CHINA NATIONAL MACHINERY AND EQUIPMENT CORP.

V SANTAMARIA
G.R. No. 185572 February 7, 2012 Sereno
Article XVI Section 3 Created by: Lahoz
Petitioners Respondents
China National Machinery a& Equipment Corp. Hon. Cesar D. Santamaria, in his official capacity as Presiding Judge of
Branch 145, RTC of Makati City, Herminio Harry L. 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
Recit Ready Summary
The petitioner China National Machinery & Equipment Corp (CNMEG) entered into a Memorandum of Understanding with Northrail for a feasibility study
on a possible railway line from Manila to San Fernando. In relation to this, the EXIM Bank and the DOF entered into an MOU where China agreed to
lend an amount not exceeding $400M. Northrail and CNMEG then executed a Contract Agreement for the construction of Phase I of the Northrail project
for the price of $421.05M. Herein respondents filed a complaint alleging that the Contract and Loan Agreements were void for being contrary to the
constitution and various laws. CNMEG filed a motion to dismiss on the ground that the trial court didn’t have jurisdiction over its person since it was an
agent of the Chinese gov’t which gives it immunity from suit. The RTC denied the motion to dismiss, which the CA also affirmed. CNMEG then brought
the matter before the SC. The SC ruled that immunity of a sovereign is recognized only with regard to public acts. The CNMEG is not immune since the
Northrail project is a proprietary activity and did not arise from the sovereign functions of China or from diplomatic gratuity. Furthermore, CNMEG failed
to adduce evidence that it is immune from suit under Chinese law. It also failed to present a certification from the DFA which is necessary for the
determination if a foreign entity is immune from suit. Lastly, the agreement to submit any dispute to arbitration may be construed as an implicit waiver
of immunity from suit.
Facts of the Case
 Petitioner China National Machinery & Equipment Corp (CNMEG) entered into a Memorandum of Understanding (MOU) with North Luzon
Railways Corporation (Northrail) for a feasibility study on a possible railway line from Manila to San Fernando, LU.
 On Aug 30, 2003, the Export Import Bank of China (EXIM) and the DOF entered into an MOU where China agreed to extend Preferential
Buyer’s Credit to the Philippine gov’t to finance the Northrail Project. EXIM agreed to extend an amount not exceeding $400M, payable in 20
years with a 5-year grace period at the rate of 3% per annum.
 On Oct 1, 2003, Chinese Ambassador wrote a letter to the DOF Secretary informing him of CNMEG’s designation as the Prime Contractor.
 On Dec 30, 2003, Northrail and CNMEG executed a Contract Agreement for the construction of Phase I of the project for the price of $421.05M.
 The respondents filed a complaint alleging that the Contract and Loan Agreements were void for being contrary to the Constitution and various
laws.
 The CNMEG filed a Motion to Dismiss arguing that the trial court did not have jurisdiction over its person since it was an agent of the Chinese
gov’t, hence, immune from suit.
 The RTC denied the motion. So did the CA when CNMEG appealed it to them.
Issues Ruling
1. W/N CNMEG is entitled to immunity from suit No
Rationale/Analysis/Legal Basis
The immunity of a sovereign is recognized only with regard to public acts. The Court ruled that CNMEG is not immune from suit based on four grounds.

CNMEG is engaged in proprietary activity

 A reading of the first MOU will reveal that CNMEG sought the construction of the Luzon Railways as a proprietary venture.
 It was CNMEG that initiated the project, and not the Chinese government.
 The feasibility study was conducted not because of any diplomatic gratuity from or exercise of sovereign functions by the Chinese gov’t, but
was plainly a business strategy employed by CNMEG with a view to securing the commercial enterprise.
 This was also confirmed by Ambassador Wang in his letter.
 The desire of the CNMEG to secure the Northrail project was in the ordinary course of its business as a global construction company. It was
intended to generate profit for CNMEG.
 Re: the loan agreement, despite petitioner’s claim that EXIM extended financial assistance because the bank was mandated by the Chinese
government, and not because of any motivation to do business in the Philippines, it is clear from the provisions that the project was a purely
commercial transaction.

CNMEG failed to adduce evidence that it is immune from suit under Chinese law
 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.
 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. In the absence of evidence to the contrary, CNMEG is presumed to be a government-owned and controlled corporation without
an original charter. Hence, it has the capacity to sue and be sued.

CNMEG failed to present a certification from the DFA

 In Holy See, the Court held that the determination by the Executive that an entity is entitled to sovereign or diplomatic immunity is a political
question conclusive upon the courts.
 In the Philippines, the practice is for the foreign gov’t to first secure an executive endorsement of its claim of sovereign or diplomatic immunity.
 The DFA is the agency which has the competence and authority to provide such necessary determination.
 In the case at bar, CNMEG only offered the Certification from Embassy of China. This is not the kind of certification that can establish its
entitlement to immunity from suit.
 It must be from the foreign office of the state where it is sued. In the case at bar, CNMEG did not present any documentation from the DFA.

An agreement to submit any dispute to arbitration may be construed as an implicit waiver of immunity from suit
  In the Contract Agreement, it was provided that if any dispute arises between the parties, both of them are bound to submit the matter to the
Hong Kong International Arbitration Center for arbitration. In case the HKIAC rules in favor of Northrail, its enforcement in the Philippines
would be subject to the Special Rules on Alternative Dispute Resolution.
 The provisions show that CNMEG has agreed that it will not be afforded immunity from suit. Thus, the courts have the competence and
jurisdiction to ascertain the validity of the Contract Agreement.
Separate Opinions