are no revenues or incomes to speak of. In short, theexploration permit is an authorization for the grantee to spend itsown funds on exploration programs that are preapproved by the



government, without any right to recover anything should nominerals in commercial quantities be discovered. The State risksnothing and loses nothing by granting these permits to local orforeign firms in fact, it stands to gain in the form of datagenerated by the exploration activities.

Same Same Same Same Same The exploration permitserves a practical and legitimate purpose in that it protects theinterests and preserves the rights of the exploration permit grantee(the wouldbe contractor)foreign or localduring the period oftime that it is spending heavily on exploration works, without yetbeing able to earn revenues to recoup any of its investments andexpenditures.In brief, the exploration permit serves a practicaland legitimate purpose in that it protects the interests andpreserves the rights of the exploration

18



permit grantee (the wouldbe contractor)foreign or localduringthe period of time that it is spending heavily on exploration works,without yet being able to earn revenues to recoup any of itsinvestments and expenditures. Minus this permit and theprotection it affords, the exploration works and expenditures mayend up benefiting only claimjumpers. Such a possibility tends todiscourage investors and contractors. Thus, Section 3(aq) of RA7942 may not be deemed unconstitutional.

Same Same Same Same The discretion given to thecontractor to select the contract area does not constitute abdicationof controlit is a mere acknowledgment of the fact that thecontractor will have determined, after appropriate explorationworks, which portions of the contract area do not contain mineralsin commercial quantities sufficient to justify developing the sameand ought therefore to be relinquished.Petitioners complain thatthe contractor has full discretion to selectand the governmenthas no say whatsoever as tothe parts of the contract area to berelinquished pursuant to Clause 4.6 of the WMCP FTAA. Thisclause, however, does not constitute abdication of control. Rather,it is a mere acknowledgment of the fact that the contractor willhave determined, after appropriate exploration works, whichportions of the contract area do not contain minerals in



commercial quantities sufficient to justify developing the sameand ought therefore to be relinquished. The State cannot justsubstitute its judgment for that of the contractor and dictate uponthe latter which areas to give up. Moreover, we can be certainthat the contractors selfinterest will propel proper and efficientrelinquishment. According to private respondent, a miningcompany tries to relinquish as much nonmineral areas as soon aspossible, because the annual occupation fees paid to thegovernment are based on the total hectarage of the contract area,net of the areas relinquished. Thus, the larger the remainingarea, the heftier the amount of occupation fees to be paid by thecontractor. Accordingly, relinquishment is not an issue, given thatthe contractor will not want to pay the annual occupation fees onthe nonmineral parts of its contract area. Neither will it want torelinquish promising sites, which other contractors maysubsequently pick up.

Same Same Same Same Eminent Domain A mechanismwhereby the foreignowned contractor, disqualified to own land,identifies to the government the specific surface areas within the

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FTAA contract area to be acquired for the mine infrastructure doesnot call for the exercise of the power of eminent domainanddetermination of just compensation is not an issueas much as itcalls for a qualified party to acquire the surface rights on behalf ofa foreignowned contractor.Section 10.2(e) sets forth themechanism whereby the foreignowned contractor, disqualified toown land, identifies to the government the specific surface areaswithin the FTAA contract area to be acquired for the mineinfrastructure. The government then acquires ownership of thesurface land areas on behalf of the contractor, in order to enablethe latter to proceed to fully implement the FTAA. The contractor,of course, shoulders the purchase price of the land. Hence, theprovision allows it, after termination of the FTAA, to bereimbursed from proceeds of the sale of the surface areas, whichthe government will dispose of through public bidding. It shouldbe noted that this provision will not be applicable to Sagittariusas the present FTAA contractor, since it is a Filipino corporation



qualified to own and hold land. As such, it may therefore freelynegotiate with the surface rights owners and acquire the surfaceproperty in its own right. Clearly, petitioners have needlesslyjumped to unwarranted conclusions, without being aware of therationale for the said provision. That provision does not call forthe exercise of the power of eminent domainand determinationof just compensation is not an issueas much as it calls for aqualified party to acquire the surface rights on behalf of a foreignowned contractor.

