RECENT JURISPRUDENCE – POLITICAL LAW

La Bugal B’laan Tribal Association Inc., et al. V. Victor O. Ramos, Secretary

Department of Environment and Natural Resources; Horacio Ramos, Director,
Mines and Geosciences Bureau (MGB-DENR); Ruben Torres, Executive Secretary;
and WMC (Philippines) Inc.

G.R. No. 127882, 27 January 2004, En Banc (Carpio-Morales, J.)

The constitutional provision allowing the President to enter into FTAAs is an exception to the rule that participation
in the nation’s natural resources is reserved exclusively to Filipinos. Provision must be construed strictly against their enjoyment
by non-Filipinos.

RA 7942 (The Philippine Mining Act) took effect on April 9, 1995. Before the effectivity of RA
7942, or on March 30, 1995, the President signed a Financial and Technical Assistance Agreement (FTAA)
with WMCP, a corporation organized under Philippine laws, covering close to 100, 000 hectares of land in
South Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato. On August 15, 1995, the
Environment Secretary Victor Ramos issued DENR Administrative Order 95-23, which was later repealed
by DENR Administrative Order 96-40, adopted on December 20, 1996.

Petitioners prayed that RA 7942, its implementing rules, and the FTAA between the government
and WMCP be declared unconstitutional on ground that they allow fully foreign owned corporations like
WMCP to exploit, explore and develop Philippine mineral resources in contravention of Article XII Section
2 paragraphs 2 and 4 of the Charter.

In January 2001, MMC – a publicly listed Australian mining and exploration company – sold its
whole stake in WMCP to Sagittarius Mines, 60% of which is owned by Filipinos while 40% of which is
owned by Indophil Resources, an Australian company. DENR approved the transfer and registration of the
FTAA in Sagittarius’ name but Lepanto Consolidated assailed the same. The latter case is still pending
before the Court of Appeals.

EO 279, issued by former President Aquino on July 25, 1987, authorizes the DENR to accept,
consider and evaluate proposals from foreign owned corporations or foreign investors for contracts or
agreements involving either technical or financial assistance for large scale exploration, development and
utilization of minerals which upon appropriate recommendation of the (DENR) Secretary, the president
may execute with foreign proponent. WMCP likewise contended that the annulment of the FTAA would
violate a treaty between the Philippines and Australia which provides for the protection of Australian
investments.

ISSUES:

1. Whether or not the Philippine Mining Act is unconstitutional for allowing fully foreign-owned
corporations to exploit Philippine mineral resources

2. Whether or not the FTAA between the government and WMCP is a “service contract” that
permits fully foreign owned companies to exploit Philippine mineral resources

HELD:

First Issue:
RA 7942 is Unconstitutional
 RECENT JURISPRUDENCE – POLITICAL LAW

RA 7942 or the Philippine Mining Act of 1995 is unconstitutional for permitting fully foreign owned
corporations to exploit Philippine natural resources.

Article XII Section 2 of the 1987 Constitution retained the Regalian doctrine which states that “All
lands of the public domain, waters, minerals, coal, petroleum, and other minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State.” The same section also states that, “exploration and development
and utilization of natural resources shall be under the full control and supervision of the State.”

Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing
the State to grant licenses, concessions, or leases for the exploration, exploitation, development or utilization
of natural resources. Y such omission, the utilization of inalienable lands of public domain through license,
concession or lease is no longer allowed under the 1987 Constitution.

Under the concession system, the concessionaire makes a direct equity investment for the purpose
of exploiting a particular natural resource within a given area. The concession amounts to complete control
by the concessionaire over the country’s natural resource, for it is given exclusive and plenary rights to
exploit a particular resource at the point of extraction.

The 1987 Constitution, moreover, has deleted the phrase “management or other forms of
assistance” in the 1973 Charter. The present Constitution now allows only “technical and financial
assistance.” The management or operation of mining activities by foreign contractors, the primary feature
of service contracts was precisely the evil the drafters of the 1987 Constitution sought to avoid.

