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China Nation Machinerrryy VS Santamaria
China Nation Machinerrryy VS Santamaria
SUPREME COURT with the North Luzon Railways Corporation construction of Phase I of the Northrail Project.10
Manila (Northrail), represented by its president, Jose L.
Cortes, Jr. for the conduct of a feasibility study on On 13 February 2006, respondents filed a
EN BANC a possible railway line from Manila to San Complaint for Annulment of Contract and
Fernando, La Union (the Northrail Project).2 Injunction with Urgent Motion for Summary
G.R. No. 185572 February 7, 2012 Hearing to Determine the Existence of Facts and
On 30 August 2003, the Export Import Bank of Circumstances Justifying the Issuance of Writs of
CHINA NATIONAL MACHINERY & EQUIPMENT China (EXIM Bank) and the Department of Finance Preliminary Prohibitory and Mandatory
CORP. (GROUP), Petitioner, of the Philippines (DOF) entered into a Injunction and/or TRO against CNMEG, the Office
vs. Memorandum of Understanding (Aug 30 MOU), of the Executive Secretary, the DOF, the
HON. CESAR D. SANTAMARIA, in his official wherein China agreed to extend Preferential Department of Budget and Management, the
capacity as Presiding Judge of Branch 145, Buyer’s Credit to the Philippine government to National Economic Development Authority and
Regional Trial Court of Makati City, HERMINIO finance the Northrail Project.3 The Chinese Northrail.11 The case was docketed as Civil Case
HARRY L. ROQUE, JR., JOEL R. BUTUYAN, government designated EXIM Bank as the lender, No. 06-203 before the Regional Trial Court,
ROGER R. RAYEL, ROMEL R. BAGARES, while the Philippine government named the DOF National Capital Judicial Region, Makati City,
CHRISTOPHER FRANCISCO C. BOLASTIG, as the borrower.4 Under the Aug 30 MOU, EXIM Branch 145 (RTC Br. 145). In the Complaint,
LEAGUE OF URBAN POOR FOR ACTION (LUPA), Bank agreed to extend an amount not exceeding respondents alleged that the Contract Agreement
KILUSAN NG MARALITA SA MEYCAUAYAN USD 400,000,000 in favor of the DOF, payable in and the Loan Agreement were void for being
(KMM-LUPA CHAPTER), DANILO M. 20 years, with a 5-year grace period, and at the contrary to (a) the Constitution; (b) Republic Act
CALDERON, VICENTE C. ALBAN, MERLYN M. rate of 3% per annum.5 No. 9184 (R.A. No. 9184), otherwise known as the
VAAL, LOLITA S. QUINONES, RICARDO D. Government Procurement Reform Act; (c)
LANOZO, JR., CONCHITA G. GOZO, MA. TERESA On 1 October 2003, the Chinese Ambassador to Presidential Decree No. 1445, otherwise known as
D. ZEPEDA, JOSEFINA A. LANOZO, and SERGIO the Philippines, Wang Chungui (Amb. Wang), the Government Auditing Code; and (d) Executive
C. LEGASPI, JR., KALIPUNAN NG DAMAYANG wrote a letter to DOF Secretary Jose Isidro Order No. 292, otherwise known as the
MAHIHIRAP (KADAMAY), EDY CLERIGO, Camacho (Sec. Camacho) informing him of Administrative Code.12
RAMMIL DINGAL, NELSON B. TERRADO, CNMEG’s designation as the Prime Contractor for
CARMEN DEUNIDA, and EDUARDO the Northrail Project.6 RTC Br. 145 issued an Order dated 17 March 2006
LEGSON, Respondents. setting the case for hearing on the issuance of
On 30 December 2003, Northrail and CNMEG injunctive reliefs.13 On 29 March 2006, CNMEG
DECISION executed a Contract Agreement for the filed an Urgent Motion for Reconsideration of this
construction of Section I, Phase I of the North Order.14 Before RTC Br. 145 could rule thereon,
Luzon Railway System from Caloocan to Malolos CNMEG filed a Motion to Dismiss dated 12 April
SERENO, J.:
on a turnkey basis (the Contract Agreement). 7 The 2006, arguing that the trial court did not have
contract price for the Northrail Project was jurisdiction over (a) its person, as it was an agent
This is a Petition for Review on Certiorari with of the Chinese government, making it immune
pegged at USD 421,050,000.8
Prayer for the Issuance of a Temporary from suit, and (b) the subject matter, as the
Restraining Order (TRO) and/or Preliminary Northrail Project was a product of an executive
Injunction assailing the 30 September 2008 On 26 February 2004, the Philippine government
and EXIM Bank entered into a counterpart agreement.15
Decision and 5 December 2008 Resolution of the
Court of Appeals (CA) in CA–G.R. SP No. 103351.1 financial agreement – Buyer Credit Loan
Agreement No. BLA 04055 (the Loan On 15 May 2007, RTC Br. 145 issued an Omnibus
Agreement).9 In the Loan Agreement, EXIM Bank Order denying CNMEG’s Motion to Dismiss and