Same Same Same Same Mortgages Contractors right tomortgage and encumber its rights and interests in the FTAA andthe infrastructure and improvements introduced, as well as themineral products extracted, is not objectionable per seordinarily,banks lend not only on the security of mortgages on fixed assets butalso on encumbrances of goods produced that can easily be soldand converted into cash that can be applied to the repayment ofloan Banks even lend on the security of accounts receivable thatare collectible within 90 days.Petitioners also question theabsolute right of the contractor under Clause 10.2 (1) to mortgageand encumber not only its rights and interests in the FTAA andthe infrastructure and improvements introduced, but also themineral products extracted. Private respondents do not touch onthis matter, but we believe that this provision may have to dowith the conditions imposed by the creditorbanks of the thenforeign contractor WMCP to secure the

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lendings made or to be made to the latter. Ordinarily, banks lendnot only on the security of mortgages on fixed assets, but also onencumbrances of goods produced that can easily be sold andconverted into cash that can be applied to the repayment of loans.Banks even lend on the security of accounts receivable that arecollectible within 90 days. It is not uncommon to find that adebtor corporation has executed deeds of assignment by way ofsecurity over the production for the next twelve months and/orthe proceeds of the sale thereofor the corresponding accountsreceivable, if sold on termsin favor of its creditorbanks. Suchdeeds may include authorizing the creditors to sell the products



themselves and to collect the sales proceeds and/or the accountsreceivable.

Same Same Same Same Corporation Law It is notnecessary for government to attempt to limit or restrict the freedomof the shareholders in the contractor to freely transfer, dispose of orencumber their shareholdings, consonant with the unfetteredexercise of their business judgment and discretion.It is notnecessary for government to attempt to limit or restrict thefreedom of the shareholders in the contractor to freely transfer,dispose of or encumber their shareholdings, consonant with theunfettered exercise of their business judgment and discretion.Rather, what is critical is that, regardless of the identity,nationality and percentage ownership of the various shareholdersof the contractorand regardless of whether these shareholdersdecide to take the company public, float bonds and other fixedincome instruments, or allow the creditorbanks to take an equityposition in the companythe foreignowned contractor is alwaysin a position to render the services required under the FTAA,under the direction and control of the government.

Same Same Same Same Ownership Words and PhrasesBeneficial ownership has been defined as ownership recognized bylaw and capable of being enforced in the courts at the suit of thebeneficial owner Usually, beneficial ownership is distinguishedfrom naked ownership, which is the enjoyment of all the benefitsand privileges of ownership, as against possession of the bare titleto property.Beneficial ownership has been defined as ownershiprecognized by law and capable of being enforced in the courts atthe suit of the beneficial owner. Blacks Law Dictionary indicatesthat the term is used in two senses: first, to indicate the interestof a beneficiary in trust property (also called equitableownership) and second, to

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refer to the power of a corporate shareholder to buy or sell theshares, though the shareholder is not registered in thecorporations books as the owner. Usually, beneficial ownership isdistinguished from naked ownership, which is the enjoyment ofall the benefits and privileges of ownership, as against possession



of the bare title to property.

Same Same Same Same Same A careful perusal of thestatute itself and its implementing rules reveals that neither RA7942 nor DAO 9956 can be said to convey beneficial ownership ofany mineral resource or product to any foreign FTAA contractor.As public respondents correctly point out, any interest thecontractor may have in the proceeds of the mining operation ismerely the equivalent of the consideration the government hasundertaken to pay for its services. All lawful contracts requiresuch mutual prestations, and the WMCP FTAA is no different.The contractor commits to perform certain services for thegovernment in respect of the mining operation, and in turn it is tobe compensated out of the net mining revenues generated fromthe sale of mineral products. What would be objectionable is acontractual provision that unduly benefits the contractor far inexcess of the service rendered or value delivered, if any, inexchange therefor. A careful perusal of the statute itself and itsimplementing rules reveals that neither RA 7942 nor DAO 9956can be said to convey beneficial ownership of any mineral resourceor product to any foreign FTAA contractor.

