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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

185572 February 7, 2012

On 0 October *))(, the Chinese -"bassador to the Philippines, Aan# Chun#ui $-"b. Aan#%, rote a letter to DO9 Secretar! 8ose Isidro Ca"acho $Sec. Ca"acho% infor"in# hi" of CNME/>s desi#nation as the Pri"e Contractor for the Northrail Pro'ect. B On () Dece"ber *))(, Northrail and CNME/ e:ecuted a Contract -#ree"ent for the construction of Section I, Phase I of the North 6u7on Rail a! S!ste" fro" Caloocan to Malolos on a turn<e! basis $the Contract -#ree"ent%. C The contract price for the Northrail Pro'ect as pe##ed at 5SD 1*0,),),))). + On *B 9ebruar! *))1, the Philippine #overn"ent and E=IM ;an< entered into a counterpart financial a#ree"ent . ;u!er Credit 6oan -#ree"ent No. ;6- )1),, $the 6oan -#ree"ent%.D In the 6oan -#ree"ent, E=IM ;an< a#reed to e:tend Preferential ;u!er>s Credit in the a"ount of 5SD 1)),))),))) in favor of the Philippine #overn"ent in order to finance the construction of Phase I of the Northrail Pro'ect. 0) On 0( 9ebruar! *))B, respondents filed a Co"plaint for -nnul"ent of Contract and In'unction ith 5r#ent Motion for Su""ar! 4earin# to Deter"ine the E:istence of 9acts and Circu"stances 8ustif!in# the Issuance of Arits of Preli"inar! Prohibitor! and Mandator! In'unction and&or TRO a#ainst CNME/, the Office of the E:ecutive Secretar!, the DO9, the Depart"ent of ;ud#et and Mana#e"ent, the National Econo"ic Develop"ent -uthorit! and Northrail.00 The case as doc<eted as Civil Case No. )B?*)( before the Re#ional Trial Court, National Capital 8udicial Re#ion, Ma<ati Cit!, ;ranch 01, $RTC ;r. 01,%. In the Co"plaint, respondents alle#ed that the Contract -#ree"ent and the 6oan -#ree"ent ere void for bein# contrar! to $a% the ConstitutionE $b% Republic -ct No. D0+1 $R.-. No. D0+1%, other ise <no n as the /overn"ent Procure"ent Refor" -ctE $c% Presidential Decree No. 011,, other ise <no n as the /overn"ent -uditin# CodeE and $d% E:ecutive Order No. *D*, other ise <no n as the -d"inistrative Code. 0* RTC ;r. 01, issued an Order dated 0C March *))B settin# the case for hearin# on the issuance of in'unctive reliefs.0( On *D March *))B, CNME/ filed an 5r#ent Motion for Reconsideration of this Order.01 ;efore RTC ;r. 01, could rule thereon, CNME/ filed a Motion to Dis"iss dated 0* -pril *))B, ar#uin# that the trial court did not have 'urisdiction over $a% its person, as it as an a#ent of the Chinese #overn"ent, "a<in# it i""une fro" suit, and $b% the sub'ect "atter, as the Northrail Pro'ect as a product of an e:ecutive a#ree"ent.0, On 0, Ma! *))C, RTC ;r. 01, issued an O"nibus Order den!in# CNME/>s Motion to Dis"iss and settin# the case for su""ar! hearin# to deter"ine hether the in'unctive reliefs pra!ed for should be issued. 0B CNME/ then filed a Motion for Reconsideration,0C hich as denied b! the trial court in an Order dated 0) March *))+.0+Thus, CNME/ filed before the C- a Petition for Certiorari ith Pra!er for the Issuance of TRO and&or Arit of Preli"inar! In'unction dated 1 -pril *))+. 0D In the assailed Decision dated () Septe"ber *))+, the appellate court dis"issed the Petition for Certiorari.*)Subse3uentl!, CNME/ filed a Motion for Reconsideration, *0 hich as denied b! the C- in a Resolution dated , Dece"ber *))+. ** Thus, CNME/ filed the

CH NA NAT ONA! MACH NER" # E$U PMENT CORP. %GROUP&, Petitioner, vs. HON. CESAR '. SANTAMAR A, () *(+ o,,(-(a. -a/a-(0y a+ Pre+(1()2 3u12e o, Bra)-* 145, Re2(o)a. Tr(a. Cour0 o, Ma5a0( C(0y, HERM N O HARR" !. RO$UE, 3R., 3OE! R. BUTU"AN, ROGER R. RA"E!, ROME! R. BAGARES, CHR STOPHER FRANC SCO C. BO!AST G, !EAGUE OF URBAN POOR FOR ACT ON %!UPA&, 6 !USAN NG MARA! TA SA ME"CAUA"AN %6MM7!UPA CHAPTER&, 'AN !O M. CA!'ERON, 8 CENTE C. A!BAN, MER!"N M. 8AA!, !O! TA S. $U NONES, R CAR'O '. !ANO9O, 3R., CONCH TA G. GO9O, MA. TERESA '. 9EPE'A, 3OSEF NA A. !ANO9O, a)1 SERG O C. !EGASP , 3R., 6A! PUNAN NG 'AMA"ANG MAH H RAP %6A'AMA"&, E'" C!ER GO, RAMM ! ' NGA!, NE!SON B. TERRA'O, CARMEN 'EUN 'A, a)1 E'UAR'O !EGSON, Respondents. DECISION SERENO, J.: This is a Petition for Revie on Certiorari ith Pra!er for the Issuance of a Te"porar! Restrainin# Order $TRO% and&or Preli"inar! In'unction assailin# the () Septe"ber *))+ Decision and , Dece"ber *))+ Resolution of the Court of -ppeals $C-% in C-./.R. SP No. 0)((,0.0 On 01 Septe"ber *))*, petitioner China National Machiner! 2 E3uip"ent Corp. $/roup% $CNME/%, represented b! its chairperson, Ren 4on#bin, entered into a Me"orandu" of 5nderstandin# ith the North 6u7on Rail a!s Corporation $Northrail%, represented b! its president, 8ose 6. Cortes, 8r. for the conduct of a feasibilit! stud! on a possible rail a! line fro" Manila to San 9ernando, 6a 5nion $the Northrail Pro'ect%. * On () -u#ust *))(, the E:port I"port ;an< of China $E=IM ;an<% and the Depart"ent of 9inance of the Philippines $DO9% entered into a Me"orandu" of 5nderstandin# $-u# () MO5%, herein China a#reed to e:tend Preferential ;u!er>s Credit to the Philippine #overn"ent to finance the Northrail Pro'ect. ( The Chinese #overn"ent desi#nated E=IM ;an< as the lender, hile the Philippine #overn"ent na"ed the DO9 as the borro er.1 5nder the -u# () MO5, E=IM ;an< a#reed to e:tend an a"ount not e:ceedin# 5SD 1)),))),))) in favor of the DO9, pa!able in *) !ears, ith a ,?!ear #race period, and at the rate of (@ per annu".,