On 14 September 2002, petitioner China National setting the case for summary hearing to determine
agreed to extend Preferential Buyer’s Credit in the
Machinery & Equipment Corp. (Group) (CNMEG), whether the injunctive reliefs prayed for should
amount of USD 400,000,000 in favor of the
represented by its chairperson, Ren Hongbin, be issued.16 CNMEG then filed a Motion for
Reconsideration,17 which was denied by the trial The crux of this case boils down to two main The doctrine of state immunity from suit has
court in an Order dated 10 March 2008. 18 Thus, issues, namely: undergone further metamorphosis. The view
CNMEG filed before the CA a Petition for Certiorari evolved that the existence of a contract does
with Prayer for the Issuance of TRO and/or Writ 1. Whether CNMEG is entitled to not, per se, mean that sovereign states may, at all
of Preliminary Injunction dated 4 April 2008. 19 immunity, precluding it from being sued times, be sued in local courts. The complexity of
before a local court. relationships between sovereign states, brought
In the assailed Decision dated 30 September 2008, about by their increasing commercial activities,
the appellate court dismissed the Petition for 2. Whether the Contract Agreement is an mothered a more restrictive application of the
Certiorari.20 Subsequently, CNMEG filed a Motion executive agreement, such that it cannot doctrine.
for Reconsideration,21 which was denied by the CA be questioned by or before a local court.
in a Resolution dated 5 December 2008. 22 Thus, x x x x x x x x x
CNMEG filed the instant Petition for Review on First issue: Whether CNMEG is entitled to
Certiorari dated 21 January 2009, raising the immunity As it stands now, the application of the doctrine of
following issues: 23 immunity from suit has been restricted to
This Court explained the doctrine of sovereign sovereign or governmental activities (jure
Whether or not petitioner CNMEG is an agent of immunity in Holy See v. Rosario,24 to wit: imperii). The mantle of state immunity cannot be
the sovereign People’s Republic of China. extended to commercial, private and proprietary
acts (jure gestionis).26 (Emphasis supplied.)
There are two conflicting concepts of sovereign
Whether or not the Northrail contracts are immunity, each widely held and firmly
products of an executive agreement between two established. According to the classical or absolute Since the Philippines adheres to the restrictive
sovereign states. theory, a sovereign cannot, without its consent, theory, it is crucial to ascertain the legal nature of
be made a respondent in the courts of another the act involved – whether the entity claiming
Whether or not the certification from the sovereign. According to the newer or restrictive immunity performs governmental, as opposed to
Department of Foreign Affairs is necessary under theory, the immunity of the sovereign is proprietary, functions. As held in United States of
the foregoing circumstances. recognized only with regard to public acts or America v. Ruiz –27
acts jure imperii of a state, but not with regard
Whether or not the act being undertaken by to private acts or acts jure gestionis. (Emphasis The restrictive application of State immunity is
petitioner CNMEG is an act jure imperii. supplied; citations omitted.) proper only when the proceedings arise out of
commercial transactions of the foreign sovereign,
Whether or not the Court of Appeals failed to x x x x x x x x x its commercial activities or economic affairs.
avoid a procedural limbo in the lower court. Stated differently, a State may be said to have
descended to the level of an individual and can
The restrictive theory came about because of the thus be deemed to have tacitly given its consent to
Whether or not the Northrail Project is subject to entry of sovereign states into purely commercial be sued only when it enters into business
competitive public bidding. activities remotely connected with the discharge contracts. It does not apply where the contract
of governmental functions. This is particularly relates to the exercise of its sovereign functions. 28
Whether or not the Court of Appeals ignored the true with respect to the Communist states which
ruling of this Honorable Court in the Neri case. took control of nationalized business activities
and international trading. A. CNMEG is engaged in a proprietary activity.
SO ORDERED.
WE CONCUR:
RENATO C. CORONA
Chief Justice