Conflict of Laws Case Digest: HASEGAWA vs KITAMURA 538 SCRA 26 (2007)

KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD.,

vs MINORU KITAMURA G.R. No. 149177 November 23, 2007

FACTS: Nippon Engineering Consultants (Nippon), a Japanese consultancy firm providing technical
and management support in the infrastructure projects national permanently residing in the
Philippines. The agreement provides that Kitamaru was to extend professional services to Nippon for
a year. Nippon assigned Kitamaru to work as the project manager of the Southern Tagalog Access
Road (STAR) project. When the STAR project was near completion, DPWH engaged the consultancy
services of Nippon, this time for the detailed engineering & construction supervision of the
Bongabon-Baler Road Improvement (BBRI) Project. Kitamaru was named as the project manger in
the contract.

Hasegawa, Nippon’s general manager for its International Division, informed Kitamaru that the
company had no more intention of automatically renewing his ICA. His services would be engaged
by the company only up to the substantial completion of the STAR Project.

Kitamaru demanded that he be assigned to the BBRI project. Nippon insisted that Kitamaru’s contract
was for a fixed term that had expired. Kitamaru then filed for specific performance & damages w/
the RTC of Lipa City. Nippon filed a MTD.

Nippon’s contention: The ICA had been perfected in Japan & executed by & between Japanese
nationals. Thus, the RTC of Lipa City has no jurisdiction. The claim for improper pre-termination of
Kitamaru’s ICA could only be heard & ventilated in the proper courts of Japan following the principles
of lex loci celebrationis & lex contractus.

The RTC denied the motion to dismiss. The CA ruled hat the principle of lex loci celebrationis was
not applicable to the case, because nowhere in the pleadings was the validity of the written agreement
put in issue. It held that the RTC was correct in applying the principle of lex loci solutionis.

ISSUE: Whether or not the subject matter jurisdiction of Philippine courts in civil cases for specific
performance & damages involving contracts executed outside the country by foreign nationals may
be assailed on the principles of lex loci celebrationis, lex contractus, “the state of the most significant
relationship rule,” or forum non conveniens.

HELD: NO. In the judicial resolution of conflicts problems, 3 consecutive phases are involved:
jurisdiction, choice of law, and recognition and enforcement of judgments. Jurisdiction & choice of
law are 2 distinct concepts. Jurisdiction considers whether it is fair to cause a defendant to travel to
this state; choice of law asks the further question whether the application of a substantive law w/c will
determine the merits of the case is fair to both parties. The power to exercise jurisdiction does not
automatically give a state constitutional authority to apply forum law. While jurisdiction and the choice
of the lex fori will often coincide, the “minimum contacts” for one do not always provide the necessary
“significant contacts” for the other. The question of whether the law of a state can be applied to a
transaction is different from the question of whether the courts of that state have jurisdiction to enter
a judgment.

In this case, only the 1st phase is at issue—jurisdiction. Jurisdiction, however, has various aspects. For
a court to validly exercise its power to adjudicate a controversy, it must have jurisdiction over the
plaintiff/petitioner, over the defendant/respondent, over the subject matter, over the issues of the
case and, in cases involving property, over the res or the thing w/c is the subject of the litigation.In
assailing the trial court's jurisdiction herein, Nippon is actually referring to subject matter jurisdiction.

Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority w/c
establishes and organizes the court. It is given only by law and in the manner prescribed by law. It is
further determined by the allegations of the complaint irrespective of whether the plaintiff is entitled
to all or some of the claims asserted therein. To succeed in its motion for the dismissal of an action
for lack of jurisdiction over the subject matter of the claim, the movant must show that the court or
tribunal cannot act on the matter submitted to it because no law grants it the power to adjudicate the
claims.

