681 Phil. 198
Whether or not petitioner CNMEG is an agent of the sovereign People’s Republic of China.
Whether or not the Northrail contracts are products of an executive agreement between two sovereign states.
Whether or not the certification from the Department of Foreign Affairs is necessary under the foregoing circumstances.
Whether or not the act being undertaken by petitioner CNMEG is an act jure imperii.
Whether or not the Court of Appeals failed to avoid a procedural limbo in the lower court.
Whether or not the Northrail Project is subject to competitive public bidding.
Whether or not the Court of Appeals ignored the ruling of this Honorable Court in the Neri case.
There are two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the classical or absolute theory, a sovereign cannot, without its consent, be made a respondent in the courts of another sovereign. According to the newer or restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii of a state, but not with regard to private acts or acts jure gestionis. (Emphasis supplied; citations omitted.)
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The restrictive theory came about because of the entry of sovereign states into purely commercial activities remotely connected with the discharge of governmental functions. This is particularly true with respect to the Communist states which took control of nationalized business activities and international trading.
The doctrine of state immunity from suit has undergone further metamorphosis. The view evolved that the existence of a contract does not, per se, mean that sovereign states may, at all times, be sued in local courts. The complexity of relationships between sovereign states, brought about by their increasing commercial activities, mothered a more restrictive application of the doctrine.
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As it stands now, the application of the doctrine of immunity from suit has been restricted to sovereign or governmental activities (jure imperii). The mantle of state immunity cannot be extended to commercial, private and proprietary acts (jure gestionis). (Emphasis supplied.)
The restrictive application of State immunity is proper only when the proceedings arise out of commercial transactions of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a State may be said to have descended to the level of an individual and can thus be deemed to have tacitly given its consent to be sued only when it enters into business contracts. It does not apply where the contract relates to the exercise of its sovereign functions.
WHEREAS the Employer (Northrail) desired to construct the railways form Caloocan to Malolos, section I, Phase I of Philippine North Luzon Railways Project (hereinafter referred to as THE PROJECT);
AND WHEREAS the Contractor has offered to provide the Project on Turnkey basis, including design, manufacturing, supply, construction, commissioning, and training of the Employer’s personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyer’s Credit between Export-Import Bank of China and Department of Finance of Republic of the Philippines;
NOW, THEREFORE, the parties agree to sign this Contract for the Implementation of the Project.
WHEREAS, CNMEG has the financial capability, professional competence and technical expertise to assess the state of the [Main Line North (MLN)] and recommend implementation plans as well as undertake its rehabilitation and/or modernization;
WHEREAS, CNMEG has expressed interest in the rehabilitation and/or modernization of the MLN from Metro Manila to San Fernando, La Union passing through the provinces of Bulacan, Pampanga, Tarlac, Pangasinan and La Union (the ‘Project’);
WHEREAS, the NORTHRAIL CORP. welcomes CNMEG’s proposal to undertake a Feasibility Study (the “Study”) at no cost to NORTHRAIL CORP.;
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEG’s interest in undertaking the Project with Supplier’s Credit and intends to employ CNMEG as the Contractor for the Project subject to compliance with Philippine and Chinese laws, rules and regulations for the selection of a contractor;
WHEREAS, the NORTHRAIL CORP. considers CNMEG’s proposal advantageous to the Government of the Republic of the Philippines and has therefore agreed to assist CNMEG in the conduct of the aforesaid Study;
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II. APPROVAL PROCESS
2.1 As soon as possible after completion and presentation of the Study in accordance with Paragraphs 1.3 and 1.4 above and in compliance with necessary governmental laws, rules, regulations and procedures required from both parties, the parties shall commence the preparation and negotiation of the terms and conditions of the Contract (the “Contract”) to be entered into between them on the implementation of the Project. The parties shall use their best endeavors to formulate and finalize a Contract with a view to signing the Contract within one hundred twenty (120) days from CNMEG’s presentation of the Study. (Emphasis supplied)
1. CNMEG has the proven competence and capability to undertake the Project as evidenced by the ranking of 42 given by the ENR among 225 global construction companies.
2. CNMEG already signed an MOU with the North Luzon Railways Corporation last September 14, 2000 during the visit of Chairman Li Peng. Such being the case, they have already established an initial working relationship with your North Luzon Railways Corporation. This would categorize CNMEG as the state corporation within the People’s Republic of China which initiated our Government’s involvement in the Project.
