Key Takeaway: The Supreme Court Clarifies the Secretary’s Authority and the Limits of Force Majeure in Mineral Agreements

Awayan v. Sulu Resources Development Corporation, G.R. No. 200474, November 09, 2020

Imagine a mining company, eager to extract valuable resources from the earth, but hindered by disputes with surface owners. This real-world scenario played out in a recent Supreme Court case that has significant implications for the mining industry in the Philippines. In this case, the Court examined the authority of the Secretary of the Department of Environment and Natural Resources (DENR) to cancel mineral production sharing agreements and the validity of using force majeure as a defense for non-compliance with contractual obligations. At its core, the case asks: Can a mining company claim force majeure to justify delays in its operations, and what authority does the DENR Secretary have in enforcing these agreements?

Legal Context: Understanding Mineral Agreements and Force Majeure

The Philippine Mining Act of 1995 and its implementing rules govern the exploration, development, and utilization of mineral resources. A key component of this legal framework is the Mineral Production Sharing Agreement (MPSA), which outlines the terms between the government and mining companies.

Force majeure, a legal term often used in contracts, refers to unforeseen circumstances that prevent a party from fulfilling its obligations. According to Article 1174 of the New Civil Code, force majeure includes events that “could not be foreseen, or which, though foreseen, were inevitable.” To successfully invoke force majeure, four requisites must be met: (1) the cause must be independent of human will; (2) the event must be unforeseeable or unavoidable; (3) it must render fulfillment impossible; and (4) the obligor must be free from aggravating the injury.

Consider a mining company that cannot access its site due to a natural disaster. This would typically be a valid force majeure event. However, if the company fails to mitigate the situation when possible, such as by not pursuing available legal remedies, the defense may not hold.

Case Breakdown: The Journey of Awayan v. Sulu Resources

Maximo Awayan, a surface owner, challenged the MPSA granted to Sulu Resources Development Corporation for a 775-hectare area in Antipolo, Rizal. Awayan claimed that Sulu Resources had not complied with the terms of the MPSA, particularly in submitting required reports and conducting mining operations.

Sulu Resources argued that its failure to comply was due to force majeure—specifically, disputes with surface owners that prevented access to the mining site. The Mines and Geosciences Bureau (MGB) initially supported this claim, recommending that the dispute be resolved through arbitration.

However, in 2009, the DENR Secretary ordered the cancellation of the MPSA, citing Sulu Resources’ failure to renew the exploration period, submit a Declaration of Mining Project Feasibility, and provide required reports. The Court of Appeals reversed this decision, arguing that the cancellation lacked a recommendation from the MGB Director and that Sulu Resources had been justified by force majeure.

The Supreme Court, in its final ruling, emphasized the DENR Secretary’s authority to cancel mineral agreements without needing an MGB recommendation. Justice Leonen stated, “The Environment Secretary has direct control and supervision ‘over the exploration, development, utilization, and conservation of the country’s natural resources.’”

The Court also scrutinized Sulu Resources’ claim of force majeure. Justice Leonen noted, “When the event is found to be partly the result of a party’s participation—whether by active intervention, neglect, or failure to act—the incident is humanized and removed from the ambit of force majeure.” The Court found that Sulu Resources had not availed itself of available remedies, such as posting a bond or seeking arbitration, to resolve the dispute with surface owners.

Practical Implications: Navigating Mineral Agreements and Force Majeure

This ruling clarifies that the DENR Secretary has the authority to enforce mineral agreements and that mining companies cannot rely on force majeure if they fail to mitigate foreseeable issues. For mining companies, this means diligently pursuing all available remedies to resolve disputes with surface owners.

Property owners and businesses involved in mineral resources should be aware of their rights and obligations under MPSAs. They should also understand that the government can take action if contractual terms are not met.

Key Lessons:

• Understand the terms of your MPSA and comply with all obligations, including reportorial requirements.
• Do not rely on force majeure without pursuing available legal remedies to mitigate the situation.
• Be aware of the DENR Secretary’s authority to enforce mineral agreements independently of the MGB.

Frequently Asked Questions

What is a Mineral Production Sharing Agreement (MPSA)?

An MPSA is a contract between the Philippine government and a mining company that outlines the terms for the exploration, development, and utilization of mineral resources.

What constitutes force majeure in the context of mineral agreements?

Force majeure includes events beyond the control of the parties, such as natural disasters or war, that prevent the fulfillment of contractual obligations.

Can a mining company claim force majeure for disputes with surface owners?

Yes, but only if the dispute is truly beyond the company’s control and it has exhausted all available remedies to resolve the issue.

What are the responsibilities of the DENR Secretary regarding mineral agreements?

The DENR Secretary has the authority to enforce mineral agreements, including the power to cancel them if the terms are violated, without needing a recommendation from the MGB.

What should mining companies do if they face obstacles in fulfilling their MPSA obligations?

Mining companies should proactively seek solutions, such as negotiating with surface owners or pursuing legal remedies, rather than relying solely on force majeure.

ASG Law specializes in mining and natural resources law. Contact us or email hello@asglawpartners.com to schedule a consultation.