In the instant case, Nippon, in its MTD, does not claim that the RTC is not properly vested by law
w/ jurisdiction to hear the subject controversy for a civil case for specific performance & damages is
one not capable of pecuniary estimation & is properly cognizable by the RTC of Lipa City.What they
rather raise as grounds to question subject matter jurisdiction are the principles of lex loci
celebrationis and lex contractus, and the “state of the most significant relationship rule.” The Court finds
the invocation of these grounds unsound.

Lex loci celebrationis relates to the “law of the place of the ceremony” or the law of the place where a
contract is made. The doctrine of lex contractus or lex loci contractusmeans the “law of the place where a
contract is executed or to be performed.” It controls the nature, construction, and validity of the
contract and it may pertain to the law voluntarily agreed upon by the parties or the law intended by
them either expressly or implicitly. Under the “state of the most significant relationship rule,” to
ascertain what state law to apply to a dispute, the court should determine which state has the most
substantial connection to the occurrence and the parties. In a case involving a contract, the court
should consider where the contract was made, was negotiated, was to be performed, and the domicile,
place of business, or place of incorporation of the parties.This rule takes into account several contacts
and evaluates them according to their relative importance with respect to the particular issue to be
resolved.

Since these 3 principles in conflict of laws make reference to the law applicable to a dispute, they are
rules proper for the 2nd phase, the choice of law. They determine which state's law is to be applied in
resolving the substantive issues of a conflicts problem. Necessarily, as the only issue in this case is that
of jurisdiction, choice-of-law rules are not only inapplicable but also not yet called for.

Further, Nippon’s premature invocation of choice-of-law rules is exposed by the fact that they have
not yet pointed out any conflict between the laws of Japan and ours. Before determining which law
should apply, 1st there should exist a conflict of laws situation requiring the application of the conflict
of laws rules. Also, when the law of a foreign country is invoked to provide the proper rules for the
solution of a case, the existence of such law must be pleaded and proved.

It should be noted that when a conflicts case, one involving a foreign element, is brought before a
court or administrative agency, there are 3 alternatives open to the latter in disposing of it: (1) dismiss
the case, either because of lack of jurisdiction or refusal to assume jurisdiction over the case; (2) assume
jurisdiction over the case and apply the internal law of the forum; or (3) assume jurisdiction over the
case and take into account or apply the law of some other State or States. The court’s power to hear
cases and controversies is derived from the Constitution and the laws. While it may choose to
recognize laws of foreign nations, the court is not limited by foreign sovereign law short of treaties or
other formal agreements, even in matters regarding rights provided by foreign sovereigns.

Neither can the other ground raised, forum non conveniens, be used to deprive the RTC of its jurisdiction.
1st, it is not a proper basis for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does
not include it as a ground. 2nd, whether a suit should be entertained or dismissed on the basis of the
said doctrine depends largely upon the facts of the particular case and is addressed to the sound
discretion of the RTC. In this case, the RTC decided to assume jurisdiction. 3rd, the propriety of
dismissing a case based on this principle requires a factual determination; hence, this conflicts principle
is more properly considered a matter of defense.

3. COMMUNICATION MATERIALS AND DESIGN, INC et al vs.CA et al.G . R .

N o . 1 0 2 2 2 3 August 22, 1996

FACTS petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI)