instant Petition for Revie issuesF *(

on Certiorari dated *0 8anuar! *))D, raisin# the follo in#




Ahether or not petitioner CNME/ is an a#ent of the soverei#n People>s Republic of China. Ahether or not the Northrail contracts are products of an e:ecutive a#ree"ent bet een t o soverei#n states. Ahether or not the certification fro" the Depart"ent of 9orei#n -ffairs is necessar! under the fore#oin# circu"stances. Ahether or not the act bein# underta<en b! petitioner CNME/ is an act 'ure i"perii. Ahether or not the Court of -ppeals failed to avoid a procedural li"bo in the lo er court. Ahether or not the Northrail Pro'ect is sub'ect to co"petitive public biddin#. Ahether or not the Court of -ppeals i#nored the rulin# of this 4onorable Court in the Neri case. CNME/ pra!s for the dis"issal of Civil Case No. )B?*)( before RTC ;r. 01, for lac< of 'urisdiction. It li<e ise re3uests this Court for the issuance of a TRO and, later on, a rit of preli"inar! in'unction to restrain public respondent fro" proceedin# ith the disposition of Civil Case No. )B?*)(. The cru: of this case boils do n to t o "ain issues, na"el!F 0. Ahether CNME/ is entitled to i""unit!, precludin# it fro" bein# sued before a local court. *. Ahether the Contract -#ree"ent is an e:ecutive a#ree"ent, such that it cannot be 3uestioned b! or before a local court. F(r+0 (++ue: ;*e0*er CNMEG (+ e)0(0.e1 0o (<<u)(0y This Court e:plained the doctrine of soverei#n i""unit! in Holy See v. Rosario,*1 to itF

The restrictive theor! ca"e about because of the entr! of soverei#n states into purel! co""ercial activities re"otel! connected ith the dischar#e of #overn"ental functions. This is particularl! true ith respect to the Co""unist states hich too< control of nationali7ed business activities and international tradin#. In 85SM-/ v. National 6abor Relations Co""ission, *, this Court affir"ed the Philippines> adherence to the restrictive theor! as follo sF The doctrine of state i""unit! fro" suit has under#one further "eta"orphosis. The vie evolved that the e:istence of a contract does not, per se, "ean that soverei#n states "a!, at all ti"es, be sued in local courts. The co"ple:it! of relationships bet een soverei#n states, brou#ht about b! their increasin# co""ercial activities, "othered a "ore restrictive application of the doctrine. ::: ::: :::

-s it stands no , the application of the doctrine of i""unit! fro" suit has been restricted to soverei#n or #overn"ental activities $jure imperii%. The "antle of state i""unit! cannot be e:tended to co""ercial, private and proprietar! acts $ jure gestionis%.*B $E"phasis supplied.% Since the Philippines adheres to the restrictive theor!, it is crucial to ascertain the le#al nature of the act involved . hether the entit! clai"in# i""unit! perfor"s #overn"ental, as opposed to proprietar!, functions. -s held in 5nited States of -"erica v. Rui7 . *C The restrictive application of State i""unit! is proper onl! hen the proceedin#s arise out of co""ercial transactions of the forei#n soverei#n, its co""ercial activities or econo"ic affairs. Stated differentl!, a State "a! be said to have descended to the level of an individual and can thus be dee"ed to have tacitl! #iven its consent to be sued onl! hen it enters into business contracts. It does not appl! here the contract relates to the e:ercise of its soverei#n functions.*+ -. CNME/ is en#a#ed in a proprietar! activit!. - threshold 3uestion that "ust be ans ered is hether CNME/ perfor"s #overn"ental or proprietar! functions. - thorou#h e:a"ination of the basic facts of the case ould sho that CNME/ is en#a#ed in a proprietar! activit!. The parties e:ecuted the Contract -#ree"ent for the purpose of constructin# the 6u7on Rail a!s, vi7F*D

There are t o conflictin# concepts of soverei#n i""unit!, each idel! held and fir"l! established. -ccordin# to the classical or absolute theor!, a +o=ere(2) -a))o0, >(0*ou0 (0+ -o)+e)0, be <a1e a re+/o)1e)0 () 0*e -our0+ o, a)o0*er +o=ere(2). -ccordin# to the ne er or restrictive theor!, 0*e (<<u)(0y o, 0*e +o=ere(2) (+ re-o2)(?e1 o).y >(0* re2ar1 0o /ub.(- a-0+ or a-0+ jure imperii o, a +0a0e, bu0 )o0 >(0* re2ar1 0o /r(=a0e a-0+ or a-0+ jure gestionis. $E"phasis suppliedE citations o"itted.%

