China National Machinery Equip. vs. Judge Santa Maria

8/13/2019 China National Machinery Equip. vs. Judge Santa Maria

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 185572 February 7, 2012

CH NA NAT ONA! MACH NER" # E$U PMENT CORP. %GROUP&, Petitioner,vs.

HON. CESAR '. SANTAMAR A, () *(+ o (-(a -a/a-( y a+ Pre+( () 3u e oBra)-* 145, Re (o)a Tr(a Cour o Ma a ( C( y, HERM N O HARR" !. RO$UE, 3R.,

3OE! R. BUTU"AN, ROGER R. RA"E!, ROME! R. BAGARES, CHR STOPHERFRANC SCO C. BO!AST G, !EAGUE OF URBAN POOR FOR ACT ON %!UPA&,

6 !USAN NG MARA! TA SA ME"CAUA"AN %6MM !UPA CHAPTER&, 'AN !O M.CA!'ERON, CENTE C. A!BAN, MER!"N M. AA!, !O! TA S. $U NONES,

R CAR'O '. !ANO9O, 3R., CONCH TA G. GO9O, MA. TERESA '. 9EPE'A, 3OSEF NAA. !ANO9O, a) 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) E'UAR'O !EGSON, Respondents.

D E C I S I O N

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" of5nderstandin# ith the North 6u7on Rail a!s Corporation $Northrail%, represented b! itspresident, 8ose 6. Cortes, 8r. for the conduct of a feasibilit! stud! on a possible rail a! linefro" Manila to San 9ernando, 6a 5nion $the Northrail Pro'ect%. *

On () -u#ust *))(, the E:port I"port ;an< of China $E=IM ;ansCredit in the a"ount of 5SD 1)),))),))) in favor of the Philippine #overn"ent in order tofinance 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 andIn'unction ith 5r#ent Motion for Su""ar! 4earin# to Deter"ine the E:istence of 9actsand Circu"stances 8ustif!in# the Issuance of Arits of Preli"inar! Prohibitor! andMandator! 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"icDevelop"ent -uthorit! and Northrail. 00 The case as doc


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instant Petition for Revie on Certiorari dated *0 8anuar! *)) , raisin# the follo in#issuesF *(

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 eent o soverei#n states.

Ahether or not the certification fro" the Depart"ent of 9orei#n -ffairs is necessar! underthe fore#oin# circu"stances.

Ahether or not the act bein# underta( *ou( + -o)+e) , be adherence to the restrictive theor! as follo sF

The doctrine of state i""unit! fro" suit has under#one further "eta"orphosis. The vieevolved 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#nstates, 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 restrictedto 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 $gestionis %.*B $E"phasis supplied.%

Since the Philippines adheres to the restrictive theor!, it is crucial to ascertain the le#alnature of the act involved hether the entit! clai"in# i""unit! perfor"s #overn"ental,

as opposed to proprietar!, functions. -s held in 5ni ted States of -"erica v. Rui7 *

The restrictive application of State i""unit! is proper onl! hen the proceedin#s arise outof co""ercial transactions of the forei#n soverei#n, its co""ercial activities or econo"icaffairs. Stated differentl!, a State "a! be said to have descended to the level of anindividual and can thus be dee"ed to have tacitl! #iven its consent to be sued onl! henit enters into business contracts. It does not appl! here the contract relates to thee: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 orproprietar! functions. - thorou#h e:a"ination of the basic facts of the case ould shothat CNME/ is en#a#ed in a proprietar! activit!.

The parties e:ecuted the Contract -#ree"ent for th e purpose of constructin# the 6u 7onRail a!s, vi7F *
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A4ERE-S the E"plo!er $Northrail% desired to construct the rail a!s for" Caloocan toMalolos, section I, Phase I of Philippine North 6u7on Rail a!s Pro'ect $hereinafter referredto as T4E PRO8ECT%

-ND A4ERE-S the Contractor has offered to provide the Pro'ect on Turns personnel

-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 Philippines

NOA, T4ERE9ORE, the parties a#ree to si#n this Contract for the I"ple"entation of thePro'ect.

The above?cited portion of the Contract -#ree"ent, h o ever, does not on its o n revealhether 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 entireunderta%

A4ERE-S, the NORT4R-I6 CORP. elco"es CNME/>s proposal to undertasinvolve"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 asused 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.%
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Thus, the desire of CNM E/ to secure the Northrail Pro'ect as in the ordinar! or re#ularcourse of its business as a #lobal construction co"pan!. The i"ple"entation of theNorthrail Pro'ect as intended to #enerate profit for CNME/, ith the Contract -#ree"entplacin# a contract price of 5SD 1*0,) ),))) for the venture. ( The use of the ter" JstatecorporationJ to refer to CNME/ as onl! descriptive of its nature as a #overn"ent?o nedand&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 corporationso ned b! the state ould be auto"aticall! considered as perfor"in# #overn"entalactivities, 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 theNorthrail Pro'ect as si#ned b! the Philippine and Chinese #overn"ents, and itsassi#n"ent as the Pri"ar! Contractor "eant that it as bound to perfor" a #overn"entalfunction on behalf of China. 4o ever, the 6oan -#ree"ent, hich ori#inated fro" thesa"e -u# () MO5, belies th is 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 itsobli#ations under this -#ree"ent ill constitute, /r(=a e a) -os rulin# in Deutsche /esellschaft 9Lr Technischeusa""enarbeit $/T % 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 bothsi#ned an arran#e"ent pro"otin# the Social 4ealth Insurance Net or