Same Same Same Same The general framework or conceptfollowed in crafting the fiscal regime of the FTAA is based on theprinciple that the government expects real contributions to theeconomic growth and general welfare of the country, while thecontractor expects a reasonable return on its investments in theproject.On the contrary, DAO 9956, entitled GuidelinesEstablishing the Fiscal Regime of Financial or TechnicalAssistance Agreements aims to ensure an equitable sharing of thebenefits derived from mineral resources. These benefits are to beequitably shared among the government (national and local), theFTAA contractor, and the affected communities. The purpose is toensure sustainable mineral resources development and a fair,equitable, competitive and stable investment regime for the largescale exploration, development and commercial utilization ofminerals. The general framework or concept followed in craftingthe fiscal regime of the FTAA is based on the

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principle that the government expects real contributions to theeconomic growth and general welfare of the country, while thecontractor expects a reasonable return on its investments in theproject.

Same Same Same Same DAO 9956 spells out the financialbenefits the government will receive from an FTAA, referred to asthe Government Share, composed of a basic government shareand an additional government share.Specifically, under thefiscal regime, the governments expectation is, inter alia, thereceipt of its share from the taxes and fees normally paid by amining enterprise. On the other hand, the FTAA contractor isgranted by the government certain fiscal and nonfiscal incentivesto help support the formers cash flow during the most criticalphase (cost recovery) and to make the Philippines competitivewith other mineralproducing countries. After the contractor hasrecovered its initial investment, it will pay all the normal taxesand fees comprising the basic share of the government, plus anadditional share for the government based on the options andformulae set forth in DAO 9956. The said DAO spells out thefinancial benefits the government will receive from an FTAA,referred to as the Government Share, composed of a basicgovernment share and an additional government share.

Same Same Same Same Statutory Construction Words andPhrases The inclusion of the term among other things in thesecond paragraph of Section 81 of R.A. No. 7942 clearly andunmistakably reveals the legislative intent to have the State collectmore than just the usual taxes, duties and feessuch additionalgovernment share to consist not of taxes, but of a share in theearnings or cash flows of the mining enterprise.The law providesno definition of the term among other things, for the reason thatCongress deliberately avoided setting unnecessary limitations asto what may constitute compensation to the State for theexploitation and use of mineral resources. But the inclusion ofthat phrase clearly and unmistakably reveals the legislativeintent to have the State collect more than just the usual taxes,duties and fees. Certainly, there is nothing in that phraseor inthe second paragraph of Section 81that would suggest that suchphrase should be interpreted as referring only to taxes, duties,fees and the like. Precisely for that reason, to fulfill the legislativeintent behind the inclusion of the phrase among other things inthe second paragraph of Section 81, the DENR structured andformulated in DAO 9956 the said additional government share.

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Such a share was to consist not of taxes, but of a share in theearnings or cash flows of the mining enterprise. The additionalgovernment share was to be paid by the contractor on top of thebasic share, so as to achieve a fiftyfifty sharingbetween thegovernment and the contractorof net benefits from mining. Inthe RamosDe Vera paper, the explanation of the three options orformulaspresented in DAO 9956 for the computation of theadditional government shareserves to debunk the claim that thegovernments take from an FTAA consists solely of taxes, fees andduties.

Same Same Same Same Same Same The legislature actedjudiciously in not defining the term among other things and,instead, leaving it to the agencies concerned to devise and developthe various modes of arriving at a reasonable and fair amount forthe additional government share The Court does not share theview that in FTAAs with foreign contractors under RA 7942, thegovernments share is limited to taxes, fees and duties.One lastpoint on the subject. The legislature acted judiciously in notdefining the terms among other things and, instead, leaving it tothe agencies concerned to devise and develop the various modes ofarriving at a reasonable and fair amount for the additionalgovernment share. As can be seen from DAO 9956, the agenciesconcerned did an admirable job of conceiving and developing notjust one formula, but three different formulae for arriving at theadditional government share. Each of these options is quite fairand reasonable and, as Messrs. Ramos and De Vera stated, otheralternatives or schemes for a possible improvement of the fiscalregime for FTAAs are also being studied by the government.Besides, not locking into a fixed definition of the term amongother things will ultimately be more beneficial to the government,as it will have that innate flexibility to adjust to and cope withrapidly changing circumstances, particularly those in theinternational markets. Such flexibility is especially significant forthe government in terms of helping our mining enterprisesremain competitive in world markets despite challenging andshifting economic scenarios. In conclusion, we stress that we donot share the view that in FTAAs with foreign contractors underRA 7942, the governments share is limited to taxes, fees andduties. Consequently, we find the attacks on the second paragraphof Section 81 of RA 7942 totally unwarranted.



