La Bugal B’laan Tribal Association, et al. v. Victor Reyes, et al.

<Petitioners, including a local tribe, assail the constitutionality of the Philippine Mining Act, and the government’s agreement with a foreign mining firm. They want implementation prohibited. They won in January 2004. But lost when the SC granted the respondents’ motion for reconsideration in December 2004. Dean Leonen was one of the counsels for petitioners.>

Carpio-Morales [Jan 2004]. Petition for mandamus and prohibition.

Facts: Petitioners assail the constitutionality of the Philippine Mining Act of 1995 (RA 7942); its IRR; DENR AO 96-40; and the Financial and Technical Assistance Agreement (FTAA) entered into on March 30, 1995 by the RP and WMC-Philippines, Inc. (Western Mining Corp., Philippines, Inc.)

History of the law

7-25-87 >>> President Aquino issued EO 279 authorizing the DENR secretary to accept/consider proposals from foreign-owned companies/investors for contracts invovlving either technical assistance for large-scale exploration/development/utilization of minerals (mining).

3-3-95 >>> President Ramos approves the 1995 Mining Act, which includes qualifications of cotnracts and rights granted to them, including timber/water/easements rights, and right to possess explosives. Government's share in agreement spelled out and allocated.

3-30-95 >>> Shortly before effectivity of RA 7942, president entered into an FTAA with WMCP covering 99,387 ha of land in South Cotabato, Sultan Kudarat, Davao del Sur, North Cotabato.

8-15-95 >>> DENR Sec. Ramos issued DENR AO 95-23, or the IRR of RA 7942.

1-10-97 >>> Counsels for petitioners sent letter to DENR secretary demanding DENR to stop implementation of RA 7942. At the time of filing of petition, 100 FTAA applications were already filed. Thus, DENR secretary acted without or in excess of jurisdiction.

Petitioners allege

>>> In signing/promulgating IRR, RA 7942 unconstitutional and contrasts with S2, P4, A12 of the 1987 Constitution (87C) which provides that:

" The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources."

>>> Unconstitutional because it allows taking of private property without the determination of public use and for just compensation.

>>> For violating S1, A3 of 87C.

>>> Unconstitutional for allowing enjoyment by foreign citizens of the nation's marine wealth contrary to S2, P2, A12, 87C.

>>> Unconstitutional for allowing fully foreign-owned corporations in the exploration and development and utilization of mineral resources contrary to A12, 87C.

>>> Unconstitutional for allowing the inequitable sharing of wealth contrary to S1, P1, (A12), S2, P4 (A12) of the 87C.

>>> In recommending the approval of FTAA, which is illegal and unconstitutional.

[SC: Only the 1st and last need be delved into.]

Petitioners pray

>>> Permanently enjoining respondents from acting on any application for FTAA.

>>> Declaring RA 7942, IRR as unconstitutional and null and void.

>>> Cancelling the FTAA with WMCP as unconstitutional, illegal, and null and void.

Other facts

>>> La Bugal B'laan is a farmers and indigenous people's cooperative organized under RP laws, representing a community actually affected by the mining activities of WMCP.

>>> WMCP is a "wholly owned subsidiary of WMC Holdings Limited, a publicly listed major Australian mining and exploration company."

>>> WMC sold its shares in WMCP to Sagittarius Mines Inc., a corporation organized under RP laws. (At least 60% equity owned by Filipinos.) WMCP later remaned Tampakan Mineral Resources Corp. WMCP claims that by such sale and transfer of shares, WMCP has ceased to be connected with WMC.

>>> Due to such sale/transfer, DENR approved the transfer and registration of FTAA from WMCP to Sagittarius.

[SC: Validity of transfer remains in dispute (in OP) and awaits final judicial determination.]

Respondents argue

>>> Requisites for judicial review are not met.

>>> Petition does not comply with criteria for prohibition and mandamus.

Issue: Is RA 7942 (and others) constitutional?

