La Bugal-B'Laan Tribal Association, Inc. vs.

DENR Secretary Ramos (Dec 1, 2004)

Summary Cases:

● La Bugal-B'laan Tribal Association, Inc. vs DENR Secretary Victor Ramos

Subject:

Mootness; Exception to Moot and Academic Questions; Judicial Review; FTAA Agreements not Limited
to Foreign Corporations; Prior Approval for the Transfer of the FTAA; FTAA not Void, thus Transferable;
Section 2 of Article XII of the 1987 Constitution; Interpretation of "Agreements Involving Either Technical
or Financial Assistance"; Service Contracts Not "Deconstitutionalized"; FTAAs are Service Contracts
with Safeguards; Ultimate Test: State's "Control" Determinative of Constitutionality

Facts:

The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1)
Republic Act 7942 (The Philippine Mining Act of 1995) (2) its Implementing Rules and Regulations
(DENR Administrative Order [DAO] 96-40); and (3) the Financial and Technical Assistance Agreement
(FTAA) dated 30 March 1995, executed by the government with Western Mining Corporation
(Philippines), Inc. (WMCP).

In a previous Decision, (decided January 27, 2004) the Court en banc declared as unconstitutional
certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed between the
government and WMCP after concluding that FTAAs are essentially service contracts which, though
permitted under the 1973 Constitution, are prohibited under the 1987 Constitution.

The Decision struck down the FTAA for having been executed in violation of Section 2 of Article XII of
the 1987 Constitution. Service contracts are prohibited because they effectively vest on foreign entities
the full management and control over the exploitation of our natural resources, in violation of the
principle of the sovereignty of the state over its own natural resources.

Subsequently, DENR Secretary Victor Ramos filed separate Motions for Reconsideration.

Held:

Mootness

1. WMCP, at the time it entered into the FTAA, was wholly owned by WMC, a wholly owned subsidiary of
an Australian mining and exploration company. Subsequently, however, the FTAA was transferred to
Sagittarius, a Filipino-owned corporation.

2. The conveyance of the FTAA to a Filipino corporation can be likened to the sale of land to a foreigner
who subsequently acquires Filipino citizenship, or who later resells the same land to a Filipino citizen.
The conveyance would be validated, as the property in question would no longer be owned by a
disqualified vendee.

3. Inasmuch as the FTAA has been transferred to, and is now held by, a Filipino corporation, the FTAA
can no longer be assailed—the objective of the constitutional provision to keep the exploration,
development and utilization of our natural resources in Filipino hands would have been served.

Exception to Moot and Academic Questions

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4. The courts will decide a question—otherwise moot and academic—if it is “capable of repetition, yet
evading review.

5. The Court must recognize the exceptional character of the situation and the paramount public interest
involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing the mining
industry and the affected communities as a result of doubts cast upon the constitutionality and validity of
the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of suits.

Judicial Review

6. When an act of the legislative department is seriously alleged to have infringed the Constitution,
settling the controversy becomes the duty of this Court—by the mere enactment of the questioned law or
the approval of the challenged action, the dispute is said to have ripened into a judicial controversy even
without any other overt act

FTAA Agreements not Limited to Foreign Corporations

7. Section 2 of Article XII states: “…. The exploration, development and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is owned by such
citizens.”

8. Petitioners claim that a Filipino corporation is not allowed by the Constitution to enter into an FTAA
with the government as this can be entered into only with foreign-owned corporations. Petitioners insist
that the provision limits the participation of Filipino corporations to only three species of contracts --
production sharing, co-production and joint venture -- to the exclusion of all other arrangements or
variations thereof, and the WMCP FTAA may therefore not be validly assumed and implemented by
Sagittarius.

9. Nowhere in the provision is there any express limitation or restriction insofar as arrangements other
than the three aforementioned contractual schemes are concerned. There is no basis to believe that the
framers of the Constitution could have wanted to restrict Filipino participation in that area, especially in
the light of the overarching constitutional principle of giving preference and priority to Filipinos and
Filipino corporations in the development of our natural resources. What the Constitution grants to
foreigners should be equally available to Filipinos.

Prior Approval for the Transfer of the FTAA

10. Section 40 of RA 7942 (the Mining Law) allegedly requires the President's prior approval for the
transfer of the FTAA.

11. Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer
of shares of stock in WMCP to Sagitarrius.

12. When the transferee of an FTAA is another foreign corporation, there is a logical application of the
requirement of prior approval by the President of the Republic and notification to Congress in the event
of assignment or transfer of an FTAA. In this situation, such approval and notification are appropriate
safeguards, considering that the new contractor is the subject of a foreign government.

13. On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need
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for such safeguard is not critical; hence, the lack of prior approval and notification may not be deemed
fatal as to render the transfer invalid.