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Same Same Same Same Congress did not set any time limitfor the grace period, preferring to leave it to the concernedagencies, which are, on account of their technical expertise andtraining, in a better position to determine the appropriatedurations for such recovery periods after which the governmentshare in the FTAA may be collected.The third or last paragraphof Section 81 provides that the government share in FTAAs shallbe collected when the contractor shall have recovered its preoperating expenses and exploration and developmentexpenditures. The objection has been advanced that, on account ofthe proviso, the collection of the States share is not even certain,as there is no time limit in RA 7942 for this grace period orrecovery period. We believe that Congress did not set any timelimit for the grace period, preferring to leave it to the concernedagencies, which are, on account of their technical expertise andtraining, in a better position to determine the appropriatedurations for such recovery periods. After all, these recoveryperiods are determined, to a great extent, by technical andtechnological factors peculiar to the mining industry. Besides,with developments and advances in technology and in thegeosciences, we cannot discount the possibility of shorter recoveryperiods. At any rate, the concerned agencies have not been remissin this area. The 1995 and 1996 Implementing Rules andRegulations of RA 7942 specify that the period of recovery,reckoned from the date of commercial operation, shall be for aperiod not exceeding five years, or until the date of actualrecovery, whichever comes earlier.

Same Same Same Same Mineral Production SharingAgreements (MPSA) Section 80 and the colatilla in Section 84,limiting the States share in a mineral productionsharingagreement to just the excise tax on the mineral product, pertainonly to MPSAs and have no application to FTAAs.It should bepointed out that Section 80 and the colatilla in Section 84 pertainonly to MPSAs and have no application to FTAAs. Theseparticular statutory provisions do not come within the issues thatwere defined and delineated by this Court during the OralArgumentparticularly the third issue, which pertainedexclusively to FTAAs. Neither did the parties argue upon them in



their pleadings. Hence, this Court cannot make anypronouncement in this case regarding the constitutionality ofSections 80 and 84 without violating the fundamental rules of dueprocess. Indeed, the two provisos will have to await another casespecifically placing them in issue.

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Same Same Same Same Same Due Process Basic dueprocess requires that the Court hear the parties who have a reallegal interest in the MPSAs (i.e. the parties who executed them)before these MPSAs can be reviewed, or worse, struck down by theCourtanything less than that requirement would be arbitraryand capricious.Justices Carpio and Morales maintain that theCourt must rule now on the constitutionality of Sections 80, 84and 112, allegedly because the WMCP FTAA contains a provisionwhich grants the contractor unbridled and automatic authorityto convert the FTAA into an MPSA and should such conversionhappen, the State would be prejudiced since its share would belimited to the 2 percent excise tax. Justice Carpio adds that thereare five MPSAs already signed just awaiting the judgment of thisCourt on respondents and intervenors Motions forReconsideration. We hold however that, at this point, thisargument is based on pure speculation. The Court cannot rule onmere surmises and hypothetical assumptions, without firmfactual anchor. We repeat: basic due process requires that wehear the parties who have a real legal interest in the MPSAs (i.e.the parties who executed them) before these MPSAs can bereviewed, or worse, struck down by the Court. Anything less thanthat requirement would be arbitrary and capricious.

Same Same Same Same Let it be put on record that notonly foreign contractors, but all businessmen and all businessentities in general, have to recoup their investments and costs.Let it be put on record that not only foreign contractors, but allbusinessmen and all business entities in general, have to recouptheir investments and costs. That is one of the first things astudent learns in business school. Regardless of its nationality,and whether or not a business entity has a fiveyear cost recoveryperiod, it willmusthave to recoup its investments, one way oranother. This is just common business sense. Recovery of



investments is absolutely indispensable for business survival andbusiness survival ensures soundness of the economy, which iscritical and contributory to the general welfare of the people. Evengovernment corporations must recoup their investments in order tosurvive and continue in operation. And, as the precedingdiscussion has shown, there is no business that gets ahead orearns profits without any cost to it.

