Philippine Supreme Court Resolutions > Year 2012 > April 2012 Resolutions > [G.R. No. 185572 : April 24, 2012] CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP) v. HON. CESAR D. SANTAMARIA, IN HIS OFFICIAL CAPACITY AS PRESIDING JUDGE OF BRANCH 145, REGIONAL TRIAL COURT OF MAKATI CITY, HERMINIO HARRY Z. ROQUE, JR., JOEL R. BUTUYAN, ROGER R. RAYEL, ROMEL R. BAGARES, CHRISTOPHER FRANCISCO C. BOLASTIG, LEAGUE OF URBAN POOR FOR ACTION (LUPA), KILUSAN NG MARALITA SA MEYCAUAYAN (KMM-LUPA CHAPTER), DANILO M. CALDERON, VICENTE C. ALBAN, MERLYN M. VAAL, LOLITA S. QUINONES, RICARDO D. LANOZO, JR., CONCHITA G. GOZO, MA. TERESA D. ZEPEDA, JOSEFINA A. LANOZO, AND SERGIO C. LEGASPI, JR., KALIPUNAN NG DAMAYANG MAHIHIRAP (KADAMAY), EDY CLERIGO, RAMMIL DINGAL, NELSON B. TERRADO, CARMEN DEUNIDA, AND EDUARDO LEGSON :

Please take notice that the Court en banc issued a Resolution dated APRIL 24, 2012, which reads as follows:  cralaw

"G.R. No. 185572 (China National Machinery & Equipment Corp. (GROUP) v. Hon. Cesar D. Santamaria, in his official capacity as Presiding Judge of Branch 145, Regional Trial Court of Makati City, Herminio Harry Z. Roque, Jr., Joel R. Butuyan, Roger R. Rayel, Romel R. Bagares, Christopher Francisco C. Bolastig, League of Urban Poor for Action (LUPA), Kilusan Ng Maralita Sa Meycauayan (KMM-LUPA Chapter), Danilo M. Calderon, Vicente C. Alban, Merlyn M. Vaal, Lolita S. Quinones, Ricardo D. Lanozo, Jr., Conchita G. Gozo, Ma. Teresa D. Zepeda, Josefina A. Lanozo, and Sergio C. Legaspi, Jr., Kalipunan Ng Damayang Mahihirap (KADAMAY), Edy Clerigo, Rammil Dingal, Nelson B. Terrado, Carmen Deunida, and Eduardo Legson).  � For the Court's consideration is a Motion for Reconsideration dated 16 March 2012 filed by petitioner China National Machinery & Equipment Corp. (Group) (CNMEG), moving for the reconsideration of this Court's Decision dated 7 February 2012. This Decision (a) denied the Petition; (b) declared CNMEG as not entitled to immunity from suit and the Contract Agreement not an executive agreement; (c) denied CNMEG's prayer for the issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction for being moot and academic; and (d) remanded the case to the trial court for further proceedings as regards the validity of the subject contracts.

In the instant Motion for Reconsideration, CNMEG raises the following grounds for reversing this Court's 7 February 2012 Decision:

1. WITH ALL DUE RESPECT, THIS HONORABLE SUPREME COURT MAY HAVE ERRED WHEN IT DISREGARDED THE STATEMENT OF THE ECONOMIC AND COMMERCIAL OFFICE OF THE EMBASSY OF THE PEOPLE'S REPUBLIC OF CHINA DESIGNATING HEREIN PETITIONER-MOVANT CNMEG AS SOVEREIGN AGENT OF CHINA IN THE SUBJECT NORTHRAIL PROEJCT.
    
2. WITH ALL DUE RESPECT, THIS HONORABLE SUPREME COURT MAY HAVE ERRED WHEN IT RELIED ON THE LOAN AGREEMENT AS BASIS TO DECLARE THAT PETITIONER-MOVANT CNMEG HAD WAIVED ITS IMMUNITY FROM SUIT.
    
3. WITH ALL DUE RESPECT, THIS HONORABLE SUPREME COURT MAY HAVE ERRED WHEN IT RULED THAT A DFA CERTIFICATION IS NECESSARY UNDER THE FOREGOING CIRCUMSTANCES.
    
4. WITH ALL DUE RESPECT, THIS HONORABLE SUPREME COURT MAY HAVE ERRED WHEN IT IGNORED THE RULING IN THE NERI CASE.
    
5. WITH ALL DUE RESPECT, THE HONORABLE SUPREME COURT MAY HAVE ERRED WHEN IT IGNORED THE FACT THAT THE RECENT DECISION TO "RECONFIGURE" THE NORTHRAIL CONTRACT WAS ARRIVED AT BY THE GOVERNMENTS OF THE REPUBLIC OF THE PHILIPPINES AND THE PEOPLE'S REPUBLIC OF CHINA AND NOT IN THE LEVEL OF NORTHRAIL AND PETITIONER-MOVANT CNMEG WHICH WOULD SHOW THAT THE NORTHRAIL CONTRACT IS BETWEEN THE EXECUTIVE BRANCHES OF THE TWO STATES. 

CNMEG's assertions boil down to four issues, namely: (a) the exclusive power of the Department of Foreign Affairs (DFA) to determine sovereign immunity; (b) the waiver of immunity under the Loan Agreement; (c) the applicability of the ruling In Neri v. Senate Committee;^[1] and (d) the recent decision of the Philippine and Chinese governments � not CNMEG and the North Luzon Railways Corporation (Northrail) � to reconfigure the construction of a railway line from Manila to San Fernando, La Union (Northrail Project).