A4ERE-S the E"plo!er $Northrail% desired to construct the rail a!s for" Caloocan to Malolos, section I, Phase I of Philippine North 6u7on Rail a!s Pro'ect $hereinafter referred to as T4E PRO8ECT%E -ND A4ERE-S the Contractor has offered to provide the Pro'ect on Turn<e! basis, includin# desi#n, "anufacturin#, suppl!, construction, co""issionin#, and trainin# of the E"plo!er>s personnelE -ND A4ERE-S the 6oan -#ree"ent of the Preferential ;u!er>s Credit bet een E:port? I"port ;an< of China and Depart"ent of 9inance of Republic of the PhilippinesE NOA, T4ERE9ORE, the parties a#ree to si#n this Contract for the I"ple"entation of the Pro'ect. The above?cited portion of the Contract -#ree"ent, ho ever, does not on its o n reveal hether the construction of the 6u7on rail a!s as "eant to be a proprietar! endeavor. In order to full! understand the intention behind and the purpose of the entire underta<in#, the Contract -#ree"ent "ust not be read in isolation. Instead, it "ust be construed in con'unction ith three other docu"ents e:ecuted in relation to the Northrail Pro'ect, na"el!F $a% the Me"orandu" of 5nderstandin# dated 01 Septe"ber *))* bet een Northrail and CNME/E() $b% the letter of -"b. Aan# dated 0 October *))( addressed to Sec. Ca"achoE(0 and $c% the 6oan -#ree"ent.(* 0. Me"orandu" of 5nderstandin# dated 01 Septe"ber *))* The Me"orandu" of 5nderstandin# dated 01 Septe"ber *))* sho s that CNME/ sou#ht the construction of the 6u7on Rail a!s as a proprietar! venture. The relevant parts thereof readF A4ERE-S, CNME/ has the financial capabilit!, professional co"petence and technical e:pertise to assess the state of the GMain 6ine North $M6N%H and reco""end i"ple"entation plans as ell as underta<e its rehabilitation and&or "oderni7ationE A4ERE-S, CNME/ has e:pressed interest in the rehabilitation and&or "oderni7ation of the M6N fro" Metro Manila to San 9ernando, 6a 5nion passin# throu#h the provinces of ;ulacan, Pa"pan#a, Tarlac, Pan#asinan and 6a 5nion $the IPro'ect>%E A4ERE-S, the NORT4R-I6 CORP. elco"es CNME/>s proposal to underta<e a 9easibilit! Stud! $the JStud!J% at no cost to NORT4R-I6 CORP.E A4ERE-S, the NORT4R-I6 CORP. also elco"es CNME/>s interest in underta<in# the Pro'ect ith Supplier>s Credit and intends to e"plo! CNME/ as the Contractor for the Pro'ect sub'ect to co"pliance ith Philippine and Chinese la s, rules and re#ulations for the selection of a contractorE

A4ERE-S, the NORT4R-I6 CORP. considers CNME/>s proposal advanta#eous to the /overn"ent of the Republic of the Philippines and has therefore a#reed to assist CNME/ in the conduct of the aforesaid Stud!E ::: ::: :::

II. -PPROK-6 PROCESS *.0 -s soon as possible after co"pletion and presentation of the Stud! in accordance ith Para#raphs 0.( and 0.1 above and in co"pliance ith necessar! #overn"ental la s, rules, re#ulations and procedures re3uired fro" both parties, the parties shall co""ence the preparation and ne#otiation of the ter"s and conditions of the Contract $the JContractJ% to be entered into bet een the" on the i"ple"entation of the Pro'ect. The parties shall use their best endeavors to for"ulate and finali7e a Contract ith a vie to si#nin# the Contract ithin one hundred t ent! $0*)% da!s fro" CNME/>s presentation of the Stud!.(( $E"phasis supplied% Clearl!, it as CNME/ that initiated the underta<in#, and not the Chinese #overn"ent. The 9easibilit! Stud! as conducted not because of an! diplo"atic #ratuit! fro" or e:ercise of soverei#n functions b! the Chinese #overn"ent, but as plainl! a business strate#! e"plo!ed b! CNME/ ith a vie to securin# this co""ercial enterprise. *. 6etter dated 0 October *))( That CNME/, and not the Chinese #overn"ent, initiated the Northrail Pro'ect confir"ed b! -"b. Aan# in his letter dated 0 October *))(, thusF as

0. CNME/ has the proven co"petence and capabilit! to underta<e the Pro'ect as evidenced b! the ran<in# of 1* #iven b! the ENR a"on# **, #lobal construction co"panies. *. CNME/ alread! si#ned an MO5 ith the North 6u7on Rail a!s Corporation last Septe"ber 01, *))) durin# the visit of Chair"an 6i Pen#. Such bein# the case, the! have alread! established an initial or<in# relationship ith !our North 6u7on Rail a!s Corporation. This ould cate#ori7e CNME/ as the state corporation ithin the People>s Republic of China hich initiated our /overn"ent>s involve"ent in the Pro'ect. (. -"on# the various state corporations of the People>s Republic of China, onl! CNME/ has the advanta#e of bein# full! fa"iliar ith the current re3uire"ents of the Northrail Pro'ect havin# alread! acco"plished a 9easibilit! Stud! hich as used as inputs b! the North 6u7on Rail a!s Corporation in the approvals $sic% process re3uired b! the Republic of the Philippines. (1 $E"phasis supplied.%