Held: No. Petition is granted. SC declares unconstitutional and void:

>>> Provisions of RA 7942 (S3, S23, S33-41, S56, S81(2,3), S90.

>>> All provisions of DENR AO 96-40.

>>> FTAA between GRP and WMCP.

Ratio: On procedure

Respondents allege that 3 conditions for judicial review are absent (actual case, personal and substantial interest, earliest opportunity).

Petitioners have standing (they allege a personal and substantial injury via irremediable displacement if FTAA is implemented and WMCP is allowed to conduct mining activities in their area.

Also, the court is interested not whether petitioners are real parties in interest (to FTAA), but whether they have legal standing to question its validity (they do).

That question of constitutionality is not raised before is not a valid reason to refuse it to be raised later. Otherwise, a law will lapse into constitutionality be mere failure to promptly file a case.

The petition for prohibition is an appropriate remedy, in seeking to prevent government from fulfilling such obligations on the theory that contract is void.

At any time, Court can brush aside technicalities of procedure when issue raised is of paramount importance to the public, even if it doesn't satisfy the requirements of an actual case or legal standing.

On merits

S2, P2, A12, 87C is in question.

First sentence contains Regalian doctrine (jura regalia) from Spanish law. The rights enjoyed by the king over anything in which a subject has a right of property. By fiction of law, king was regarded the original proprietor of land, and held all lands. All lands were held from the crown, the Philippines having passed to Spain by virtue of conquest. Regalian doctrine applies to all natural wealth that may be found in the bowels of the earth. Mining laws during Spanish regime, to finance wars against other countries.

Treaty of Paris [1898], Spain ceded "the archipelago" to the US. S20 of Philippine Bill of 1902 reserved the disposition of mineral lands of public domain from sale. S21 allowed free and open exploration, occupation, and purchase of mineral deposits not only to our citizens but of US citizens as well.

Unlike Spain, US considered natural resources as a source of wealth that could be explored nd used by Filipinos and Americans. A person who acquired ownership over mineral land could exclude persons from exploiting minerals within his property (even from government) acc. to earlier jurisprudence.

Regalian theory: mineral rights are not included in a grant of land by the state. American doctrine: mineral rights are.

S21 also allowed concession (license/lease system). Concessionaire makes direct equity investment, and concession amounts to complete control over the natural resource. Concessionaire pays rent or royalty, a fixed percentage of gross proceeds.

S1, A8, 35C - Adopted the Regalian doctrine, declaring all natural resources of the Philippines to be property of the State (stripped of royal overtones). Nationalization and conservation of natural resources of country was one of the fixed objectives of the 35C; intended to insure conservation for posterity, an instrument of national defense, and avoid international entanglements. Said provision also permitted concession system. Grants limited, such that at least 60% of capital must be owned by Filipinos.

1946 Parity Amendment diluted the swell of nationalism in the 35C. It extended the right to utilize/exploit our natural resources to US citizens and business enterprises owned by US citizens.

1949 Petroleum Act employed a concession system for exploiting the nation's petroleum resources (exploration and exploitation), granting concessionaire exclusive right to explore/develop petroleum within specified areas, but not ownership. Concessions granted at complete risk of concessionaire (no guarantee of existence of petroleum).

Concessionaires were obliged to pay an annual exploitation tax to make them develop it; credited against royalties. Concession cancelled if can't pay for 2 straight years, and a surcharge if late payment. DANR (a=agri) supervised concessions with Administrative and Technical Boards. DANR secretary said that concession system failed later (inconsistent with principle that natural resources belonged to the State).

PD 87 allowed government to explore for and produce indigenous petroleum through "service contracts." (A contractual agreement for engaging in exploitation...where government authorizes another party [contractor] to engage in exercise of such right, in that latter provides financial/technical resources, manages enterprise, etc. Financing comes from government to which all petroleum produced belongs. In case can't finance, proceeds of sale of petroleum will be used for payment to contractor. Contractor bears operation risks; once petroleum is discovered, it will operate the field on behalf of the government. Service contracts really a concession regime with a production-sharing element.

