Respondents Argument: The Contract Agreement and The Loan Agreement

Export Import Bank of China (EXIM Bank) + Department of Finance of the
Philippines (DOF) = Memorandum of Understanding China agreed to extend

Preferential Buyers Credit to the Philippine government to finance the
Northrail Project.
August 30 MOU (Loan Agreement): EXIM Bank agreed to extend an amount

not exceeding $400m in favor of the DOF.
October 1, 2003: Chinese Ambassador to the Philippines, Wang Chungui

(Amb. Wang) -> Letter -> DOF Secretary Jose Isidro Camacho (Sec. Camacho)
= CNMEGs designation as the Prime Contractor for the Northrail Project.
December 30, 2003: Northrail + CNMEG = Contract Agreement for the

construction = Section I, Phase I of the North Luzon Railway System from
Caloocan to Malolos.
Respondents Filed: Petition for Review on Certiorari with Prayer for the
Issuance of a Temporary Restraining Order (TRO) and/or Preliminary
Injunction.
Against: CNMEG, the Office of the Executive Secretary, the DOF, the
Department of Budget and Management, the National Economic
Development Authority and Northrail.
Respondents Argument: The Contract Agreement and the Loan Agreement

were void for being contrary to:
(a) the Constitution;
(b) Republic Act No. 9184 (R.A. No. 9184), otherwise known as the
Government Procurement Reform Act;
(c) Presidential Decree No. 1445, otherwise known as the Government

Auditing Code;
(d) Executive Order No. 292, otherwise known as the Administrative

Code.
Petitioners Argument: That the trial court did not have jurisdiction over:
(a) its person, Agent of the Chinese government, making it immune

from suit.
(b) the subject matter, the Northrail Project was a product of an

executive agreement.
Doctrine of sovereign immunity in Holy See v. Rosario:
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.
Application of the doctrine of immunity from suit has been restricted to:
sovereign or governmental activities (jure imperii).
& Cannot be extended to:
commercial, private and proprietary acts (jure gestionis).
Since PH = Restrictive theory: It is crucial to ascertain the legal nature of the act
involved whether the entity claiming immunity performs governmental, as
opposed to proprietary, functions
Snippets of MOA:
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).
the NORTHRAIL CORP. also welcomes CNMEGs interest in

undertaking the Project with Suppliers 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.
CNMEG = Initiated the undertaking. Not the Chinese government.
The Feasibility Study was conducted NOT because of any diplomatic gratuity
from or exercise of sovereign functions by the Chinese government, BUT was
plainly a business strategy employed by CNMEG with a view to securing this
commercial enterprise.
CNMEG Argued: MOU on the financing of the Northrail Project was signed by
the Philippine and Chinese governments & its assignment as the Primary
Contractor meant that it was bound to perform a governmental function on
behalf of China.
However Loan Agreement states that:
Article 11. xxx (j) 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.
Also Loan Agreement contains this express waiver of immunity:
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.
The Loan Agreement = reveal the intention of the parties to the Northrail
Project to classify the whole venture as commercial or proprietary in
character.
CNMEG, and not the Chinese government, initiated the Northrail Project was
confirmed by Amb. Wang in his letter.
Snippets of the Letter:
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.
Among the various state corporations of the Peoples 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
process required by the Republic of the Philippines.
The desire of CNMEG to secure the Northrail Project was in the ordinary or
regular course of its business as a global construction company. Northrail
Project was intended to generate profit for CNMEG, with the Contract
Agreement placing a contract price of $421m for the venture.
The use of the term state corporation to refer to CNMEG was only
descriptive of its nature as a government-owned and/or -controlled
corporation, and its assignment as the Primary Contractor did not imply that
it was acting on behalf of China in the performance of the latters sovereign

functions.
Thus, piecing together:
The Memorandum of Understanding + Amb. Wangs letter + The