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Same Same Same Same We can hardly talk about foreigncontractors taking our mineral resources for freeIt takes a lot ofhard cash to even begin to do what they do The Court definitelydisagrees with the sweeping claim that no FTAA under Section 81will ever make any real contribution to the growth of the economyor to the general welfare of the country.We can hardly talk aboutforeign contractors taking our mineral resources for free. It takesa lot of hard cash to even begin to do what they do. And what theydo in this country ultimately benefits the local economy, growsbusinesses, generates employment, and creates infrastructure, asdiscussed above. Hence, we definitely disagree with the sweepingclaim that no FTAA under Section 81 will ever make any realcontribution to the growth of the economy or to the generalwelfare of the country. This is not a plea for foreign contractors.Rather, this is a question of focusing the judicial spotlightsquarely on all the pertinent facts as they bear upon the issue athand, in order to avoid leaping precipitately to illconceivedconclusions not solidly grounded upon fact.

Same Same Same Same It is not correct to say that all ofthe aftertax income will accrue to the foreign FTAA contractorthe government effectively receives a significant portion thereof.The concerned agencies have correctly interpreted the secondparagraph of Section 81 of RA 7942 to mean that the governmentis entitled to an additional share, to be computed based on anyone of the following factors: net mining revenues, the presentvalue of the cash flows, or excess profits reckoned against abenchmark rate of return on investments. So it is not correct tosay that all of the aftertax income will accrue to the foreignFTAA contractor, as the government effectively receives asignificant portion thereof.



Same Same Same Same Even a bit of knowledge ofcorporate finance will show that it will be impossible to maintaina business as a going concern if the entire net profit earned inany particular year will be taken out and repatriatedno sanebusiness person, concerned with maintaining the miningenterprise as a going concern and keeping a foothold in its market,can afford to repatriate the entire aftertax income to the homecountry.The foreign contractors can hardly repatriate the entireaftertax income to their home countries. Even a bit of knowledgeof corporate finance will show that it will be impossible tomaintain a business as a going concern if the

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entire net profit earned in any particular year will be taken outand repatriated. The net income figure reflected in the bottomline is a mere accounting figure not necessarily corresponding tocash in the bank, or other quick assets. In order to produce andset aside cash in an amount equivalent to the bottom line figure,one may need to sell off assets or immediately collect receivablesor liquidate shortterm investments but doing so may very likelydisrupt normal business operations. In terms of cash flows, thefunds corresponding to the net income as of a particular point intime are actually in use in the normal course of businessoperations. Pulling out such net income disrupts the cash flowsand cash position of the enterprise and, depending on the amountbeing taken out, could seriously cripple or endanger the normaloperations and financial health of the business enterprise. Inshort, no sane business person, concerned with maintaining themining enterprise as a going concern and keeping a foothold in itsmarket, can afford to repatriate the entire aftertax income to thehome country.

Same Same Same Same The Court fails to see how we canproperly conclude that the Constitution mandates the State toextract at least 60 percent of the aftertax income from a miningcompany run by a foreign contractorThe Charter did not intendto fix an ironclad rule on the 60 percent share, applicable to allsituations at all times and in all circumstances.We fail to seehow we can properly conclude that the Constitution mandates the



State to extract at least 60 percent of the aftertax income from amining company run by a foreign contractor. The argument isthat the Charter requires the States partner in a coproductionagreement, joint venture agreement or MPSA to be a Filipinocorporation (at least 60 percent owned by Filipino citizens). Wequestion the logic of this reasoning, premised on a supposedlyparallel or analogous situation. We are, after all, dealing with anessentially different equation, one that involves differentelements. The Charter did not intend to fix an ironclad rule onthe 60 percent share, applicable to all situations at all times andin all circumstances. If ever such was the intention of the framers,they would have spelt it out in black and white. Verba legis willserve to dispel unwarranted and untenable conclusions.