73C, A14, S8 contains provisions similar to 35C. S9: "The Batasang Pambansa, in the national interest, may allow such citizens, corporations or associations to enter into service contracts for financial, technical, management, or other forms of assistance with any person or entity for the exploration, or utilization of any of the natural resources." Motivation was lack of capital and technical know-how of Filipinos in development of such resources. All laws allowing service contracts came from PDs.

PD 151 [1973], allowing Filipino citizens to own/hold/control lands to enter into service contracts for technical or financial assistance for development of such lands.

PD 463 [1974], Mineral Resources Development Decree. Allowed lessee of mining claim to enter into service contracts with qualified domestic/foreign contractors. (Same in Fisheries Decree of '75, Revised Forestry Code of '75, PD 1442 for geothermal resources in 1978.) As such, almost all of country's natural resources were well-covered by apparent legal authority to engage in direct participation of foreign persons/corporations in the exploration and utilization of natural resources via service contracts.

Second sentence retained Regalian doctrine, also prohibiting alienation of natural resources, except agri lands.

Third sentence is new: "The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State." (A more dynamic role for the State.)

Absent is previous provision authorizing State to grant licenses/concessions/leases for exploration/exploitation/development of natural resources. As such, the utilization of alienable lands of public domain via license/concession/lease is no longer allowed.

S2 offers State 2 options: [1] State may directly undertake activities itself, or [2] may enter into co-production, joint venture, production-sharing agreements w/Filipino citizens or entities at least 60% of capital is owned by such citizen. S2 sanctions the participation of foreign-owned corporations in exploration of natural resources, subject to limitations to agreements with such.

[1] Only president can enter into these agreements, and only with corporations.

[2] Only large-scale exploration is allowed. (capital intensive)

[3] Minerals, petroleum, and other mineral oils only.

[4] Agreement must be in accordance with terms and conditions provided by statute law.

[5] Standards for entering agreement include real contributions to economic growth and general welfare.

[6] Agreement must contain rudimentary stipulations for development of local scientific techniques.

[7] President must notify Congress of every financial/technical assistance agreement entered into.

[8] Agreements include "either financial OR technical assistance."

EO 211 prescribed procedures in processing applications for exploration of minerals. Omission of "service contracts" is referred to in S2.

Later President Ramos signed into law the Mining Act of 1995, not covering the modes through which the State may undertake the exploration, development of natural resources. One mode of agreement is an FTAA: A contract involving FTA for large-scale exploration/development of natural resources. Government deals via DENR.

On substantive issues

Petitioners argue that EO 279, the law during the WMC FTAA, didn't come into effect. Its S8 states that it shall take effect immediately. But opposite is S1 of EO 200 (15 days after completion of publication, unless otherwise provided). EO 279 prevails, because it provides for its own implementation (and EO 200 has clause unless otherwise provided). Even if 279 didn't require its publication, it was published in the OG. Hence it took effect immediately. President Aquino can exercise legislative powers until the first Congress is convened. EO 279 is an effective, validly-enacted statute.

Petitioners say that WMCP FTAA allows a fully foreign-owned company to extend more than mere financial or technical assistance, because it permits WMCP to manage and operate every aspect of mining activity. WELL-TAKEN.

Following the literal text of the Constitution, assistance accorded by foreign-owned corporations in the large-scale exploration, development, and utilization of petroleum, minerals and mineral oils should be limited to “technical” or “financial” assistance only. It does not an cannot be broadly construed to include management or operations (casus omissus). The management/operation of mining activities by foreign contractors was exactly the evil the drafters sought to eradicate.

The phrase "service contract" has been deleted. If the ConCom intended to retain the concept, it would have simply employed the old terminology ("service contracts") instead of another unfamiliar term ("agreements...involving either technical or financial assistance"). If, as respondents suggest, the concept of “technical or financial assistance” agreements is identical to that of “service contracts,” the CONCOM would not have bothered to fit the same dog with a new collar.

