SC: Diamond Drilling can’t force DENR to recognize MPSA share acquired from debtor

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The Supreme Court (SC) has ruled that the Department of Environment and Natural Resources (DENR) cannot be compelled to recognize Diamond Drilling Corporation of the Philippines (DDCP) as a co-contractor in the mineral production sharing agreement (MPSA) of its debtor.

In a recent 17-page decision, the SC 3rd Division granted the DENR’s petition to reverse the Court of Appeals’ (CA) December 14, 2012 ruling upholding a trial court order in favor of DDCP.

The case stemmed from the August 31, 2011 order of Makati City Regional Trial Court (RTC) Branch 133 directing the amendment of the MPSA between the Canadian corporation Pacific Falkon Resources Corporation (PFRC) and the Filipino firm Crescent Mining and Development Corporation.

A decade before, the Makati RTC declared PFRC to have defaulted on debts it owed drilling contractor DDCP. In a December 31, 2001 judicial auction, DDCP won PFRC’s 40-percent share in the Guinaoang Project in Mankayan, Benguet.

However, the Mines and Geosciences Bureau (MGB) in 2008 denied DDCP’s request to record its acquisition of PFRC’s interest in the Guinaoang Project. This prompted DDCP to file a motion for execution before the Makati RTC.

In reversing the RTC and CA’s rulings in favor of DDCP, the SC said the transfer of mineral agreement rights “must be made with the consent of the government,” which the DENR and the MGB refused to give in this case.

The State, after all, is the owner of all mineral resources within its territory under the Regalian Doctrine. Private corporations may only exploit resources under an MPSA and in exchange for giving the government a share of the proceeds.

“The principle of state control in the Mining Act mandates that the addition of a new contractor to an MPSA by virtue of a transfer of mineral agreement rights must be made with the consent of the government, as manifested by the approval of the DENR Secretary,” read the decision penned by Associate Justice Andres Reyes, Jr.

The SC added that DDCP failed to prove its compliance with the requirements of Section 46 of the implementing rules and regulations (IRR) of the Mining Act, such as the filing of an application for transfer or assignment, payment of application fee, submission of deed of assignment, proof of compliance, and assumption of obligations.

Hence, DDCP cannot invoke Section 30 of the Mining Act providing for the automatic approval of assignment or transfer in case of the DENR Secretary’s failure to act upon it.

“In view of the principle of state control permeating the Mining Act, the Court holds that the automatic approval clause applies only to applications which satisfy all the requisites laid down in Section 46 of the Mining Act’s IRR. A contrary view would render inutile the DENR Secretary’s power to approve assignments or transfers of rights in MPSAs,” read the decision.

The SC added that the DENR’s approval of assignment or transfer of mineral agreement rights is discretionary and “therefore outside the reach of the trial court’s orders.” This is because the DENR Secretary would have to determine if the assignee or transferee is a “qualified” person under the Mining Act.

“Considering that the transfer of the 40% interest in the Guinaoang Project to PFRC was invalid, the levy and subsequent sale thereof to DDCP did not transfer any right in MPSA No. 057-96-CAR in favor of DDCP that would entitle it to an amendment thereof,” the SC concluded.

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