Thus, the desire of CNME/ to secure the Northrail Pro'ect as in the ordinar! or re#ular course of its business as a #lobal construction co"pan!. The i"ple"entation of the Northrail Pro'ect as intended to #enerate profit for CNME/, ith the Contract -#ree"ent placin# a contract price of 5SD 1*0,),),))) for the venture. (, The use of the ter" Jstate corporationJ to refer to CNME/ as onl! descriptive of its nature as a #overn"ent?o ned and&or ?controlled corporation, and its assi#n"ent as the Pri"ar! Contractor did not i"pl! that it as actin# on behalf of China in the perfor"ance of the latter>s soverei#n functions. To i"pl! other ise ould result in an absurd situation, in hich all Chinese corporations o ned b! the state ould be auto"aticall! considered as perfor"in# #overn"ental activities, even if the! are clearl! en#a#ed in co""ercial or proprietar! pursuits. (. The 6oan -#ree"ent CNME/ clai"s i""unit! on the #round that the -u# () MO5 on the financin# of the Northrail Pro'ect as si#ned b! the Philippine and Chinese #overn"ents, and its assi#n"ent as the Pri"ar! Contractor "eant that it as bound to perfor" a #overn"ental function on behalf of China. 4o ever, the 6oan -#ree"ent, hich ori#inated fro" the sa"e -u# () MO5, belies this reasonin#, vi7F -rticle 00. ::: $'% Co""ercial -ctivit! The e:ecution and deliver! of this -#ree"ent b! the ;orro er constitute, and the ;orro er>s perfor"ance of and co"pliance ith its obli#ations under this -#ree"ent ill constitute, /r(=a0e a)1 -o<<er-(a. a-0+ 1o)e a)1 /er,or<e1 ,or -o<<er-(a. /ur/o+e+ u)1er 0*e .a>+ o, 0*e Re/ub.(- o, 0*e P*(.(//()e+ a)1 )e(0*er 0*e Borro>er )or a)y o, (0+ a++e0+ (+ e)0(0.e1 0o a)y (<<u)(0y or /r(=(.e2e %+o=ere(2) or o0*er>(+e& ,ro< +u(0, e@e-u0(o) or a)y o0*er .e2a. /ro-e++ >(0* re+/e-0 0o (0+ ob.(2a0(o)+ u)1er 0*(+ A2ree<e)0, a+ 0*e -a+e <ay be, () a)y Aur(+1(-0(o). Not ithstandin# the fore#oin#, the ;orro er does not aive an! i""unit! ith respect of its assets hich are $i% used b! a diplo"atic or consular "ission of the ;orro er and $ii% assets of a "ilitar! character and under control of a "ilitar! authorit! or defense a#enc! and $iii% located in the Philippines and dedicated to public or #overn"ental use $as distin#uished fro" patri"onial assets or assets dedicated to co""ercial use%. $E"phasis supplied.% $<% Proceedin#s to Enforce -#ree"ent In an! proceedin# in the Republic of the Philippines to enforce this -#ree"ent, the choice of the la s of the People>s Republic of China as the #overnin# la hereof ill be reco#ni7ed and such la ill be applied. The aiver of i""unit! b! the ;orro er, the irrevocable sub"issions of the ;orro er to the non? e:clusive 'urisdiction of the courts of the People>s Republic of China and the appoint"ent of the ;orro er>s Chinese Process -#ent is le#al, valid, bindin# and enforceable and an! 'ud#"ent obtained in the People>s Republic of China ill be if introduced, evidence for enforce"ent in an! proceedin#s a#ainst the ;orro er and its assets in the Republic of the Philippines provided that $a% the court renderin# 'ud#"ent had 'urisdiction over the sub'ect "atter of the action in accordance ith its 'urisdictional rules, $b% the Republic had notice of the proceedin#s, $c% the 'ud#"ent of the court as not obtained throu#h collusion or fraud, and $d% such 'ud#"ent as not based on a clear "ista<e of fact or la .(B

9urther, the 6oan -#ree"ent li<e ise contains this e:press

aiver of i""unit!F

0,., Aaiver of I""unit! The ;orro er irrevocabl! and unconditionall! aives, an! i""unit! to hich it or its propert! "a! at an! ti"e be or beco"e entitled, hether characteri7ed as soverei#n i""unit! or other ise, fro" an! suit, 'ud#"ent, service of process upon it or an! a#ent, e:ecution on 'ud#"ent, set?off, attach"ent prior to 'ud#"ent, attach"ent in aid of e:ecution to hich it or its assets "a! be entitled in an! le#al action or proceedin#s ith respect to this -#ree"ent or an! of the transactions conte"plated hereb! or hereunder. Not ithstandin# the fore#oin#, the ;orro er does not aive an! i""unit! in respect of its assets hich are $i% used b! a diplo"atic or consular "ission of the ;orro er, $ii% assets of a "ilitar! character and under control of a "ilitar! authorit! or defense a#enc! and $iii% located in the Philippines and dedicated to a public or #overn"ental use $as distin#uished fro" patri"onial assets or assets dedicated to co""ercial use%.(C Thus, despite petitioner>s clai" that the E=IM ;an< e:tended financial assistance to Northrail because the ban< as "andated b! the Chinese #overn"ent, and not because of an! "otivation to do business in the Philippines, (+it is clear fro" the fore#oin# provisions that the Northrail Pro'ect as a purel! co""ercial transaction. -d"ittedl!, the 6oan -#ree"ent as entered into bet een E=IM ;an< and the Philippine #overn"ent, hile the Contract -#ree"ent as bet een Northrail and CNME/. -lthou#h the Contract -#ree"ent is silent on the classification of the le#al nature of the transaction, the fore#oin# provisions of the 6oan -#ree"ent, hich is an ine:tricable part of the entire underta<in#, nonetheless reveal the intention of the parties to the Northrail Pro'ect to classif! the hole venture as co""ercial or proprietar! in character. Thus, piecin# to#ether the content and tenor of the Contract -#ree"ent, the Me"orandu" of 5nderstandin# dated 01 Septe"ber *))*, -"b. Aan#>s letter dated 0 October *))(, and the 6oan -#ree"ent ould reveal the desire of CNME/ to construct the 6u7on Rail a!s in pursuit of a purel! co""ercial activit! perfor"ed in the ordinar! course of its business. ;. CNME/ failed to adduce evidence that it is i""une fro" suit under Chinese la . Even assu"in# arguendo that CNME/ perfor"s #overn"ental functions, such clai" does not auto"aticall! vest it ith i""unit!. This vie finds support in Malon# v. Philippine National Rail a!s, in hich this Court held that J$i%""unit! fro" suit is deter"ined b! the character of the ob'ects for hich the entit! as or#ani7ed.J (D In this re#ard, this Court>s rulin# in Deutsche /esellschaft 9Lr Technische Musa""enarbeit $/TM% v. C- 1) "ust be e:a"ined. In Deutsche /esellschaft, /er"an! and the Philippines entered into a Technical Cooperation -#ree"ent, pursuant to hich both si#ned an arran#e"ent pro"otin# the Social 4ealth Insurance.Net or<in# and E"po er"ent $S4INE% pro'ect. The t o #overn"ents na"ed their respective