ConCom records:

Villegas: "In fact, the deletion of the phrase “service contracts” was our first attempt to avoid some of the abuses in the past regime in the use of service contracts to go around the 60-40 arrangement. Actually, the second provision about the President does not permit foreign investors to participate. It is only technical or financial assistance – they do not own anything – but on conditions that have to be determined by law with the concurrence of Congress. So, it is very restrictive. If the Commissioner will remember, this removes the possibility for service contracts which we said yesterday were avenues used in the previous regime to go around the 60-40 requirement."

Another ConCom member: "Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1) Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale enterprises. The intent of this provision, as well as other provisions on foreign investments, is to prevent the practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of service contracts. Responsibility for downstream operations – marketing, distribution, and processing may be with the contractor. (S8, PD 87)

Agabin: "The service contract as we know it here is antithetical to the principle of sovereignty over our natural resources restated in the same article of the [1973] Constitution containing the provision for service contracts. If the service contractor happens to be a foreign corporation, the contract would also run counter to the constitutional provision on nationalization or Filipinization, of the exploitation of our natural resources. Other contract forms which are less derogatory to our sovereignty and control over natural resources – like technical assistance agreements, financial assistance [agreements], co-production agreements, joint ventures, production-sharing – could still be utilized and adopted without violating constitutional provisions. In other words, we can adopt contract forms which recognize and assert our sovereignty and ownership over natural resources, and where the foreign entity is just a pure contractor instead of the beneficial owner of our economic resources."

UP Law draft: "Under the proposed provision, only technical assistance or financial assistance agreements may be entered into, and only for large-scale activities. These are contract forms which recognize and assert our sovereignty and ownership over natural resources since the foreign entity is just a pure contractor and not a beneficial owner of our economic resources. The proposal recognizes the need for capital and technology to develop our natural resources without sacrificing our sovereignty and control over such resources by the safeguard of a special law which requires two-thirds vote of all the members of the Legislature."

Adoption of a new system in the exploration, development, and utilization of natural resources in the form of technical agreements or financial agreements which, necessarily, are distinct concepts from service contracts.

Other commissioners in ConCom might be referring to something else when mentioning "service contracts." Also, the administrative interpretation of the law (from DOJ, saying service contracts are no different from FTA) is at best advisory, for it is the courts that finally determine what the law means.

This Court finds that R.A. No. 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, it actually treats these agreements as service contracts that grant beneficial ownership to foreign contractors contrary to the fundamental law.

“Mining operation,” as the law defines it, means mining activities involving exploration, feasibility, development, utilization, and processing. The underlying assumption in all these provisions is that the foreign contractor manages the mineral resources, just like the foreign contractor in a service contract. Also, under the Act, an FTAA contractor is bound to provide some management assistance – a form of assistance that has been eliminated and, therefore, proscribed by the present Charter.

By allowing foreign contractors to manage or operate all the aspects of the mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the nation’s mineral resources to these contractors, leaving the State with nothing but bare title thereto. Moreover, 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.

There can be little doubt that the WMCP FTAA itself is a service contract. These contractual stipulations, 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. The annulment of the FTAA would not constitute a breach of the treaty (with Australia) invoked. For this decision herein invalidating the subject FTAA forms part of the legal system of the Philippines.

Petitioners wrong in saying that president may enter into agreements involving "EITHER technical OR financial assistance" only. Agreement in question is technical AND financial assistance agreement. Absurd if government enters into contract with 2 corporations, one for financial assistance and other for technical.

-------------------------------but wait--------------------------------

Panganiban [December 2004]. Motion for reconsideration.

Issues: Whether the Court has a role in the exercise of the power of control over the EDU of our natural resources.

Held: MR granted. Jan 2004 decision REVERSED and SET ASIDE. Said provisions are constitutional. But S7.8, 7.9 of FTAA are invalidated for being contrary to public policy and being grossly disadvantageous to the government.