Same Same Same Same Oil Industry The 60 percent rulein the petroleum industry cannot be insisted upon at all times inthe mining businessthe numerous intrinsic differences involvedin their

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respective operations and requirements, cost structures andinvestment needs render it highly inappropriate to use petroleumoperations FTAAs as benchmarks for mining FTAAs.The 60percent rule in the petroleum industry cannot be insisted upon atall times in the mining business. The reason happens to be thefact that in petroleum operations, the bulk of expenditures is inexploration, but once the contractor has found and tapped into thedeposit, subsequent investments and expenditures are relativelyminimal. The crude (or gas) keeps gushing out, and the workentailed is just a matter of piping, transporting and storing. Notso in mineral mining. The ore body does not pop out on its own.Even after it has been located, the contractor must continuallyinvest in machineries and expend funds to dig and build tunnelsin order to access and extract the minerals from underneathhundreds of tons of earth and rock. As already stated, thenumerous intrinsic differences involved in their respectiveoperations and requirements, cost structures and investmentneeds render it highly inappropriate to use petroleum operationsFTAAs as benchmarks for mining FTAAs. Verily, we cannot just



ignore the realities of the distinctly different situations andstubbornly insist on the minimum 60 percent.

Same Same Same Same Same The mere fact that gas andoil exploration contracts grant the State 60 percent of the netrevenues does not necessarily imply that mining contracts shouldlikewise yield a minimum of 60 percent for the State.To repeat,the mere fact that gas and oil exploration contracts grant theState 60 percent of the net revenues does not necessarily implythat mining contracts should likewise yield a minimum of 60percent for the State. Jumping to that erroneous conclusion is likecomparing apples with oranges. The exploration, development andutilization of gas and oil are simply different from those of mineralresources. To stress again, the main risk in gas and oil is in theexploration. But once oil in commercial quantities is struck andthe wells are put in place, the risk is relatively over and blackgold simply flows out continuously with comparatively less needfor fresh investments and technology. On the other hand, even ifminerals are found in viable quantities, there is still need forcontinuous fresh capital and expertise to dig the mineral oresfrom the mines. Just because deposits of mineral ores are found inone area is no guarantee that an equal amount can be found inthe adjacent areas. There are simply continuing risks and needfor more capital, expertise and industry all the time. Note,

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however, that the indirect benefitsapart from the cash revenuesare much more in the mineral industry. As mines are exploredand extracted, vast employment is created, roads and otherinfrastructure are built, and other multiplier effects arise. On theother hand, once oil wells start producing, there is less need foremployment. Roads and other public works need not beconstructed continuously. In fine, there is no basis for saying thatgovernment revenues from the oil industry and from the mineralindustries are to be identical all the time.

Same Same Same Same Same The proffered minimum 60percent suggestion tends to limit the flexibility and tie the handsof government, ultimately hampering the countrys competitivenessin the international market, to the detriment of the Filipino people.



To our mind, the proffered minimum 60 percent suggestiontends to limit the flexibility and tie the hands of government,ultimately hampering the countrys competitiveness in theinternational market, to the detriment of the Filipino people. Thisyouhavetogiveus60percentofaftertaxincomeorwedontdobusinesswithyou approach is quite perilous. True, thissituation may not seem too unpalatable to the foreign contractorduring good years, when international market prices are up andthe mining firm manages to keep its costs in check. However,under unfavorable economic and business conditions, with costsspiraling skywards and minerals prices plummeting, a miningfirm may consider itself lucky to make just minimal profits. Theinflexible, carvedingranite demand for a 60 percent governmentshare may spell the end of the mining venture, scare awaypotential investors, and thereby further worsen the alreadydismal economic scenario. Moreover, such an unbending orunyielding policy prevents the government from respondingappropriately to changing economic conditions and shiftingmarket forces. This inflexibility further renders our country lessattractive as an investment option compared with other countries.