i"ple"entin# or#ani7ationsF the Depart"ent of 4ealth $DO4% and the Philippine 4ealth Insurance Corporation $P4IC% for the Philippines, and /TM for the i"ple"entation of /er"an!>s contributions. In rulin# that /TM as not i""une fro" suit, this Court heldF The ar#u"ents raised b! /TM and the GOffice of the Solicitor /eneral $OS/%H are rooted in several indisputable facts. The S4INE pro'ect as i"ple"ented pursuant to the bilateral a#ree"ents bet een the Philippine and /er"an #overn"ents. /TM as tas<ed, under the 0DD0 a#ree"ent, ith the i"ple"entation of the contributions of the /er"an #overn"ent. The activities perfor"ed b! /TM pertainin# to the S4INE pro'ect are #overn"ental in nature, related as the! are to the pro"otion of health insurance in the Philippines. The fact that /TM entered into e"plo!"ent contracts ith the private respondents did not dis3ualif! it fro" invo<in# i""unit! fro" suit, as held in cases such as 4ol! See v. Rosario, 8r., hich set forth hat re"ains valid doctrineF Certainl!, the "ere enterin# into a contract b! a forei#n state ith a private part! cannot be the ulti"ate test. Such an act can onl! be the start of the in3uir!. The lo#ical 3uestion is hether the forei#n state is en#a#ed in the activit! in the re#ular course of business. If the forei#n state is not en#a#ed re#ularl! in a business or trade, the particular act or transaction "ust then be tested b! its nature. If the act is in pursuit of a soverei#n activit!, or an incident thereof, then it is an act 'ure i"perii, especiall! hen it is not underta<en for #ain or profit. ;e!ond dispute is the tenabilit! of the co""ent points $sic% raised b! /TM and the OS/ that /TM as not perfor"in# proprietar! functions not ithstandin# its entr! into the particular e"plo!"ent contracts. Net there is an e3uall! funda"ental pre"ise hich /TM and the OS/ fail to address, na"el!F Is /TM, b! conception, able to en'o! the 9ederal Republic>s i""unit! fro" suitO The principle of state i""unit! fro" suit, hether a local state or a forei#n state, is reflected in Section D, -rticle =KI of the Constitution, hich states that Jthe State "a! not be sued ithout its consent.J Aho or hat consists of Jthe StateJO 9or one, the doctrine is available to forei#n States insofar as the! are sou#ht to be sued in the courts of the local State, necessar! as it is to avoid Jundul! ve:in# the peace of nations.J If the instant suit had been brou#ht directl! a#ainst the 9ederal Republic of /er"an!, there ould be no doubt that it is a suit brou#ht a#ainst a State, and the onl! necessar! in3uir! is hether said State had consented to be sued. 4o ever, the present suit as brou#ht a#ainst /TM. It is necessar! for us to understand hat precisel! are the para"eters of the le#al personalit! of /TM. Cou)+e. ,or GT9 -*ara-0er(?e+ GT9 a+ B0*e (</.e<e)0()2 a2e)-y o, 0*e Go=er)<e)0 o, 0*e Fe1era. Re/ub.(- o, Ger<a)y,B a depiction si"ilarl! adopted b! the OS/. -ssu"in# that the characteri7ation is correct, (0 1oe+ )o0 au0o<a0(-a..y ()=e+0 GT9 >(0* 0*e ab(.(0y 0o ()=o5e S0a0e (<<u)(0y ,ro< +u(0. The distinction lies in hether the a#enc! is incorporated or unincorporated.




State i""unit! fro" suit "a! be aived b! #eneral or special la . The special la can ta<e the for" of the ori#inal charter of the incorporated #overn"ent a#enc!. 8urisprudence is replete ith e:a"ples of incorporated #overn"ent a#encies hich ere ruled not entitled to invo<e i""unit! fro" suit, o in# to provisions in their charters "anifestin# their consent to be sued. ::: ::: :::

It is useful to note that on the part of the Philippine #overn"ent, it had desi#nated t o entities, the Depart"ent of 4ealth and the Philippine 4ealth Insurance Corporation $P4IC%, as the i"ple"entin# a#encies in behalf of the Philippines. The P4IC as established under Republic -ct No. C+C,, Section 0B $#% of hich #rants the corporation the po er Jto sue and be sued in court.J -ppl!in# the previousl! cited 'urisprudence, P4IC ould not en'o! i""unit! fro" suit even in the perfor"ance of its functions connected ith S4INE, ho ever, $sic% #overn"ental in nature as $sic% the! "a! be. + GT9 a) ()-or/ora0e1 a2e)-y o, 0*e Ger<a) 2o=er)<e)0C T*ere (+ +o<e <y+0ery +urrou)1()2 0*a0 Due+0(o). Ne(0*er GT9 )or 0*e OSG 2o beyo)1 0*e -.a(< 0*a0 /e0(0(o)er (+ B0*e (</.e<e)0()2 a2e)-y o, 0*e Go=er)<e)0 o, 0*e Fe1era. Re/ub.(- o, Ger<a)y.B On the other hand, private respondents asserted before the 6abor -rbiter that /TM as Ja private corporation en#a#ed in the i"ple"entation of develop"ent pro'ects.J The 6abor -rbiter accepted that clai" in his Order den!in# the Motion to Dis"iss, thou#h he as silent on that point in his Decision. Nevertheless, private respondents ar#ue in their Co""ent that the findin# that /TM as a private corporation J as never controverted, and is therefore dee"ed ad"itted.J In its Repl!, /TM controverts that findin#, sa!in# that it is a "atter of public <no led#e that the status of petitioner /TM is that of the Ji"ple"entin# a#enc!,J and not that of a private corporation. In truth, private respondents ere unable to adduce an! evidence to substantiate their clai" that /TM as a Jprivate corporation,J and the 6abor -rbiter acted rashl! in acceptin# such clai" ithout e:planation. ;ut )e(0*er *a+ GT9 +u//.(e1 a)y e=(1e)-e 1e,()()2 (0+ .e2a. )a0ure beyo)1 0*a0 o, 0*e bare 1e+-r(/0(=e B(</.e<e)0()2 a2e)-y.B T*ere (+ )o 1oub0 0*a0 0*e 1EE1 A2ree<e)0 1e+(2)a0e1 GT9 a+ 0*e B(</.e<e)0()2 a2e)-yB () be*a., o, 0*e Ger<a) 2o=er)<e)0. "e0 0*e -a0-* (+ 0*a0 +u-* 0er< *a+ )o /re-(+e 1e,()(0(o) 0*a0 (+ re+/o)+(=e 0o our -o)-er)+. )*ere)0.y, a) a2e)0 a-0+ () be*a., o, a /r()-(/a., a)1 0*e GT9 -a) be +a(1 0o a-0 () be*a., o, 0*e Ger<a) +0a0e. Bu0 0*a0 (+ a+ ,ar a+ B(</.e<e)0()2 a2e)-yB -ou.1 0a5e u+. T*e 0er< by (0+e., 1oe+ )o0 +u//.y >*e0*er GT9 (+ ()-or/ora0e1 or u)()-or/ora0e1, >*e0*er (0 (+ o>)e1 by 0*e Ger<a) +0a0e or by /r(=a0e ()0ere+0+, >*e0*er (0 *a+ Aur(1(-a. /er+o)a.(0y ()1e/e)1e)0 o, 0*e Ger<a) 2o=er)<e)0 or )o)e a0 a... ::: ::: :::