A.	Exclusive power of the DFA to determine sovereign immunity

CNMEG insists that the Certification executed by the Economic and Commercial Office of the Embassy of the People's Republic of China must prevail. It also contends that the mention therein that all matters that the Philippines would like to raise must be brought through the DFA does not make the Certification conditional on the DFA's role in the transaction, but merely states the fact of existence of this agency. These arguments fail to persuade.

The assailed Decision exhaustively explained the prevailing doctrine that the determination by the executive branch that an entity is entitled to sovereign or diplomatic immunity is a political question conclusive upon the courts.^[2]  This power to determine an entity's entitlement to immunity from suit is further qualified by the categorical pronouncement in jurisprudence that this authority is vested exclusively in the DFA.^[3] 

CNMEG cannot rely merely on the Certification executed by the Embassy of the People's Republic of China since Holy See v. Rosario  unequivocally refers to the determination of the "Foreign Office of the state where it is sued." The relevant agency in this case is the DFA. Further, contrary to CNMEG's interpretation, the authority of the DFA to make a determination of whether CNMEG is immune from suit does not arise from a mere mention of the DFA in the Certification executed by the Chinese Embassy. Rather, the power of the DFA emanates from its inherent function as the executive agency tasked to determine the persons or institutions covered by diplomatic immunities.^[4] Thus, CNMEG's failure to present the required certification from the DFA was fatal to its claim of immunity.

As emphasized in the assailed Decision, however, it must be reiterated that even with a DFA certification, courts are not precluded from making an inquiry into the intrinsic correctness of the agency's determination of entitlement to immunity from suit.         

B.	Reliance on the waiver of immunity under the Loan Agreement

CNMEG maintains that the waiver of immunity under the Loan Agreement is applicable only to the Philippines, as the borrower therein, and cannot extend to it. This assertion cannot be given any merit.

The assailed Decision thoroughly explained that CNMEG, in its Petition, anchored its claim of immunity on the 30 August 2003 Memorandum of Understanding (Aug 30 MOU) between the Export Import Bank of China (EXIM Bank) and the Philippine Department of Finance (DOF). It bears stressing that the Loan Agreement, which emanated from the same Aug 30 MOU, is an inextricable part of the entire undertaking  and thus reveals the intention of the parties to the Northrail Project to classify the whole venture as commercial or proprietary in character. Moreover, this Court did not take the Loan Agreement in isolation. Instead, in its evaluation that CNMEG's objective of constructing the Luzon Railways was in pursuit of a purely commercial activity performed in the ordinary course of its business, this Court considered the totality of all the relevant documents presented: the Contract Agreement, the Memorandum of Understanding dated 14 September 2002, Chinese Ambassador Wang Chungui's letter dated 1 October 2003, and the Loan Agreement.         

C.	Inapplicability of the Neri v. Senate Committee ruling

CNMEG claims that this Court should have upheld its own pronouncement in Neri, which held that the contract for the National Broadband Network (NBN) between the Department of Telecommunications Commission (DOTC) and the Zhong Xing Telecommunications Equipment Company Limited (ZTE Corporation), which was financed by the Chinese government, was an executive agreement. This contention cannot be sustained.

A quick comparison of Neri with the present action readily reveals their divergence in subject matter, issues and parties involved. Surely, whether or not the NBN Contract in Neri  is an executive agreement cannot bind this Court in its determination of CNMEG's claim of immunity, considering that these cases involve different contracts. In any event, the pronouncement in Neri as regards the nature of the contract that was the subject therein was a mere obiter dictum, as CNMEG itself admits that the issue in that case was executive privilege and not sovereign immunity from suit.  

D.	Relevance of the recent moves to reconfigure the Northrail Project

CNMEG posits that the recent decision of the Philippine and Chinese governments to reconfigure the Northrail Project shows the sovereign character of the transaction. This conjecture is insufficient to reverse this Court's ruling.

It must be emphasized that an examination of prevailing jurisprudence on sovereign immunity reveals that what determines entitlement thereto is the legal nature of the act involved � whether the entity claiming immunity performs governmental, as opposed to commercial or proprietary, functions. As discussed in the assailed Decision, the documents, contracts and agreements that gave rise to the Northrail Project all evince the proprietary character of the venture, irrespective of the subsequent events put forward by CNMEG. Apart from the nature of the act being purely commercial, the Decision likewise detailed other substantive grounds � such as CNMEG's failure to adduce evidence that it is immune from suit under Chinese law, its failure to present a certification from the DFA, and its agreement to submit any arising dispute to arbitration � that defeat CNMEG's claim of immunity. cralaw

WHEREFORE, the Motion for Reconsideration is DENIED. The 7 February 2012 Decision of this Court is AFFIRMED  with FINALITY. No further pleadings shall be allowed."

Very truly yours,

(Sgd.) ENRIQUETA E. VIDAL
Clerk of Court

Endnotes:

---

^[1] GR No. 180643, 4 September 2008, 564 SCRA 152.

^[2] Holy See v. Rosario, G.R. No. 101949, 1 December 1994, 238 SCRA 524. 

^[3] DFA v. National Labor Relations Commission, 330 Phil 573 (1996); Deutsche Gesellschaft Fur Technische Zusammenarbeit v. Court of Appeals, G.R. No. 152318, 16 April 2009, 585 SCRA 150. 

^[4] DFA v. National Labor Relations Commission, 330 Phil 573 (1996).