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i"ple"entin# or#ani7ationsF the Depart"ent of 4ealth $DO4% and the Philippine 4ealthInsurance Corporation $P4IC% for the Philippines, and /T for the i"ple"entation of/er"an!>s contributions. In rulin# that /T as not i""une fro" suit, this Court heldF

The ar#u"ents raised b! /T and the GOffice of the Solicitor /eneral $OS/%H are rooted inseveral indisputable facts. The S4INE pro'ect as i"ple"ented pursuant to the bilaterala#ree"ents bet een the Philippine and /er"an #overn"ents. /T as tas


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A a(), >e are u)-er a() o *e -orre+/o) () e a ()e by *e Fe era Re/ub (- o Ger+ o) a /ar (-u ar +ub e- are/re+u*(-*, by =(r ue o *eCor/ora (o) Co e, *a+ e@/re++ y -o)+e) e o be +ue . -t the ver! least, li

The 3uestion no is hether an! a#enc! of the E:ecutive ;ranch can "a


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9urther, the fact that this authorit! is e:clusive to the D9- as also e"phasi7ed in thisCourt>s rulin# in Deutsche /esellschaftF

It is to be recalled that the 6abor -rbiter, in both of his rulin#s, noted that it asi"perative for petitioners to secure fro" the Depart"ent of 9orei#n -ffairs Ja certificationof 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/T obtained such certification fro" the D9-, it ould have provided factual basis for itsclai" 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 haveto overco"e ith its o n factual evidence. Ae do not see h! /T could not havesecured such certification or endorse"ent fro" the D9- for purposes of this case.Certainl!, it ould have been hi#hl! prudential for /T 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"aticrelations, has indeed endorsed /T >s clai" of i""unit!. It "a! be possible that /T tried,but failed to secure such certification, due to the sa"e concerns that e have discussedherein.

Aould the fact that the Solicitor /eneral has endorsed /T >s clai" of State>s i""unit!fro" suit before this Court sufficientl! substitute for the D9- certification Note that therule in public international la 3uoted in 4ol! See referred to endorse"ent b! the 9orei#nOffice of the State here the suit is filed, such forei#n office in the Philippines bein# theDepart"ent of 9orei#n -ffairs. No here in the Co""ent of the OS/ is it "anifested thatthe D9- has endorsed /T >s clai", or that the OS/ had solicited the D9->s vie s on theissue. The ar#u"ents raised b! the OS/ are virtuall! the sa"e as the ar#u"ents raised b!/T ithout an! indication of an! special and distinct perspective "aintained b! thePhilippine #overn"ent on the issue. The Co""ent filed b! the OS/ does not inspire thesa"e de#ree of confidence as a certi fication fro" the D9- ould haveelicited . 1B $E"phasis supplied.%

In the case at bar, CNME/ offers the Certification e:ecuted b! the Econo"ic andCo""ercial Office of the E"bass! of the People>s Republic of China, statin# that theNorthrail Pro'ect is in pursuit of a soverei#n activit!. 1 Surel!, this is not the s entitle"ent to i""unit! fro" suit, as 4ol! Seeune3uivocall! refers to the deter"ination of the J9orei#n Office of the state here it issued.J

9urther, CNME/ also clai"s that its i""unit! fro" suit has the e:ecutive endorse"ent ofboth the OS/ and the Office of the /overn"ent Corporate Counsel $O/CC%, hich "ust berespected b! the courts. 4o ever, as e:pressl! enunciated in Deutsche /esellschaft, thisdeter"ination b! the OS/, or b! the O/CC for that "atter, does not inspire the sa"ede#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


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

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 relatedinstru"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 atreat!, e:cept that the for"er $a% does not re3uire le#islative concurrence $b% is usuall!less for"al 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# threere3uisites provided under the Kienna Convention "ust nevertheless concurF $a% thea#ree"ent "ust be bet een states $b% it "ust be ritten 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, butbet 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, bothNorthrail and CNME/ entered into the Contract -#ree"ent as entities ith personalitiesdistinct and separate fro" the Ph ilippine and Chinese #overn"ents, respectivel!.

Neither can it be said that CNME/ acted as a#ent of the Chinese #overn"ent. -spreviousl! discussed, the fact that -"b. Aan#, in his letter dated 0 October*))(, ( described CNME/ as a Jstate corporationJ and declared its desi#nation as thePri"ar! Contractor in the Northrail Pro'ect did not "ean it as to perfor" soverei#nfunctions on behalf of C hina. That label as onl! descriptive of its nature as a state?o nedcorporation, 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).

-rticle * of the Conditions of Contract, 1 hich under -rticle 0.0 of the Contract -#ree"entis 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 ith the la s of thePhilippines.

The contract shall be ritten in En#lish lan#ua#e. -ll correspondence and otherdocu"ents pertainin# to the Contract hich are e:chan#ed b! the parties shall be rittenin 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 notpartas pra!er for the issuance of a TROand&or Arit of Preli"inar! In'unction is DENIED for bein# "oot and acade"ic. This case isREM-NDED to the Re#ional Trial Court of Ma

Documents

China National Machinery Equip. vs. Judge Santa Maria