A2a(), >e are u)-er0a() o, 0*e -orre+/o)1()2 .e2a. (</.(-a0(o)+ u)1er Ger<a) .a> +urrou)1()2 Ba /r(=a0e -o</a)y o>)e1 by 0*e Fe1era. Re/ub.(- o, Ger<a)y.B "e0 0a5()2 0*e 1e+-r(/0(o) o) ,a-e =a.ue, 0*e a//are)0 eDu(=a.e)0 u)1er P*(.(//()e .a> (+ 0*a0 o, a -or/ora0(o) or2a)(?e1 u)1er 0*e Cor/ora0(o) Co1e bu0 o>)e1 by 0*e P*(.(//()e 2o=er)<e)0, or a 2o=er)<e)07o>)e1 or -o)0ro..e1 -or/ora0(o) >(0*ou0 or(2()a. -*ar0er. A)1 (0 bear+ )o0(-e 0*a0 Se-0(o) FG o, 0*e Cor/ora0e Co1e +0a0e+ 0*a0 BHeI=ery -or/ora0(o) ()-or/ora0e1 u)1er 0*(+ Co1e *a+ 0*e /o>er a)1 -a/a-(0y @ @ @ 0o +ue a)1 be +ue1 () (0+ -or/ora0e )a<e.B It is entirel! possible that under /er"an la , an entit! such as /TM or particularl! /TM itself has not been vested or has been specificall! deprived the po er and capacit! to sue and&or be sued. Net in the proceedin#s belo and before this Court, GT9 *a+ ,a(.e1 0o e+0ab.(+* 0*a0 u)1er Ger<a) .a>, (0 *a+ )o0 -o)+e)0e1 0o be +ue1 1e+/(0e (0 be()2 o>)e1 by 0*e Fe1era. Re/ub.(- o, Ger<a)y. ;e a1*ere 0o 0*e ru.e 0*a0 () 0*e ab+e)-e o, e=(1e)-e 0o 0*e -o)0rary, ,ore(2) .a>+ o) a /ar0(-u.ar +ubAe-0 are /re+u<e1 0o be 0*e +a<e a+ 0*o+e o, 0*e P*(.(//()e+, a)1 ,o..o>()2 0*e <o+0 ()0e..(2e)0 a++u</0(o) >e -a) 2a0*er, GT9 (+ a5() 0o a 2o=er)<e)0a. o>)e1 or -o)0ro..e1 -or/ora0(o) >(0*ou0 or(2()a. -*ar0er >*(-*, by =(r0ue o, 0*e Cor/ora0(o) Co1e, *a+ e@/re++.y -o)+e)0e1 0o be +ue1. -t the ver! least, li<e the 6abor -rbiter and the Court of -ppeals, this Court has no basis in fact to conclude or presu"e that /TM en'o!s i""unit! fro" suit.10$E"phasis supplied.% -ppl!in# the fore#oin# rulin# to the case at bar, it is readil! apparent that CNME/ cannot clai" i""unit! fro" suit, even if it contends that it perfor"s #overn"ental functions. Its desi#nation as the Pri"ar! Contractor does not auto"aticall! #rant it i""unit!, 'ust as the ter" Ji"ple"entin# a#enc!J has no precise definition for purposes of ascertainin# hether /TM as i""une fro" suit. -lthou#h CNME/ clai"s to be a #overn"ent?o ned corporation, it failed to adduce evidence that it has not consented to be sued under Chinese la . Thus, follo in# this Court>s rulin# in Deutsche /esellschaft, in the absence of evidence to the contrar!, CNME/ is to be presu"ed to be a #overn"ent?o ned and ?controlled corporation ithout an ori#inal charter. -s a result, it has the capacit! to sue and be sued under Section (B of the Corporation Code. C. CNME/ failed to present a certification fro" the Depart"ent of 9orei#n -ffairs. In 4ol! See,1* this Court reiterated the oft?cited doctrine that the deter"ination b! the E:ecutive that an entit! is entitled to soverei#n or diplo"atic i""unit! is a political 3uestion conclusive upon the courts, to itF In Public International 6a , hen a state or international a#enc! ishes to plead soverei#n or diplo"atic i""unit! in a forei#n court, it re3uests the 9orei#n Office of the state here it is sued to conve! to the court that said defendant is entitled to i""unit!. ::: ::: :::