3. Among the various state corporations of the People’s Republic of China, only CNMEG has the advantage of being fully familiar with the current requirements of the Northrail Project having already accomplished a Feasibility Study which was used as inputs by the North Luzon Railways Corporation in the approvals (sic) process required by the Republic of the Philippines. (Emphasis supplied.)
Article 11. xxx (j) Commercial Activity The execution and delivery of this Agreement by the Borrower constitute, and the Borrower’s performance of and compliance with its obligations under this Agreement will constitute, private and commercial acts done and performed for commercial purposes under the laws of the Republic of the Philippines and neither the Borrower nor any of its assets is entitled to any immunity or privilege (sovereign or otherwise) from suit, execution or any other legal process with respect to its obligations under this Agreement, as the case may be, in any jurisdiction. Notwithstanding the foregoing, the Borrower does not waive any immunity with respect of its assets which are (i) used by a diplomatic or consular mission of the Borrower and (ii) assets of a military character and under control of a military authority or defense agency and (iii) located in the Philippines and dedicated to public or governmental use (as distinguished from patrimonial assets or assets dedicated to commercial use). (Emphasis supplied.)
(k) Proceedings to Enforce Agreement In any proceeding in the Republic of the Philippines to enforce this Agreement, the choice of the laws of the People’s Republic of China as the governing law hereof will be recognized and such law will be applied. The waiver of immunity by the Borrower, the irrevocable submissions of the Borrower to the non-exclusive jurisdiction of the courts of the People’s Republic of China and the appointment of the Borrower’s Chinese Process Agent is legal, valid, binding and enforceable and any judgment obtained in the People’s Republic of China will be if introduced, evidence for enforcement in any proceedings against the Borrower and its assets in the Republic of the Philippines provided that (a) the court rendering judgment had jurisdiction over the subject matter of the action in accordance with its jurisdictional rules, (b) the Republic had notice of the proceedings, (c) the judgment of the court was not obtained through collusion or fraud, and (d) such judgment was not based on a clear mistake of fact or law.
15.5 Waiver of Immunity The Borrower irrevocably and unconditionally waives, any immunity to which it or its property may at any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any suit, judgment, service of process upon it or any agent, execution on judgment, set-off, attachment prior to judgment, attachment in aid of execution to which it or its assets may be entitled in any legal action or proceedings with respect to this Agreement or any of the transactions contemplated hereby or hereunder. Notwithstanding the foregoing, the Borrower does not waive any immunity in respect of its assets which are (i) used by a diplomatic or consular mission of the Borrower, (ii) assets of a military character and under control of a military authority or defense agency and (iii) located in the Philippines and dedicated to a public or governmental use (as distinguished from patrimonial assets or assets dedicated to commercial use).
The arguments raised by GTZ and the [Office of the Solicitor General (OSG)] are rooted in several indisputable facts. The SHINE project was implemented pursuant to the bilateral agreements between the Philippine and German governments. GTZ was tasked, under the 1991 agreement, with the implementation of the contributions of the German government. The activities performed by GTZ pertaining to the SHINE project are governmental in nature, related as they are to the promotion of health insurance in the Philippines. The fact that GTZ entered into employment contracts with the private respondents did not disqualify it from invoking immunity from suit, as held in cases such as Holy See v. Rosario, Jr., which set forth what remains valid doctrine:Certainly, the mere entering into a contract by a foreign state with a private party cannot be the ultimate test. Such an act can only be the start of the inquiry. The logical question is whether the foreign state is engaged in the activity in the regular course of business. If the foreign state is not engaged regularly in a business or trade, the particular act or transaction must then be tested by its nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an act jure imperii, especially when it is not undertaken for gain or profit.
Beyond dispute is the tenability of the comment points (sic) raised by GTZ and the OSG that GTZ was not performing proprietary functions notwithstanding its entry into the particular employment contracts. Yet there is an equally fundamental premise which GTZ and the OSG fail to address, namely: Is GTZ, by conception, able to enjoy the Federal Republic’s immunity from suit?
The principle of state immunity from suit, whether a local state or a foreign state, is reflected in Section 9, Article XVI of the Constitution, which states that “the State may not be sued without its consent.” Who or what consists of “the State”? For one, the doctrine is available to foreign States insofar as they are sought to be sued in the courts of the local State, necessary as it is to avoid “unduly vexing the peace of nations.”