The constitutional provision allowing the President to enter into FTAAs is an exception to the rule
that participation in the nation’s natural resources is reserved exclusively to Filipinos. Accordingly such
provision must be construed strictly against their enjoyment by non-Filipinos. Therefore RA 7942 is invalid
insofar as said act authorizes service contracts. Although the statute employs the phrase “financial and
technical agreements” in accordance with the 1987 Constitution, its pertinent provisions actually treat these
agreements as service contracts that grant beneficial ownership to foreign contractors contrary to the
fundamental law.

The underlying assumption in the provisions of the law is that the foreign contractor manages the
mineral resources just like the foreign contractor in a service contract. By allowing foreign contractors to
manage or operate all the aspects of the mining operation, RA 7942 has in effect conveyed beneficial
ownership over the nation’s mineral resources to these contractors, leaving the State with nothing but bare
title thereto.

The same provisions, whether by design or inadvertence, permit a circumvention of the

constitutionally ordained 60-40% capitalization requirement for corporations or associations engaged in the
exploitation, development and utilization of Philippine natural resources.

When parts of a statute are so mutually dependent and connected as conditions, considerations,
inducements or compensations for each other as to warrant a belief that the legislature intended them as a
whole, then if some parts are unconstitutional, all provisions that are thus dependent, conditional or
connected must fall with them.

Under Article XII Section 2 of the 1987 Charter, foreign owned corporations are limited only to
merely technical or financial assistance to the State for large scale exploration, development and utilization
of minerals, petroleum and other mineral oils.
 RECENT JURISPRUDENCE – POLITICAL LAW
Second Issue:
RP Government-WMCP FTAA is a Service Contract

The FTAA between WMCP and the Philippine government is likewise unconstitutional since the
agreement itself is a device contract.

Section 1.3 of the FTAA grants WMCP, a fully foreign owned corporation, the “exclusive right to
explore, exploit, utilize and dispose of all minerals and by-products that may be produced from the contract
area.” Section 1.2 of the same agreement provides that WMCP shall provide “all financing, technology,
management, and personnel necessary for the Mining Operations.”

These contractual stipulations and related provisions in the FTAA taken together, grant WMCP
beneficial ownership over natural resources that properly belong to the State and are intended for the
benefit of its citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely the
vices that the fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract
from which they spring must be struck down.

Separate Opinion of Justice Panganiban

The FTAA is now to be implemented by a Filipino corporation, therefore the Court can no longer
declare it unconstitutional. The CA case is a dispute between two Filipino corporations (Sagittarius and
Lepanto) both claiming the right to purchase the foreign shares in WMCP. Regardless of which side
eventually prevails, the FTAA would still be in the hands of a qualified Filipino firm.

The present Constitution, moreover, does not limit foreign participation in the exploration,
development and utilization of minerals, petroleum and mineral oils to financial or technical assistance. The
drafters’ choice of words and excerpts from deliberations of the Constitutional Commission reveal that the
present Charter did not limit to financial or technical assistance the participation of foreign corporations in
the large-scale exploration, development, and utilization of minerals, petroleum and mineral oils.

The drafters’ use of the phrase “agreements xxx involving xxx technical or financial assistance” – in
Article XII Section 2 of the 1987 Charter does not absolutely show intent to exclude other modes of
assistance. “Rather the phrase signifies the possibility of the inclusion of other activities, provided they bear
some reasonable relationship to and compatibility with financial or technical assistance.” If the drafters
intended to strictly confine foreign corporations to financial or technical assistance only, they would have
employed “restrictive” or “stringent” language.

Excerpts from then deliberations of the Constitutional Commission likewise show that its members
discussed “technical or financial assistance agreements” in the same breath as “service contracts” and used
the terms interchangeably. The members of the Concom actually had in mind the Marcos-era service
contracts that they were more familiar with (but which they duly modified and restricted so as to prevent
present abuses), when they were crafting and polishing the provisions dealing with financial and/or
technical assistance agreements.

The Concom discussions in their entirely had to do with service contracts that might be given to
foreign-owned corporations as exceptions to the general principle of Filipino control of the economy.”