and ASPAC MULTI-TRADE INC., (ASPAC)a r e b o t h d o m e s t i c c o r p o r a t i o n s . .
Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC.
(ITEC) are c o r p o r a t i o n s d u l y o r g a n i z e d a n d e x i s t i n g u n d e r t h e l a w s o f
the State of Alabama, USA. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines. ITEC
entered into a contract with ASPAC referred to as “Representative
Agreement”. Pursuant to the contract, ITEC engaged ASPAC as its
“exclusive representative” in the Philippines for the sale of ITEC’s
products, in consideration of which, ASPAC was paid
a stipulated commission. Through a “License Agreement” entered
i n t o b y t h e s a m e p a r t i e s later on, ASPAC was able to incorporate and use
the name “ITEC” in its own name. Thus , ASPAC Multi-Trade, Inc. became
legally and publicly known as ASPAC-ITEC (Philippines).O n e y e a r i n t o t h e
second term of the parties’ Representative Agreement, ITEC decided
t o t e r m i n a t e t h e s a m e , because petitioner ASPAC allegedly violated its
contractual commitment as stipulated in their agreements. ITEC charges the
petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL), the President of which is likewise
petitioner Aguirre, of using knowledge and information of ITEC’s products
specifications to develop their own line of equipment and product support,
which are similar, if not identical to ITEC’s own, and offering them to ITEC’s
former customer. The complaint was filed with the RTC-Makati by ITEC,
INC. Defendants filed a MTD the complaint on the following grounds: (1)
That plaintiff has no legal capacity to sue as it is a foreign corporation doing
business in the Philippines without the required BOI authority and SEC
license, and (2) that plaintiff is simply engaged in forum shopping
w h i c h justifies the application against it of the principle of “forum non conveniens”. The MTD
was denied. P e t i t i o n e r s e l e v a t e d t h e c a s e t o t h e r e s p o n d e n t C A o n
a P e t i t i o n f o r C e r t i o r a r i a n d P r o h i b i t i o n u n d e r R u l e 6 5 o f t h e Revised
ROC. It was dismissed as well. MR denied, hence this Petition for Review on
Certiorari under Rule 45.

I S S U E :1. Di d t h e P h i l i p p i n e c o u r t a c q u i r e j u r i s d i c t i o n o v e r t h e p e r s o n o f
t h e p e t i t i o n e r c o r p , d e s p i t e a l l e g a t i o n s o f l a c k o f capacity to s u e
b e c ause of non-registration?
2. Can the Philippine court give due course to the suit or dismiss it, on
the principle of forum non convenience?

HELD pe t i t i o n d i s m i s s e d . 1 . Y E S ; W e a r e p e r s u a d e d t o c o n c l u d e t h a t
ITEC had been “engaged in” or “doing business” in the Philippines
f o r some time now. This is the inevitable result after a scrutiny of the
different contracts and agreements entered in toby ITEC with its various
business contacts in the country. Its arrangements, with these entities
indicate convincingly that ITEC is actively engaging in business in the
country. A f o r e i g n c o r p o r a t i o n d o i n g b u s i n e s s i n t h e P h i l i p p i n e s m a y
sue in Philippine Courts although not authorized to do business here
against a Philippine citizen or entity who had contracted with
and benefited by said corporation. To put it in another way, a party
is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to a foreign
as well as to domestic corporations. One who has dealt with a
corporation of foreign origin as a corporate entity is estopped to
d e n y i t s c o r p o r a t e e x i s t e n c e a n d c a p a c i t y . In Antam Consolidated Inc.
vs. CA et al. we expressed our chagrin over this commonly used scheme of
defaulting l o c a l c o m p a n i e s w h i c h a r e b e i n g s u e d b y u n l i c e n s e d f o r e i g n
c o m p a n i e s n o t e n g a g e d i n b u s i n e s s i n t h e P h i l i p p i n e s t o invoke the
lack of capacity to sue of such foreign companies. Obviously, the same ploy
is resorted to by ASPAC to prevent the injunctive action filed by ITEC to
enjoin petitioner from using knowledge possibly acquired in violation
of f i d u c i a r y a r r a n g e m e n t s b e t w e e n t h e p a r t i e s . 2. YES; Petitioner’s
insistence on the dismissal of this action due to the application, or non
application, of the private international law rule of forum non conveniens
defies well-settled rules of fair play. According to petitioner, the P h i l i p p i n e
Court has no venue to apply its discretion whether to give cognizance
o r n o t t o t h e p r e s e n t a c t i o n , because it has not acquired jurisdiction over
the person of the plaintiff in the case, the latter allegedly having no
personality to sue before Philippine Courts. This argument is
m i s p l a c e d b e c a u s e t h e c o u r t h a s a l r e a d y a c q u i r e d jurisdiction over the plaintiff
in the suit, by virtue of his filing the original complaint. And as we have already o b s e r v e d ,
petitioner is not at liberty to question plaintiff’s standing to sue,
h a v i n g a l r e a d y a c c e d e d t o t h e s a m e b y virtue of its entry into the
Representative Agreement referred to earlier. Thus, having acquired
jurisdiction, it is now for the Philippine Court, based on the facts of the case,
whether to give due course to the suit or dismiss it, on the principle of forum
non convenience. Hence, the Philippine Court mayrefuse to assume
jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
may assume jurisdiction over the case if it choses to do so provided that the
following requisites are met: (a) that the Philippine courts would be the court
to which the parties would conveniently resort to. (b)that the Philippine
courts is in a position to make an intelligent decision as to the law and the
facts. (c)that the Philippine court has or is likely to have power to enforce
its decisions.