If the instant suit had been brought directly against the Federal Republic of Germany, there would be no doubt that it is a suit brought against a State, and the only necessary inquiry is whether said State had consented to be sued. However, the present suit was brought against GTZ. It is necessary for us to understand what precisely are the parameters of the legal personality of GTZ.
Counsel for GTZ characterizes GTZ as “the implementing agency of the Government of the Federal Republic of Germany,” a depiction similarly adopted by the OSG. Assuming that the characterization is correct, it does not automatically invest GTZ with the ability to invoke State immunity from suit. The distinction lies in whether the agency is incorporated or unincorporated.xxx xxx xxx
State immunity from suit may be waived by general or special law. The special law can take the form of the original charter of the incorporated government agency. Jurisprudence is replete with examples of incorporated government agencies which were ruled not entitled to invoke immunity from suit, owing to provisions in their charters manifesting their consent to be sued.xxx xxx xxx
It is useful to note that on the part of the Philippine government, it had designated two entities, the Department of Health and the Philippine Health Insurance Corporation (PHIC), as the implementing agencies in behalf of the Philippines. The PHIC was established under Republic Act No. 7875, Section 16 (g) of which grants the corporation the power “to sue and be sued in court.” Applying the previously cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions connected with SHINE, however, (sic) governmental in nature as (sic) they may be.
Is GTZ an incorporated agency of the German government? There is some mystery surrounding that question. Neither GTZ nor the OSG go beyond the claim that petitioner is “the implementing agency of the Government of the Federal Republic of Germany.” On the other hand, private respondents asserted before the Labor Arbiter that GTZ was “a private corporation engaged in the implementation of development projects.” The Labor Arbiter accepted that claim in his Order denying the Motion to Dismiss, though he was silent on that point in his Decision. Nevertheless, private respondents argue in their Comment that the finding that GTZ was a private corporation “was never controverted, and is therefore deemed admitted.” In its Reply, GTZ controverts that finding, saying that it is a matter of public knowledge that the status of petitioner GTZ is that of the “implementing agency,” and not that of a private corporation.
In truth, private respondents were unable to adduce any evidence to substantiate their claim that GTZ was a “private corporation,” and the Labor Arbiter acted rashly in accepting such claim without explanation. But neither has GTZ supplied any evidence defining its legal nature beyond that of the bare descriptive “implementing agency.” There is no doubt that the 1991 Agreement designated GTZ as the “implementing agency” in behalf of the German government. Yet the catch is that such term has no precise definition that is responsive to our concerns. Inherently, an agent acts in behalf of a principal, and the GTZ can be said to act in behalf of the German state. But that is as far as “implementing agency” could take us. The term by itself does not supply whether GTZ is incorporated or unincorporated, whether it is owned by the German state or by private interests, whether it has juridical personality independent of the German government or none at all.xxx xxx xxx
Again, we are uncertain of the corresponding legal implications under German law surrounding “a private company owned by the Federal Republic of Germany.” Yet taking the description on face value, the apparent equivalent under Philippine law is that of a corporation organized under the Corporation Code but owned by the Philippine government, or a government-owned or controlled corporation without original charter. And it bears notice that Section 36 of the Corporate Code states that “[e]very corporation incorporated under this Code has the power and capacity x x x to sue and be sued in its corporate name.”
It is entirely possible that under German law, an entity such as GTZ or particularly GTZ itself has not been vested or has been specifically deprived the power and capacity to sue and/or be sued. Yet in the proceedings below and before this Court, GTZ has failed to establish that under German law, it has not consented to be sued despite it being owned by the Federal Republic of Germany. We adhere to the rule that in the absence of evidence to the contrary, foreign laws on a particular subject are presumed to be the same as those of the Philippines, and following the most intelligent assumption we can gather, GTZ is akin to a governmental owned or controlled corporation without original charter which, by virtue of the Corporation Code, has expressly consented to be sued. At the very least, like the Labor Arbiter and the Court of Appeals, this Court has no basis in fact to conclude or presume that GTZ enjoys immunity from suit. (Emphasis supplied.)
In Public International Law, when a state or international agency wishes to plead sovereign or diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is sued to convey to the court that said defendant is entitled to immunity.
