TL;DR

The Supreme Court affirmed that mining operations cannot continue based on an expired Mines Operating Agreement (MOA). The ruling underscores the State’s ownership of mineral resources under the Regalian Doctrine. Shuley Mine, Inc. was prevented from continuing operations because its MOA with Pacific Nickel Philippines, Inc. had expired, and the Department of Environment and Natural Resources (DENR) rightfully suspended their permits. This case clarifies that operating without a valid agreement and permits is illegal, reinforcing the government’s authority to regulate and halt mining activities that do not comply with legal requirements, even if a lower court initially grants an injunction.

Beneath the Surface: When Expired Contracts Undermine Mining Operations

Can a mining company continue to operate based on an agreement that has already expired? This is the central question in the case of Shuley Mine, Inc. v. Department of Environment and Natural Resources. Shuley Mine, Inc. (SMI) sought to overturn a Court of Appeals (CA) decision that nullified a lower court’s injunction, which had allowed SMI to continue its mining operations. The injunction was initially granted by the Regional Trial Court (RTC) of Surigao City, preventing the DENR and its bureaus from stopping SMI’s activities. However, the CA reversed this, finding that SMI’s Mines Operating Agreement (MOA) had expired, thus negating their right to operate. The Supreme Court was tasked to determine if the CA erred in its decision.

The narrative began with a Mineral Production Sharing Agreement (MPSA) between the Philippine Government and Philnico Mining and Industrial Corporation (Philnico). Philnico later assigned its rights, eventually leading to a MOA between Pacific Nickel and SMI, where SMI would operate mining activities. This MOA was initially for a fixed term, which the DENR argued had expired. SMI contended that a Supplemental Agreement extended this MOA, and that the Mines and Geosciences Bureau (MGB) had improperly refused to issue Ore Transport Permits (OTPs) and Mineral Ore Export Permits (MOEPs). The RTC sided with SMI initially, issuing an injunction to allow continued operations and permit issuance. However, the DENR challenged this, arguing that SMI lacked a clear legal right due to the expired MOA.

The Supreme Court’s analysis hinged on the fundamental Regalian Doctrine, a cornerstone of Philippine property law. This doctrine asserts that all lands of the public domain and all mineral resources belong to the State. Therefore, any right to explore, develop, or utilize mineral resources must originate from the State. Mineral agreements, like the MPSA and MOA in this case, are essentially permits granted by the State, coupled with contractual elements for resource sharing. This dual nature means they are subject to both regulatory oversight and contractual terms, including expiration dates.

The Court emphasized that for a preliminary injunction to be validly issued, the applicant must demonstrate a clear and unmistakable right. In SMI’s case, this right was purportedly derived from the MOA. However, the evidence presented, particularly the MOA’s expiration date, demonstrated that SMI’s right was no longer in esse—it did not exist at the time they sought the injunction. The Court rejected SMI’s argument that the registration of a Supplemental Agreement equated to an extension or approval, clarifying that registration is not approval. Under the Philippine Mining Act of 1995, mineral agreements require explicit approval from the DENR Secretary.

The filing of a proposal for a mineral agreement shall give the proponent the prior right to areas covered by the same. The proposed mineral agreement will be approved by the Secretary and copies thereof shall be submitted to the President.

The Supreme Court underscored that the RTC committed grave abuse of discretion by issuing the injunction. Grave abuse of discretion is defined as a capricious or whimsical exercise of judgment, so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law. The RTC, in ignoring the expired MOA and granting the injunction, acted outside the bounds of its jurisdiction by effectively allowing mining operations without a valid legal basis. The CA was therefore correct in overturning the RTC’s decision.

Furthermore, the Court addressed the procedural issue of the DENR’s failure to file a motion for reconsideration before resorting to a certiorari petition. While generally required, the Court recognized exceptions, including situations where there is an urgent necessity and further delay would prejudice the government’s interests. In this case, the potential for continued extraction and export of mineral resources, owned by the State, justified the immediate recourse to certiorari. Delaying action would have resulted in the irretrievable loss of national wealth.

Finally, the ruling touched upon the State’s police power. Even though the Constitution protects against the impairment of contracts, this protection is limited by the State’s inherent police power to act in the interest of public welfare. Mineral resources are part of the national patrimony, and their regulation is a matter of public interest. Thus, the DENR’s actions to regulate mining activities and ensure compliance with agreements fall squarely within the State’s police power.

In conclusion, the Supreme Court’s decision in Shuley Mine, Inc. v. DENR firmly establishes that mining operations cannot be sustained on the basis of expired contracts. It reinforces the Regalian Doctrine and the State’s authority to regulate and protect its mineral resources. The case serves as a crucial reminder that compliance with legal agreements and permit requirements is non-negotiable in the Philippine mining industry.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Shuley Mine, Inc. v. Department of Environment and Natural Resources, G.R. No. 214923, August 28, 2019