The aforesaid requirements having been met, and in view of the court’s
disposition to give due course to the questioned action, the matter of the
forum not being the most convenient as ground for the suits dismissal
deserves scant consideration.

4 . Hongkong and Shanghai Banking Corporation vs. Jack Robert Sherman

G.R. No. 72494 11 August 1989 Medialdea, J:

Facts: Eastern Book Supply Service PTE, Ltd., a company incorporated in Singapore applied with, and was
granted by, the Hongkong and Shanghai Banking Corporation Singapore branch an overdraft
facility in the maximum amount of Singapore dollars 200,000.00 (which amount was subsequently
increased to Singapore dollar 375,000.00). As a security for the repayment bythe COMPANY of the
sum advanced, Jack Robert Sherman and Deodato Reloj, herein private respondents, and a certain
Robin de Clive Lowe, all of whom were directors of said COMPANY at such time, executed a Joint
and Several Guarantee in favor of petitioner BANK whereby they agreed to pay, jointly and severally,
on demand all sums owed by the COMPANY to petitioner BANK under the aforestated overdraft
facility. The Joint and Several Guarantee provides that: "This guarantee and all rights, obligations and
liabilities arising hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore. We hereby agree that the Courts of Singapore
shall have jurisdiction overall disputes arising under this guarantee . . ." The COMPANY failed to pay
its obligation. Thus, petitioner BANK demanded payment from the private respondents, conformably
with the provisions of the Joint and Several Guarantee. Inasmuch as the private respondents still failed
to pay, petitioner BANK filed a civil case for a collection of a sum of money against Sherman and
Reloj before the Regional Trial Court of Quezon City. In turn, the private respondents filed a motion
to dismiss on the ground of lack of jurisdiction over the subject matter of the complaint and over the
persons of the defendants, but, it was denied. Subsequently, the court granted the petition for
prohibition with preliminary injunction. Hence, this petition for review on certiorari.

Issue: Whether or not Philippine courts have jurisdiction over the suit.
Held: Yes. The parties did not stipulate that only the courts of Singapore, to the exclusion of all the
rest, has jurisdiction. Neither did the clause in question operate to divest Philippine courts
of jurisdiction. In International Law, jurisdiction is often defined as the right of a State to exercise
authority over persons and things within its boundaries subject to certain exceptions. This authority,
which finds its source in the concept of sovereignty, is exclusive within and throughout the domain
of the State. A State is competent to take hold of any judicial matter it sees fit by making its courts
and agencies assume jurisdiction over all kinds of cases brought before them. While it is true that
“the transaction took place in Singaporean setting” and that law not offend traditional notions of fair
play and substantial justice.

One basic principle underlies all rules of jurisdiction in International Law: a State does not have
jurisdiction in the absence of some reasonable basis for exercising it, whether the proceedings are in
rem quasi in rem or in personam. To be reasonable, the jurisdiction must be based on some minimum
contacts that will not offend traditional notions of fair play and substantial justice. The defense of
private respondents that the complaint should have been filed in Singapore is based merely on
technicality. They did not even claim, much less prove, that the filing of the action here will cause
them any unnecessary trouble, damage, or expense. On the other hand, there is no showing that
petitioner BANK filed the action here just to harass private respondents.