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In the Philippines, the practice is for the foreign government or the international organization to first secure an executive endorsement of its claim of sovereign or diplomatic immunity. But how the Philippine Foreign Office conveys its endorsement to the courts varies. In International Catholic Migration Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a letter directly to the Secretary of Labor and Employment, informing the latter that the respondent-employer could not be sued because it enjoyed diplomatic immunity. In World Health Organization v. Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs to request the Solicitor General to make, in behalf of the Commander of the United States Naval Base at Olongapo City, Zambales, a “suggestion” to respondent Judge. The Solicitor General embodied the “suggestion” in a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with this Court to be allowed to intervene on the side of petitioner. The Court allowed the said Department to file its memorandum in support of petitioner’s claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by the respondents through their private counsels (Raquiza v. Bradford, 75 Phil. 50 ; Miquiabas v. Philippine-Ryukyus Command, 80 Phil. 262 ; United States of America v. Guinto, 182 SCRA 644  and companion cases). In cases where the foreign states bypass the Foreign Office, the courts can inquire into the facts and make their own determination as to the nature of the acts and transactions involved. (Emphasis supplied.)
The DFA’s function includes, among its other mandates, the determination of persons and institutions covered by diplomatic immunities, a determination which, when challenge, (sic) entitles it to seek relief from the court so as not to seriously impair the conduct of the country's foreign relations. The DFA must be allowed to plead its case whenever necessary or advisable to enable it to help keep the credibility of the Philippine government before the international community. When international agreements are concluded, the parties thereto are deemed to have likewise accepted the responsibility of seeing to it that their agreements are duly regarded. In our country, this task falls principally of (sic) the DFA as being the highest executive department with the competence and authority to so act in this aspect of the international arena. (Emphasis supplied.)
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was imperative for petitioners to secure from the Department of Foreign Affairs “a certification of respondents’ diplomatic status and entitlement to diplomatic privileges including immunity from suits.” The requirement might not necessarily be imperative. However, had GTZ obtained such certification from the DFA, it would have provided factual basis for its claim of immunity that would, at the very least, establish a disputable evidentiary presumption that the foreign party is indeed immune which the opposing party will have to overcome with its own factual evidence. We do not see why GTZ could not have secured such certification or endorsement from the DFA for purposes of this case. Certainly, it would have been highly prudential for GTZ to obtain the same after the Labor Arbiter had denied the motion to dismiss. Still, even at this juncture, we do not see any evidence that the DFA, the office of the executive branch in charge of our diplomatic relations, has indeed endorsed GTZ’s claim of immunity. It may be possible that GTZ tried, but failed to secure such certification, due to the same concerns that we have discussed herein.
Would the fact that the Solicitor General has endorsed GTZ’s claim of State’s immunity from suit before this Court sufficiently substitute for the DFA certification? Note that the rule in public international law quoted in Holy See referred to endorsement by the Foreign Office of the State where the suit is filed, such foreign office in the Philippines being the Department of Foreign Affairs. Nowhere in the Comment of the OSG is it manifested that the DFA has endorsed GTZ’s claim, or that the OSG had solicited the DFA’s views on the issue. The arguments raised by the OSG are virtually the same as the arguments raised by GTZ without any indication of any special and distinct perspective maintained by the Philippine government on the issue. The Comment filed by the OSG does not inspire the same degree of confidence as a certification from the DFA would have elicited. (Emphasis supplied.)
33. SETTLEMENT OF DISPUTES AND ARBITRATION
33.1. Amicable Settlement
Both parties shall attempt to amicably settle all disputes or controversies arising from this Contract before the commencement of arbitration.
All disputes or controversies arising from this Contract which cannot be settled between the Employer and the Contractor shall be submitted to arbitration in accordance with the UNCITRAL Arbitration Rules at present in force and as may be amended by the rest of this Clause. The appointing authority shall be Hong Kong International Arbitration Center. The place of arbitration shall be in Hong Kong at Hong Kong International Arbitration Center (HKIAC).
[A]n international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation.
APPLICABLE LAW AND GOVERNING LANGUAGE
The contract shall in all respects be read and construed in accordance with the laws of the Philippines.
The contract shall be written in English language. All correspondence and other documents pertaining to the Contract which are exchanged by the parties shall be written in English language.