In the Philippines, the practice is for the forei#n #overn"ent or the international or#ani7ation to first secure an e:ecutive endorse"ent of its clai" of soverei#n or diplo"atic i""unit!. ;ut ho the Philippine 9orei#n Office conve!s its endorse"ent to the courts varies. In International Catholic Migration Commission v. Calleja , 0D) SCR- 0() $0DD)%, the Secretar! of 9orei#n -ffairs 'ust sent a letter directl! to the Secretar! of 6abor and E"plo!"ent, infor"in# the latter that the respondent?e"plo!er could not be sued because it en'o!ed diplo"atic i""unit!. In World Health Organization v. !uino , 1+ SCR*1* $0DC*%, the Secretar! of 9orei#n -ffairs sent the trial court a tele#ra" to that effect. In "aer v. #izon, ,C SCR- 0 $0DC1%, the 5.S. E"bass! as<ed the Secretar! of 9orei#n -ffairs to re3uest the Solicitor /eneral to "a<e, in behalf of the Co""ander of the 5nited States Naval ;ase at Olon#apo Cit!, Ma"bales, a Jsu##estionJ to respondent 8ud#e. The Solicitor /eneral e"bodied the Jsu##estionJ in a Manifestation and Me"orandu" as amicus curiae. In the case at bench, the Depart"ent of 9orei#n -ffairs, throu#h the Office of 6e#al -ffairs "oved ith this Court to be allo ed to intervene on the side of petitioner. The Court allo ed the said Depart"ent to file its "e"orandu" in support of petitioner>s clai" of soverei#n i""unit!. In so"e cases, the defense of soverei#n i""unit! as sub"itted directl! to the local courts b! the respondents throu#h their private counsels $Ra3ui7a v. ;radford, C, Phil. ,) G0D1,HE Mi3uiabas v. Philippine?R!u<!us Co""and, +) Phil. *B* G0D1+HE 5nited States of -"erica v. /uinto, 0+* SCR- B11 G0DD)H and co"panion cases%. In cases here the forei#n states b!pass the 9orei#n Office, the courts can in3uire into the facts and "a<e their o n deter"ination as to the nature of the acts and transactions involved.1( $E"phasis supplied.% The 3uestion no is hether an! a#enc! of the E:ecutive ;ranch can "a<e a deter"ination of i""unit! fro" suit, hich "a! be considered as conclusive upon the courts. This Court, in Depart"ent of 9orei#n -ffairs $D9-% v. National 6abor Relations Co""ission $N6RC%,11 e"phasi7ed the D9->s co"petence and authorit! to provide such necessar! deter"ination, to itF The D9->s function includes, a"on# its other "andates, the deter"ination of persons and institutions covered b! diplo"atic i""unities, a deter"ination hich, hen challen#e, $sic% entitles it to see< relief fro" the court so as not to seriousl! i"pair the conduct of the countr!Ps forei#n relations. The D9- "ust be allo ed to plead its case henever necessar! or advisable to enable it to help <eep the credibilit! of the Philippine #overn"ent before the international co""unit!. Ahen international a#ree"ents are concluded, the parties thereto are dee"ed to have li<e ise accepted the responsibilit! of seein# to it that their a#ree"ents are dul! re#arded. In our countr!, this tas< falls principall! of $sic% the D9- as bein# the hi#hest e:ecutive depart"ent ith the co"petence and authorit! to so act in this aspect of the international arena. 1, $E"phasis supplied.%

9urther, the fact that this authorit! is e:clusive to the D9Court>s rulin# in Deutsche /esellschaftF

as also e"phasi7ed in this

D. -n a#ree"ent to sub"it an! dispute to arbitration "a! be construed as an i"plicit aiver of i""unit! fro" suit. In the 5nited States, the 9orei#n Soverei#n I""unities -ct of 0DCB provides for a aiver b! i"plication of state i""unit!. In the said la , the a#ree"ent to sub"it disputes to arbitration in a forei#n countr! is construed as an i"plicit aiver of i""unit! fro" suit. -lthou#h there is no si"ilar la in the Philippines, there is reason to appl! the le#al reasonin# behind the aiver in this case. The Conditions of Contract,1+ hich is an inte#ral part of the Contract -#ree"ent, 1D statesF

It is to be recalled that the 6abor -rbiter, in both of his rulin#s, noted that it as i"perative for petitioners to secure fro" the Depart"ent of 9orei#n -ffairs Ja certification of respondents> diplo"atic status and entitle"ent to diplo"atic privile#es includin# i""unit! fro" suits.J The re3uire"ent "i#ht not necessaril! be i"perative. 4o ever, had /TM obtained such certification fro" the D9-, it ould have provided factual basis for its clai" of i""unit! that ould, at the ver! least, establish a disputable evidentiar! presu"ption that the forei#n part! is indeed i""une hich the opposin# part! ill have to overco"e ith its o n factual evidence. Ae do not see h! /TM could not have secured such certification or endorse"ent fro" the D9- for purposes of this case. Certainl!, it ould have been hi#hl! prudential for /TM to obtain the sa"e after the 6abor -rbiter had denied the "otion to dis"iss. Still, even at this 'uncture, e do not see an! evidence that the D9-, the office of the e:ecutive branch in char#e of our diplo"atic relations, has indeed endorsed /TM>s clai" of i""unit!. It "a! be possible that /TM tried, but failed to secure such certification, due to the sa"e concerns that e have discussed herein. Aould the fact that the Solicitor /eneral has endorsed /TM>s clai" of State>s i""unit! fro" suit before this Court sufficientl! substitute for the D9- certificationO Note that the rule in public international la 3uoted in 4ol! See referred to endorse"ent b! the 9orei#n Office of the State here the suit is filed, such forei#n office in the Philippines bein# the Depart"ent of 9orei#n -ffairs. No here in the Co""ent of the OS/ is it "anifested that the D9- has endorsed /TM>s clai", or that the OS/ had solicited the D9->s vie s on the issue. The ar#u"ents raised b! the OS/ are virtuall! the sa"e as the ar#u"ents raised b! /TM ithout an! indication of an! special and distinct perspective "aintained b! the Philippine #overn"ent on the issue. The Co""ent filed b! the OS/ does not inspire the sa"e de#ree of confidence as a certification fro" the D9ould have elicited.1B $E"phasis supplied.% In the case at bar, CNME/ offers the Certification e:ecuted b! the Econo"ic and Co""ercial Office of the E"bass! of the People>s Republic of China, statin# that the Northrail Pro'ect is in pursuit of a soverei#n activit!. 1CSurel!, this is not the <ind of certification that can establish CNME/>s entitle"ent to i""unit! fro" suit, as 4ol! See une3uivocall! refers to the deter"ination of the J9orei#n Office of the state here it is sued.J 9urther, CNME/ also clai"s that its i""unit! fro" suit has the e:ecutive endorse"ent of both the OS/ and the Office of the /overn"ent Corporate Counsel $O/CC%, hich "ust be respected b! the courts. 4o ever, as e:pressl! enunciated in Deutsche /esellschaft, this deter"ination b! the OS/, or b! the O/CC for that "atter, does not inspire the sa"e de#ree of confidence as a D9- certification. Even ith a D9- certification, ho ever, it "ust be re"e"bered that this Court is not precluded fro" "a<in# an in3uir! into the intrinsic correctness of such certification.