5. Sweet Lines Inc. vs. Teves, et. Al.

G.R. No. L-37750 May 19, 1978

Lessons Applicable: Contract of Adhesion (Transportation)

Laws Applicable:
FACTS: Atty. Leovigildo Tandog and Rogelio Tiro bought tickets for Tagbilaran City via the port of
Cebu Since many passengers were bound for Surigao, M/S "Sweet Hope would not be proceeding to
Bohol. They went to the proper brancg office and was relocated to M/S "Sweet Town" where they
were forced to agree "to hide at the cargo section to avoid inspection of the officers of the Philippine
Coastguard." and they were exposed to the scorching heat of the sun and the dust coming from the
ship's cargo of corn grits and their tickets were not honored so they had to purchase a new one. They
sued Sweet Lines for damages and for breach of contract of carriage before the Court of First Instance
of Misamis Oriental who dismissed the complaint for improper venue. A motion was premised on
the condition printed at the back of the tickets –dismissed instant petition for prohibition for
preliminary injunction

ISSUE: W/N a common carrier engaged in inter-island shipping stipulate thru condition printed at
the back of passage tickets to its vessels that any and all actions arising out of the contract of carriage
should be filed only in a particular province or city

HELD: NO. petition for prohibition is DISMISSED. Restraining order LIFTED and SET ASIDE

contract of adhesion not that kind of a contract where the parties sit down to deliberate, discuss and
agree specifically on all its terms, but rather, one which respondents took no part at all in preparing
just imposed upon them when they paid for the fare for the freight they wanted to ship. We find and
hold that Condition No. 14 printed at the back of the passage tickets should be held as void and
unenforceable for the following reasons circumstances obligation in the inter-island ship will prejudice
rights and interests of innumerable passengers in different s of the country who, under Condition No.
14, will have to file suits against petitioner only in the City of Cebu subversive of public policy on
transfers of venue of actions philosophy underlying the provisions on transfer of venue of actions is
the convenience of the plaintiffs as well as his witnesses and to promote 21 the ends of justice.

6. PHILSEC INVESTMENT et al vs.CA et al

G.R. No. 103493 June 19, 1997

FACTS: Private respondent Ducat obtained separate loans from petitioners Ayala International
Finance Limited (AYALA) and Philsec Investment Corp (PHILSEC), secured by shares of stock
owned by Ducat.
In order to facilitate the payment of the loans, private respondent 1488, Inc., through its president,
private respondent Daic, assumed Ducat’s obligation under an Agreement, whereby 1488, Inc.
executed a Warranty Deed with Vendor’s Lien by which it sold to petitioner Athona Holdings, N.V.
(ATHONA) a parcel of land in Texas, U.S.A., while PHILSEC and AYALA extended a loan to
ATHONA as initial payment of the purchase price. The balance was to be paid by means of a
promissory note executed by ATHONA in favor of 1488, Inc. Subsequently, upon their receipt of the
money from 1488, Inc., PHILSEC and AYALA released Ducat from his indebtedness and delivered
to 1488, Inc. all the shares of stock in their possession belonging to Ducat.

As ATHONA failed to pay the interest on the balance, the entire amount covered by the note became
due and demandable. Accordingly, private respondent 1488, Inc. sued petitioners PHILSEC, AYALA,
and ATHONA in the United States for payment of the balance and for damages for breach of contract
and for fraud allegedly perpetrated by petitioners in misrepresenting the marketability of the shares of
stock delivered to 1488, Inc. under the Agreement.

While the Civil Case was pending in the United States, petitioners filed a complaint “For Sum of
Money with Damages and Writ of Preliminary Attachment” against private respondents in the RTC
Makati. The complaint reiterated the allegation of petitioners in their respective counterclaims in the
Civil Action in the United States District Court of Southern Texas that private respondents committed
fraud by selling the property at a price 400 percent more than its true value.