Same Same Same Same Same Separation of Powers Forthis Court to decree imperiously that the governments shareshould be not less than 60 percent of the aftertax income of FTAAcontractors at all times is nothing short of dictating upon thegovernmentthe result, ironically, is that the State ends up losingcontrol.For this Court to decree imperiously that thegovernments share should be not less than 60 percent of theaftertax income of FTAA contrac

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tors at all times is nothing short of dictating upon thegovernment. The result, ironically, is that the State ends up losingcontrol. To avoid compromising the States full control andsupervision over the exploitation of mineral resources, this Courtmust back off from insisting upon a minimum 60 percent rule. Itis sufficient that the State has the power and means, should it sodecide, to get a 60 percent share (or more) in the contractors netmining revenues or aftertax income, or whatever other basis the



government may decide to use in reckoning its share. It is notnecessary for it to do so in every case, regardless of circumstances.In fact, the government must be trusted, must be accorded theliberty and the utmost flexibility to deal, negotiate and transactwith contractors and third parties as it sees fit and upon termsthat it ascertains to be most favorable or most acceptable underthe circumstances, even if it means agreeing to less than 60percent. Nothing must prevent the State from agreeing to a shareless than that, should it be deemed fit otherwise the State will bedeprived of full control over mineral exploitation that the Charterhas vested in it.

Same Same Same Same Same Same Judicial LegislationTo stress again, there is simply no constitutional or legal provisionfixing the minimum share of the government in an FTAA at 60percent of the net profit.There is simply no constitutional or legalprovision fixing the minimum share of the government in anFTAA at 60 percent of the net profit. For this Court to decreesuch minimum is to wade into judicial legislation, and therebyinordinately impinge on the control power of the State. Let it beclear: the Court is not against the grant of more benefits to theState in fact, the more the better. If during the FTAAnegotiations, the President can secure 60 percent, or even 90percent, then all the better for our people. But, if under thepeculiar circumstances of a specific contract, the President couldsecure only 50 percent or 55 percent, so be it. Needless to say, thePresident will have to report (and be responsible for) the specificFTAA to Congress, and eventually to the people.

Same Same Same Same It is quite well known that miningcompanies do perform some marketing activities abroad in respectof selling their mineral products and byproducts, hence, it wouldnot be improper to allow the deduction of reasonable consultingfees incurred abroad, as well as administrative expenses andoverheads

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related to marketing offices also located abroad.It is quite wellknown, however, that mining companies do perform somemarketing activities abroad in respect of selling their mineral



products and byproducts. Hence, it would not be improper toallow the deduction of reasonable consulting fees incurred abroad,as well as administrative expenses and overheads related tomarketing offices also located abroadprovided that thesedeductions are directly related or properly allocatable to themining operations and reasonably related to the performance ofthe contractors obligations and exercise of its rights. In anyevent, more facts are needed. Until we see how these provisionsactually operate, mere suspicions will not suffice to propel thisCourt into taking action.

Same Same Same Same As finally structured, Section 7.9 ofthe FTAA has the deleterious effect of depriving government of theentire 60 percent share in WMCPs net mining revenues, withoutany form of compensation whatsoever, an outcome which iscompletely unacceptable.Section 7.9 has the effect of deprivingthe State of its 60 percent share in the net mining revenues ofWMCP without any offset or compensation whatsoever. It ispossible that the inclusion of the offending provision was initiallyprompted by the desire to provide some form of incentive for theprincipal foreign stockholder in WMCP to eventually reduce itsequity position and ultimately divest in favor of Filipino citizensand corporations. However, as finally structured, Section 7.9 hasthe deleterious effect of depriving government of the entire 60percent share in WMCPs net mining revenues, without any formof compensation whatsoever. Such an outcome is completelyunacceptable.

Same Same Same Same AntiGraft and Corrupt PracticesAct Section 7.9 of the WMCP FTAA effectively gives away theStates share of net mining revenues (provided for in Section 7.7)without anything in exchangethe outcome likewise constitutesunjust enrichment on the part of the local and foreign stockholdersof WMCP The provision in question is without a doubt grosslydisadvantageous to the government, detrimental to the interests ofthe Filipino people, and violative of public policy Being preciselyviolative of antigraft provisions and contrary to public policy,Section 7.9 must therefore be stricken off as invalid.Section 7.9of the WMCP FTAA effectively gives away the States share of netmining revenues (provided for in Section 7.7) without anything inexchange. Moreover, this outcome

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constitutes unjust enrichment on the part of the local and foreignstockholders of WMCP. By their mere divestment of up to 60percent equity in WMCP in favor of Filipino citizens and/orcorporations, the local and foreign stockholders get a windfall.Their share in the net mining revenues of WMCP is automaticallyincreased, without their having to pay the government anythingfor it. In short, the provision in question is without a doubt grosslydisadvantageous to the government, detrimental to the interests ofthe Filipino people, and violative of public policy. Moreover, it hasbeen reiterated in numerous decisions that the parties to acontract may establish any agreements, terms and conditions thatthey deem convenient but these should not be contrary to law,morals, good customs, public order or public policy. Beingprecisely violative of antigraft provisions and contrary to publicpolicy, Section 7.9 must therefore be stricken off as invalid.