Loan Agreement = desire of CNMEG to construct the Luzon Railways in
pursuit of a purely commercial activity performed in the ordinary course of its
business.
Although CNMEG claims to be a government-owned corporation, it failed to

adduce evidence that it has not consented to be sued under Chinese law.
Thus, following this Courts ruling in Deutsche Gesellschaft, in the absence of

evidence to the contrary, CNMEG is to be presumed to be a government-owned and
-controlled corporation without an original charter. As a result, it has the capacity to
sue and be sued under Section 36 of the Corporation Code.
CNMEG offers the Certification executed by the Economic and Commercial

Office of the Embassy of the Peoples Republic of China, stating that the
Northrail Project is in pursuit of a sovereign activity.
NOT the kind of certification that can establish CNMEGs entitlement to

immunity from suit.
Further, CNMEG also claims that its immunity from suit has the executive
endorsement of both the OSG and the Office of the Government Corporate
Counsel (OGCC), which must be respected by the courts.
However, as expressly enunciated in Deutsche Gesellschaft, this

determination by the OSG, or by the OGCC for that matter, does not inspire
the same degree of confidence as a DFA certification.
Even with a DFA certification, however, it must be remembered that the SC is

not precluded from making an inquiry into the intrinsic correctness of such
certification.
In the United States, the Foreign Sovereign Immunities Act of 1976 provides
for a waiver by implication of state immunity.
In the said law, the agreement to submit disputes to arbitration in a foreign

country is construed as an implicit waiver of immunity from suit.
The Court also held that an agreement to submit any dispute to arbitration
may be construed as an implicit waiver of immunity from suit. Under the
contract agreement, CNMEG and Northrail, if any dispute arises, are bound to
submit the matter to the HKIAC for arbitration.
Petition is DENIED.
Petitioner China National Machinery & Equipment Corp. (Group) is not entitled
to immunity from suit, and the Contract Agreement is not an executive
agreement. CNMEGs prayer for the issuance of a TRO and/or Writ of
Preliminary Injunction is DENIED for being moot and academic.

Respondents Argument: The Contract Agreement and The Loan Agreement

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Respondents Argument: The Contract Agreement and The Loan Agreement

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Export Import Bank of China (EXIM Bank) + Department of Finance of the

Philippines (DOF) = Memorandum of Understanding China agreed to extend

August 30 MOU (Loan Agreement): EXIM Bank agreed to extend an amount

October 1, 2003: Chinese Ambassador to the Philippines, Wang Chungui

December 30, 2003: Northrail + CNMEG = Contract Agreement for the

Respondents Argument: The Contract Agreement and the Loan Agreement

(a) the Constitution;

(c) Presidential Decree No. 1445, otherwise known as the Government

(d) Executive Order No. 292, otherwise known as the Administrative

(a) its person, Agent of the Chinese government, making it immune

(b) the subject matter, the Northrail Project was a product of an

Doctrine of sovereign immunity in Holy See v. Rosario:

According to the newer or restrictive theory, the immunity of the

sovereign or governmental activities (jure imperii).

& Cannot be extended to:

commercial, private and proprietary acts (jure gestionis).

CNMEG has expressed interest in the rehabilitation and/or

the NORTHRAIL CORP. also welcomes CNMEGs interest in

CNMEG = Initiated the undertaking. Not the Chinese government.

However Loan Agreement states that:

Also Loan Agreement contains this express waiver of immunity:

15.5 Waiver of Immunity; The Borrower irrevocably and unconditionally

Snippets of the Letter:

CNMEG has the proven competence and capability to

Among the various state corporations of the Peoples Republic of

it was acting on behalf of China in the performance of the latters sovereign

Thus, piecing together:

The Memorandum of Understanding + Amb. Wangs letter + The

Although CNMEG claims to be a government-owned corporation, it failed to

Thus, following this Courts ruling in Deutsche Gesellschaft, in the absence of

CNMEG offers the Certification executed by the Economic and Commercial

NOT the kind of certification that can establish CNMEGs entitlement to

However, as expressly enunciated in Deutsche Gesellschaft, this

Even with a DFA certification, however, it must be remembered that the SC is

In the said law, the agreement to submit disputes to arbitration in a foreign

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