((. SETT6EMENT O9 DISP5TES -ND -R;ITR-TION ((.0. -"icable Settle"ent ;oth parties shall atte"pt to a"icabl! settle all disputes or controversies arisin# fro" this Contract before the co""ence"ent of arbitration. ((.*. -rbitration -ll disputes or controversies arisin# fro" this Contract hich cannot be settled bet een the E"plo!er and the Contractor shall be sub"itted to arbitration in accordance ith the 5NCITR-6 -rbitration Rules at present in force and as "a! be a"ended b! the rest of this Clause. The appointin# authorit! shall be 4on# Qon# International -rbitration Center. The place of arbitration shall be in 4on# Qon# at 4on# Qon# International -rbitration Center $4QI-C%. 5nder the above provisions, if an! dispute arises bet een Northrail and CNME/, both parties are bound to sub"it the "atter to the 4QI-C for arbitration. In case the 4QI-C "a<es an arbitral a ard in favor of Northrail, its enforce"ent in the Philippines ould be sub'ect to the Special Rules on -lternative Dispute Resolution $Special Rules%. Rule 0( thereof provides for the Reco#nition and Enforce"ent of a 9orei#n -rbitral - ard. 5nder Rules 0(.* and 0(.( of the Special Rules, the part! to arbitration ishin# to have an arbitral a ard reco#ni7ed and enforced in the Philippines "ust petition the proper re#ional trial court $a% here the assets to be attached or levied upon is locatedE $b% here the acts to be en'oined are bein# perfor"edE $c% in the principal place of business in the Philippines of an! of the partiesE $d% if an! of the parties is an individual, here an! of those individuals residesE or $e% in the National Capital 8udicial Re#ion. 9ro" all the fore#oin#, it is clear that CNME/ has a#reed that it ill not be afforded i""unit! fro" suit. Thus, the courts have the co"petence and 'urisdiction to ascertain the validit! of the Contract -#ree"ent. Se-o)1 (++ue: ;*e0*er 0*e Co)0ra-0 A2ree<e)0 (+ a) e@e-u0(=e a2ree<e)0

-rticle *$0% of the Kienna Convention on the 6a treat! as follo sF

of Treaties $Kienna Convention% defines a

The contract shall be ritten in En#lish lan#ua#e. -ll correspondence and other docu"ents pertainin# to the Contract hich are e:chan#ed b! the parties shall be ritten in En#lish lan#ua#e. Since the Contract -#ree"ent e:plicitl! provides that Philippine la shall be applicable, the parties have effectivel! conceded that their ri#hts and obli#ations thereunder are not #overned b! international la . It is therefore clear fro" the fore#oin# reasons that the Contract -#ree"ent does not parta<e of the nature of an e:ecutive a#ree"ent. It is "erel! an ordinar! co""ercial contract that can be 3uestioned before the local courts. A4ERE9ORE, the instant Petition is 'EN E'. Petitioner China National Machiner! 2 E3uip"ent Corp. $/roup% is not entitled to i""unit! fro" suit, and the Contract -#ree"ent is not an e:ecutive a#ree"ent. CNME/>s pra!er for the issuance of a TRO and&or Arit of Preli"inar! In'unction is DENIED for bein# "oot and acade"ic. This case is REM-NDED to the Re#ional Trial Court of Ma<ati, ;ranch 01,, for further proceedin#s as re#ards the validit! of the contracts sub'ect of Civil Case No. )B?*)(. No pronounce"ent on costs of suit. SO ORDERED. MAR A -ssociate 8ustice !OUR'ES P. A. SERENO

G-Hn international a#ree"ent concluded bet een States in ritten for" and #overned b! international la , hether e"bodied in a sin#le instru"ent or in t o or "ore related instru"ents and hatever its particular desi#nation. In "ayan Muna v. Romulo, this Court held that an e:ecutive a#ree"ent is si"ilar to a treat!, e:cept that the for"er $a% does not re3uire le#islative concurrenceE $b% is usuall! less for"alE and $c% deals ith a narro er ran#e of sub'ect "atters. ,) Despite these differences, to be considered an e:ecutive a#ree"ent, the follo in# three re3uisites provided under the Kienna Convention "ust nevertheless concurF $a% the a#ree"ent "ust be bet een statesE $b% it "ust be rittenE and $c% it "ust #overned b! international la . The first and the third re3uisites do not obtain in the case at bar. . C$M%& is neither a government nor a government agency. The Contract -#ree"ent as not concluded bet een the Philippines and China, but bet een Northrail and CNME/.,0 ;! the ter"s of the Contract -#ree"ent, Northrail is a #overn"ent?o ned or ?controlled corporation, hile CNME/ is a corporation dul! or#ani7ed and created under the la s of the People>s Republic of China. ,*Thus, both Northrail and CNME/ entered into the Contract -#ree"ent as entities ith personalities distinct and separate fro" the Philippine and Chinese #overn"ents, respectivel!. Neither can it be said that CNME/ acted as a#ent of the Chinese #overn"ent. -s previousl! discussed, the fact that -"b. Aan#, in his letter dated 0 October *))(,,( described CNME/ as a Jstate corporationJ and declared its desi#nation as the Pri"ar! Contractor in the Northrail Pro'ect did not "ean it as to perfor" soverei#n functions on behalf of China. That label as onl! descriptive of its nature as a state?o ned corporation, and did not preclude it fro" en#a#in# in purel! co""ercial or proprietar! ventures. ". #he Contract greement is to 'e governed 'y (hilippine la). hich under -rticle 0.0 of the Contract -#ree"ent

-rticle * of the Conditions of Contract, ,1 is an inte#ral part of the latter, statesF

-PP6IC-;6E 6-A -ND /OKERNIN/ 6-N/5-/E The contract shall in all respects be read and construed in accordance Philippines. ith the la s of the