196 - CNMEG v. Sta Maria PDF

CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP) V. STA.
MARIA
G.R. No. 185572 | February 7, 2012 | Sereno, J.
Powers of the President; Diplomatic Powers
DOCTRINES:
• To be considered as an executive agreement, the following requisites must occur:

o The agreement must be between states;
o It must be written; and
o It must be governed by international law
• Under Article 2(1) of the Vienna Convention on the Law of Treaties, a treaty is defined as “[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.”
• As held in Bayan v. Romulo, an executive agreement is similar to a treaty except that the former:
o Does not require legislative concurrence;

o Is usually less formal; and
o Deals with a narrower range of subject matters
RELEVANT FACTS
• China National Machinery and Equipment Corp Group (CNMEG) was named the prime contractor for the Northrail
project, a railway linking Manila and San Fernando, La Union.
o 14 Sep 2002: CNMEG signed a Memorandum of Understanding (MoU) with North Luzon Railways Corp.
(Northrail) for a feasibility study of the project
o 30 Aug 2003: Export Import Bank of China (EXIM) signed an MoU promising to lend USD 400M to the PH
Department of Finance (DoF) for the Northrail project
o 1 Oct 2003: Chinese ambassador wrote to the DoF informing them that CNMEG was the Prime Contractor
for the Northrail project.
o 30 Dec 2003: Northrail and CNMEG signed a turnkey contract for the project which was valued at USD
421M
o 26 Feb 2004: PH government and EXIM Bank signed the corresponding financial agreement for the loan of
USD 400M to the PH
• 13 Feb 2006: Respondents filed to annul the contract and prohibit its execution, on the ground that it violates:
o The 1987 Constitution;
o RA 9184 or the Government Procurement Reform Act;
o PD 1445 or the Government Auditing Code;
o EO 292 or the Administrative Code.
RAZON, AJB | 1
ISSUE / RATIO DECIDENDI
Whether the Contract Agreement is an executive agreement - NO
• To be considered as an executive agreement, the following requisites must occur:

o The agreement must be between states;
o It must be written; and
o It must be governed by international law
• THE FIRST AND THIRD REQUISITES ARE NOT PRESENT IN THE CASE AT BAR.
• Under Article 2(1) of the Vienna Convention on the Law of Treaties, a treaty is defined as “[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.”
• As held in Bayan v. Romulo, an executive agreement is similar to a treaty except that the former:
o Does not require legislative concurrence;

o Is usually less formal; and
o Deals with a narrower range of subject matters
• The Contract Agreement was not concluded between the Philippine and China, but between Northrail and CNMEG.
• That CNMEG was described to be a “state corporation” only meant to be descriptive of its nature as a state-owned
corporation, and did not preclude it from engaging in purely commercial or proprietary ventures.
Whether CNMEG is entitled to immunity – NO
• CNMEG is not entitled to immunity because it is engaged in a proprietary function.
• GENERAL RULE: In restrictive theory, which the Philippines adheres to, the immunity of the sovereign is recognized
only with regard to public acts (jure imperii) of the state, but not regard to private acts (jure gestionis)
• Since the Philippine adheres to restrictive theory, it is crucial to ascertain the legal nature of act involved whether
CNMEG performs a governmental or proprietary function.
A. CNMEG is engaged in proprietary function as manifested in the MOA (it was initiated by CNMEG not the
Chinese government); letter dated October 1, 2003 (shows that the implementation of Northrail Project was
intended to generate profit for CNMEG); and in the Loan Agreement (shows that the Northrail project was
purely a commercial transaction)
B. CNMEG failed to adduce evidence that it is immune from suit under Chinese laws. Assuming arguendo
that CNMEG performs governmental functions, such claim does not automatically vest it with
immunity. As it was ruled in GTZ v CA, immunity from suit is determined by the character of the objects
for which the entity was organized. The term “implementing agency” does not supply whether it is
incorporated, or unincorporated, whether it is owned by the State or by private interests, whether its
juridical personality is independent of the foreign state, etc.
RAZON, AJB | 2
Applying the foregoing, CNMEG failed to adduce evidence that it has not consented to be sued under
Chinese laws. CNMEG is presumed by the Court to be a GOCC without an original charter, and thus has
the capacity to sue and be sued.
C. CNMEG failed to present a certificate of diplomatic immunity from DFA. Since the DFA has the exclusive
function to determine persons or institutions covered by diplomatic immunity, CNMEG can’t rely on the
executive endorsement by both OSG and OGCC to claim immunity.
• An agreement to submit any dispute to arbitration may be construed as an implicit waiver of immunity from suit.
The Conditions of Contract says if any dispute arises between Northrail and CNMEG, both parties are bound to the
HKIAC (Hong Kong International Arbitration Center) for arbitration.
RULING
Petition DENIED
RAZON, AJB | 3

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CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP) V. STA.

• To be considered as an executive agreement, the following requisites must occur:

o Does not require legislative concurrence;

Whether the Contract Agreement is an executive agreement - NO

• To be considered as an executive agreement, the following requisites must occur:

o Does not require legislative concurrence;

Whether CNMEG is entitled to immunity – NO

• CNMEG is not entitled to immunity because it is engaged in a proprietary function.

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