FTAA not Void, thus Transferable

14. The FTAA does not vest in the foreign corporation full control and supervision over the exploration,
development and utilization of mineral resources, to the exclusion of the government.

15. The government does not have to micro-manage the mining operations and dip its hands into the
day-to-day management of the enterprise in order to be considered as having overall control and
direction. Besides, for practical and pragmatic reasons, there is a need for government agencies to
delegate certain aspects of the management work to the contractor.

Section 2 of Article XII of the 1987 Constitution

16. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot
be alienated by the State.

17. The exploration, development and utilization (EDU) of natural resources shall be under the full
control and supervision of the State.

18. The State may undertake these EDU activities through either of the following:

(a) By itself directly and solely

(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino
citizens or corporations, at least 60 percent of the capital of which is owned by such citizens

19. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.

20. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter into
"agreements with foreign-owned corporations involving either technical or financial assistance
according to the general terms and conditions provided by law

Interpretation of "Agreements Involving Either Technical or Financial Assistance"

21. Petitioners insist that, applying the verba legis (plain meaning) rule in constitutional construction,
what a foreign-owned corporation may enter into with the government is merely an agreement for either
financial or technical assistance only which excludes foreign management and operation of a mining
enterprise.

22. Contrary to petitioner’s stance, the use of the word "involving" implies that these agreements with
foreign corporations are not limited to mere financial or technical assistance.

23. The use of the word "involving" by the framers of the Constitution signifies the possibility of the
inclusion of other forms of assistance or activities having to do with, otherwise related to or
compatible with financial or technical assistance. The word "involving," when understood in the sense of
"including," as in including technical or financial assistance, necessarily implies that there are activities
other than those that are being included.

24. Moreover, if the real intention of the drafters was to confine foreign corporations to financial or
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technical assistance and nothing more, their language would have certainly been so unmistakably
restrictive and stringent as to leave no doubt in anyone's mind about their true intent.

Service Contracts Not "Deconstitutionalized"

25. Pertinent portions of the deliberations of the members of the Constitutional Commission (ConCom)
conclusively show that they did not intend to ban or eradicate service contracts. Instead, they were
crafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent
during the marital law regime.

26. In brief, service contracts with foreign corporations as contractors are allowed as an exception to
the general norm established in the first paragraph of Section 2 of Article XII of the 1987 Constitution, i.e.
reserving or limiting to Filipino citizens -- and corporations at least 60 percent of which is owned by such
citizens -- the exploration, development and utilization of natural resources. This exception was
prompted by the perceived insufficiency of Filipino capital and the felt need for foreign investments in the
EDU of minerals and petroleum resources

FTAAs are Service Contracts with Safeguards

27. The phrase agreements involving either technical or financial assistance are in fact service contracts.
But unlike those of the 1973 variety, in the new service contracts, the foreign contractors provide capital,
technology and technical know-how, and managerial expertise in the creation and operation of
large-scale mining/extractive enterprises; and the government, through its agencies (DENR, MGB),
actively exercises control and supervision over the entire operation

28. The scope of such service contracts is limited -- they are valid only in regard to minerals, petroleum
and other mineral oils, not to all natural resources.

29. Moreover, the service conracts are subject to the following safeguards:

(1) The service contract shall be crafted in accordance with a general law that will set standard or
uniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions
and avoid the possible insertion of terms disadvantageous to the country.

(2) The President shall be the signatory for the government because, supposedly before an
agreement is presented to the President for signature, it will have been vetted several times over
at different levels to ensure that it conforms to law and can withstand public scrutiny.

(3) Within thirty days of the executed agreement, the President shall report it to Congress to give
that branch of government an opportunity to look over the agreement and interpose timely
objections, if any.

Ultimate Test: State's "Control" Determinative of Constitutionality

30. Under the constitutional construction principle of ut magis valeat quam pereat (every part of the
Constitution is to be given effect and the Constitution is to be read and understood as a harmonious
whole), "full control and supervision" by the State must be understood as one that does not preclude the
legitimate exercise of management prerogatives by the foreign contractor.

31. Full control is not anathematic to day-to-day management by the contractor, provided that the State
retains the power to direct overall strategy; and to set aside, reverse or modify plans and actions of the
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contractor. The idea of full control is similar to that which is exercised by the board of directors of a
private corporation: the performance of managerial, operational, financial, marketing and other functions
may be delegated to subordinate officers or given to contractual entities, but the board retains full
residual control of the business.

32. On the basis of this control standard, this Court upholds the constitutionality of the Philippine Mining
Law, its Implementing Rules and Regulations -- insofar as they relate to financial and technical
agreements -- as well as the subject Financial and Technical Assistance Agreement (FTAA).

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