Ducat moved to dismiss the Civil Case in the RTC-Makati on the grounds of (1) litis pendentia, vis-
a-vis the Civil Action in the U.S., (2) forum non conveniens, and (3) failure of petitioners PHILSEC
and BPI-IFL to state a cause of action.

The trial court granted Ducat’s MTD, stating that “the evidentiary requirements of the controversy
may be more suitably tried before the forum of the litis pendentia in the U.S., under the principle in
private international law of forum non conveniens,” even as it noted that Ducat was not a party in the
U.S. case.
Petitioners appealed to the CA, arguing that the trial court erred in applying the principle of litis
pendentia and forum non conveniens.

The CA affirmed the dismissal of Civil Case against Ducat, 1488, Inc., and Daic on the ground of litis
pendentia.

ISSUE: is the Civil Case in the RTC-Makati barred by the judgment of the U.S. court?

HELD: CA reversed. Case remanded to RTC-Makati. NO

While this Court has given the effect of res judicata to foreign judgments in several cases, it was after
the parties opposed to the judgment had been given ample opportunity to repel them on grounds
allowed under the law. This is because in this jurisdiction, with respect to actions in personam, as
distinguished from actions in rem, a foreign judgment merely constitutes prima facie evidence of the
justness of the claim of a party and, as such, is subject to proof to the contrary. Rule 39, §50 provides:

Sec. 50. Effect of foreign judgments. — The effect of a judgment of a tribunal of a foreign country,
having jurisdiction to pronounce the judgment is as follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the title to the thing;
(b) In case of a judgment against a person, the judgment is presumptive evidence of a right as between
the parties and their successors in interest by a subsequent title; but the judgment may be repelled by
evidence of a want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law
or fact.

In the case at bar, it cannot be said that petitioners were given the opportunity to challenge the
judgment of the U.S. court as basis for declaring it res judicata or conclusive of the rights of private
respondents. The proceedings in the trial court were summary. Neither the trial court nor the appellate
court was even furnished copies of the pleadings in the U.S. court or apprised of the evidence
presented thereat, to assure a proper determination of whether the issues then being litigated in the
U.S. court were exactly the issues raised in this case such that the judgment that might be rendered
would constitute res judicata.

Second. Nor is the trial court’s refusal to take cognizance of the case justifiable under the principle of
forum non conveniens:

First, a MTD is limited to the grounds under Rule 16, sec.1, which does not include forum non
conveniens. The propriety of dismissing a case based on this principle requires a factual determination,
hence, it is more properly considered a matter of defense.
Second, while it is within the discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after “vital facts are established, to determine whether special
circumstances” require the court’s desistance.

7. THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. vs. NLRC
G.R. No. 120077 October 13, 2000

FACTS: During his employment with the Mazoon Printing Press in the Sultanate of Oman,
respondent Marcelo Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General
Manager, Palace Hotel, Beijing, China informing Santos that he was recommended by one Nestor
Buenio, a friend of his. Mr. Shmidt offered Santos the same position as printer, but with a higher
monthly salary and increased benefits. Santos was deemed resigned from the Mazoon Printing Press,
on June 30,1988 and started to work at the Palace Hotel on November 5, 1988.

Subsequently, Santos signed an amended "employment agreement" with the Palace Hotel, effective
November 5, 1988. The Vice President (Operations and Development) of petitioner MHICL Miguel
D. Cergueda signed the employment agreement under the word "noted". However, due to business
reverses brought about by the political upheaval in China, the Palace Hotel terminated the
employment of respondent. On February 20, 1990, respondent Santos filed a complaint for illegal
dismissal with theArbitration Branch, National Capital Region, National Labor Relations
Commission(NLRC).