Ratio: Should the President and/or Congress gravely abuse their discretion in this regard, the courts may -- in a proper case -- exercise their residual duty under Article VIII. Clearly then, the judiciary should not inordinately interfere in the exercise of this presidential power of control over the EDU of our natural resources.

The FTAA contractor is not free to do whatever it pleases and get away with it; on the contrary, it will have to follow the government line if it wants to stay in the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a sufficient degree of control and supervision over the conduct of mining operations. In brief, the exploration permit serves a practical and legitimate purpose in that it protects the interests and preserves the rights of the exploration permit grantee (the would-be contractor) -- foreign or local -- during the period of time that it is spending heavily on exploration works, without yet being able to earn revenues to recoup any of its investments and expenditures.

Under the doctrine of separation of powers and due respect for co-equal and coordinate branches of government, the Court must restrain itself from intruding into policy matters and must allow the President and Congress maximum discretion in using the resources of our country and in securing the assistance of foreign groups to eradicate the grinding poverty of our people and answer their cry for viable employment opportunities in the country. “The judiciary is loath to interfere with the due exercise by coequal branches of government of their official functions.” As aptly spelled out seven decades ago by Justice George Malcolm, “Just as the Supreme Court, as the guardian of constitutional rights, should not sanction usurpations by any other department of government, so should it as strictly confine its own sphere of influence to the powers expressly or by implication conferred on it by the Organic Act.” Let the development of the mining industry be the responsibility of the political branches of government. And let not the Court interfere inordinately and unnecessarily. The Constitution of the Philippines is the supreme law of the land. It is the repository of all the aspiratio

ns and hopes of all the people.

The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant the President and Congress sufficient discretion and reasonable leeway to enable them to attract foreign investments and expertise, as well as to secure for our people and our posterity the blessings of prosperity and peace. The Court fully sympathize with the plight of La Bugal B’laan and other tribal groups, and commend their efforts to uplift their communities. However, the Court cannot justify the invalidation of an otherwise constitutional statute along with its implementing rules, or the nullification of an otherwise legal and binding FTAA contract. The Court believes that it is not unconstitutional to allow a wide degree of discretion to the Chief Executive, given the nature and complexity of such agreements, the humongous amounts of capital and financing required for large-scale mining operations, the complicated technology needed, and the intricacies of international trade, coupled with the State’s need to maintain flexibility in its dealings, in order to preserve and enhance our country’s competitiveness in world markets. On the basis of this control standard, the 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).

We must never forget that it is not only our less privileged brethren in tribal and cultural communities who deserve the attention of this Court; rather, all parties concerned -- including the State itself, the contractor (whether Filipino or foreign), and the vast majority of our citizens -- equally deserve the protection of the law and of this Court. To stress, the benefits to be derived by the State from mining activities must ultimately serve the great majority of our fellow citizens. They have as much right and interest in the proper and well-ordered development and utilization of the country’s mineral resources as the petitioners.

Whether we consider the near term or take the longer view, we cannot overemphasize the need for an appropriate balancing of interests and needs -- the need to develop our stagnating mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the

ground, in order to jumpstart our floundering economy on the one hand, and on the other, the need to enhance our nationalistic aspirations, protect our indigenous communities, and prevent irreversible ecological damage.

Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential commodities and services, the shrinking value of the local currency, and a government hamstrung in its delivery of basic services by a severe lack of resources, but also countless future generations of Filipinos.

For this latter group of Filipinos yet to be born, their eventual access to education, health care and basic services, their overall level of well-being, the very shape of their lives are even now being determined and affected partly by the policies and directions being adopted and implemented by government today. And in part by the this Resolution rendered by this Court today.

Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a select group of people living in the areas locally affected by mining activities, but the entire Filipino nation, present and future, to whom the mineral wealth really belong. This Court has therefore weighed carefully the rights and interests of all concerned, and decided for the greater good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE PRESENT AND THE FUTURE, not just for the here and now.