Same Same Same Same Same Estoppel AdministrativeLaw Law on Public Officers It is hornbook doctrine that theprinciple of estoppel does not operate against the government forthe act of its agents, and that it is never estopped by any mistakeor error on their part.Whether the government officialsconcerned acceded to that provision by sheer mistake or with fullawareness of the ill consequences, is of no moment. It is hornbookdoctrine that the principle of estoppel does not operate against thegovernment for the act of its agents, and that it is never estoppedby any mistake or error on their part. It is therefore possible andproper to rectify the situation at this time. Moreover, we may alsosay that the FTAA in question does not involve mere contractualrights being impressed as it is with public interest, thecontractual provisions and stipulations must yield to the commongood and the national interest.

Same Same Same Same It makes no sense why money spentby the government for the benefit of the contractor in buildingroads leading to the mine site should still be deductible from theStates share in net mining revenuesallowing this deductionresults in benefiting the contractor twice over, constituting unjustenrichment on the part of the contractor at the expense of thegovernment.Section 7.8(e) is out of place in the FTAA. It makesno sense why, for instance, money spent by the government forthe benefit of the contractor in building roads leading to the minesite should still be deductible from the States share in net miningrevenues. Allowing



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this deduction results in benefiting the contractor twice over. Itconstitutes unjust enrichment on the part of the contractor at theexpense of the government, since the latter is effectively beingmade to pay twice for the same item. For being grosslydisadvantageous and prejudicial to the government and contraryto public policy, Section 7.8(e) is undoubtedly invalid and must bedeclared to be without effect. Fortunately, this provision can alsoeasily be stricken off without affecting the rest of the FTAA.

Same Same Same Same The term limitation of twentyfiveyears for agreements for the exploration, development andutilization of natural resources provided for in the paragraph 1,Section 2, Article XII does not apply to FTAAsit refers only to coproduction agreements, joint venture agreements and mineralproductionsharing agreements.We hold that the termlimitation of twentyfive years does not apply to FTAAs. Thereason is that the above provision is found within paragraph 1 ofSection 2 of Article XII, which refers to mineral agreementscoproduction agreements, joint venture agreements and mineralproductionsharing agreementswhich the government mayenter into with Filipino citizens and corporations, at least 60percent owned by Filipino citizens. The word such clearly refersto these three mineral agreementsCPAs, JVAs and MPSAsnot to FTAAs. Specifically, FTAAs are covered by paragraphs 4and 5 of Section 2 of Article XII of the Constitution. It will benoted that there are no term limitations provided for in the saidparagraphs dealing with FTAAs. This shows that FTAAs are suigeneris, in a class of their own. This omission was obviously adeliberate move on the part of the framers. They probablyrealized that FTAAs would be different in many ways fromMPSAs, JVAs and CPAs. The reason the framers did not fix termlimitations applicable to FTAAs is that they preferred to leave thematter to the discretion of the legislature and/or the agenciesinvolved in implementing the laws pertaining to FTAAs, in orderto give the latter enough flexibility and elbow room to meetchanging circumstances.

Same Same Same Same It is certainly not illegal for the



government to waive its option to refuse the renewal of acommercial contract.The complaint is that, in essence, Section3.3 gives the contractor the power to compel the government torenew the WMCP FTAA for another 25 years and deprives theState of any say on whether to renew the contract. While we agreethat Section 3.3 could

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have been worded so as to prevent it from favoring the contractor,this provision does not violate any constitutional limits, since thesaid term limitation does not apply at all to FTAAs. Neither canthe provision be de

Documents

With Annotation La BugalB’Laan Tribal Association, Inc. vs. Ramos