Professional Documents
Culture Documents
the Grandfather Rule or the second part of the McArthur Mining, Inc., is composed, among
SEC Rule applies only when the 60-40 Filipino- others, by Madridejos Mining Corporation
foreign equity ownership is in doubt (i.e., in cases (Filipino) owning 5,997 out of 10,000 shares, and
where the joint venture corporation with Filipino MBMI Resources, Inc. (Canadian) owning 3,998
and foreign stockholders with less than 60% out of 10,000 shares; MBMI also owns 3,331 out
Filipino stockholdings [or 59%] invests in other of 10,000 shares of Madridejos Mining
joint venture corporation which is either 60-40% Corporation;
Filipino-alien or the 59% less Filipino). Stated
Tesoro and Mining and Development, Inc., is
differently, where the 60-40 Filipino- foreign
composed, among others, by Sara Marie Mining,
equity ownership is not in doubt, the
Inc. (Filipino) owning 5,997 out of 10,000 shares,
Grandfather Rule will not apply.
and MBMI Resources, Inc. (Canadian) owning
Facts: 3,998 out of 10,000 shares; MBMI also owns
3,331 out of 10,000 shares of Sara Marie Mining,
Redmont was a domestic corporation organized Inc.;
and existing under Philippine laws, which took
interest in mining and exploration of certain Narra Nickel Mining and Development
areas in the province of Palawan. After inquiry Corporation, is composed, among others, by
with DENR, it learned that the places it wanted Patricia Louise Mining & Development
to undertake are already covered by Mineral Corporation (Filipino) owning 5,997 out of
Production Sharing agreement, of three mining 10,000 shares, and MBMI Resources, Inc.
corporations, namely, Narra Nickel, Tesoro, and (Canadian) owning 3,998 out of 10,000 shares;
Mcarthur Mining. MBMI also owns 3,396 out of 10,000 shares of
Patricia Louise Mining & Development
Redmont filed before the Panel of Arbitrators Corporation;
(POA) of the DENR three separate petitions for
denial of petitioners applications for MPSA, POA held in favor of Redmont, but upon Mines
alleging that the Petitioner mining corporations adjudication board issued an order reversing the
are owned and controlled by MBMI resources decision of POA-DENR
Inc, a 100% canadian corporation
The CA used the Grandfather Rule. Under the
Redmont alleges that MBMi was the driving control test or liberal rule, Shares belonging to
force behind the petitioners filing of MPSA for corporations or partnerships at least 60% of the
MMC (madridejos mining corporation), capital of which is owned by Filipino citizens shall
Redmont further argues that the NNM, TM, MM be considered as of Philippine nationality, but if
should be disqualified in engaging in mining the percentage of Filipino ownership in the
activities which are reserved only for Filipino corporation or partnership is less than 60%, only
Citizens, as their capital stocks are mostly owned the number of shares corresponding to such
by a Foreign Corporation. percentage shall be counted as of Philippine
nationality, thus the Grandfather rule or Strict
Rule was applied.
Ca held that MBMI in effect owned majority of of the Court, there is doubt, based on the
the common stocks of the petitioners as well as attendant facts and circumstances of the case, in
at least 60% equity interest of other majority the 60-40 Filipino equity ownership in the
shareholders of petitioners through joint corporation, then it may apply the "grandfather
venture agreements. The CA found that through rule."
a "web of corporate layering, it is clear that one
The Grandfather Rule implements the intent of
common controlling investor in all mining
the Filipinization provisions of the Constitution.
corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and The grandfather Rule is merely a supplementary
Narra are also in partnership with, or privies-in- to the determination of Filipino Ownership, it is
interest of, MBMI. still the control test that prevails, save if the
Equity threshold is below 60%, or when there is
CA found in favor of Redmont
corporate layering aimed to circumvent the laws
Issue: in Filipinazation, the GFR shall apply
W/N CA erred in the application of Grandfather The 60-40 ratio shall be patently seen, or at first
Rule, allegedly contrary to the express mandate glance there would be no doubt to exist or give
of Foreign Investment Acts of 1991 rise to a reasonable suspicion, of the
Filipinazation
Petitioners further claim that the Grandfather
rule has been abandoned and is no longer the Under the Strict Rule or Grandfather Rule
applicable rule. Proper, the combined totals in the Investing
Corporation and the Investee Corporation must
Ruling:
be traced (i.e., grandfathered) to determine
No, the Grandfather Rule is justified. SEC Rule the total percentage of Filipino ownership
and DOJ Opinion, the Grandfather Rule or the
"Corporate layering" is admittedly allowed by
second part of the SEC Rule applies only when
the FIA; but if it is used to circumvent the
the 60-40 Filipino-foreign equity ownership is in
Constitution and pertinent laws, then it becomes
doubt (i.e., in cases where the joint venture
illegal.
corporation with Filipino and foreign
stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint
venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the
Grandfather Rule will not apply.