ISSUE: Whether or not the NLRC is a convenient forum to hear the case.
RULING: Under the rule of forum non conveniens, a Philippine court or agency may assume
jurisdiction over the case if it chooses to do so provided
: (1) that the Philippine court is one to which the parties may conveniently resort to;
(2) that the Philippine court is in a position to make an intelligent decision as to the law and the facts;
and (3) that the Philippine court has or is likely to have power to enforce its decision. The conditions
are unavailing in the case at bar. The NLRC was a seriously inconvenient forum given that all the
incidents of the case — from the time of recruitment, to employment to dismissal occurred outside
the Philippines. The inconvenience is compounded by the fact that the proper defendants, the Palace
Hotel and MHICL are not nationals of the Philippines. Neither are they "doing business in the
Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henkare non-residents of the
Philippines.

9. “ACT OF STATE” DOCTRINE AND THE MARCOSES’ WEALTH

By: MANUEL J. LASERNA JR.

In the very recent case of PHILIPPINE NATIONAL BANK v. U.S. DISTRICT COURT OF
HAWAII, docketed as No. 04-71843 (D.C. No. MDL-00840-MLR) decided on February 4, 2005, the
U.S. 9th Circuit Court of Appeals, issued a writ of mandamus, upon a petition commenced by the
Bank, to prevent the U.S. District Court of Hawaii from pursuing contempt and discovery proceedings
against the Bank.

The District Court had previously cited the Bank for contempt of court for transferring funds to the
Republic of the Philippines pursuant to a prior judgment of the Philippine Supreme Court.

The U.S. 9th Circuit Court of Appeals held that the orders of the U.S. District Court of Hawaii had
violated the “act of state” doctrine.

This mandamus petition represented one more chapter in a long-running dispute over the right to the
assets of the estate of former Philippine President Ferdinand E. Marcos.

On one side was a class of plaintiffs who obtained a large judgment in the federal district court in
Hawaii against the Marcos estate for human rights violations by the Marcos regime. The judgment
included an injunction restraining the estate and its agents or aiders and abettors from transferring any
of the estate’s assets.

On the other side was the Republic of the Philippines, which independently has sought forfeiture of
the Marcos estate’s assets on the ground that they were stolen by Marcos from the Philippine
government and its people.

An earlier related case is worth noting, i.e., Credit Suisse v. U.S. Dist. Ct. for the Cent. Dist. Of Cal.,
130 F.3d 1342, 1347-48 (9th Cir. 1997). The Swiss assets of the Marcos estate had been frozen by the
Swiss government at the request of the Republic of the Philippines, which was seeking to recover
them. The class plaintiffs obtained an injunction from the U.S. District Court of Hawaii requiring the
Swiss banks to hold the assets for the benefit of the class plaintiffs. In that case, the same U.S. 9th
Circuit Court of Appeals issued a writ of mandamus and held that the injunction violated the act of
state doctrine, which precludes American courts from declaring “invalid” a foreign sovereign’s official
act, that is, the freeze order of the Swiss government.

Thereafter, the Swiss government released the funds frozen in Switzerland for transfer to the
Philippine National Bank in escrow pending a determination of proper disposal by a competent court
in the Philippines. The Philippine National Bank deposited the funds in Singapore. The Philippine
Supreme Court subsequently held that the assets were forfeited to the Republic of the Philippines.

The U.S. District Court of Hawaii then issued the orders that precipitated the present petition for
mandamus. The District Court ruled that the Philippine Supreme Court had violated “due process by
any standard” and that its judgment was entitled to no deference. It ordered reinstatement of an earlier
settlement agreement in the District Court litigation that had been rejected when the Philippine courts
refused to approve it and the Republic of the Philippines failed to give its consent to the agreement.

The District Court further ordered “that any such transfer, without first appearing and showing cause
in this court as to how such transfer might occur without violating the Court’s injunction shall be
considered contempt of the Court’s earlier order. Any and all persons and banking institutions
participating in such transfers are hereby notified that such transfer would be considered in contempt
of this Court’s injunction”.
The District Court then issued an “Order to Show Cause” against the Philippine National Bank, which
was not a party to the litigation in the district court, requiring the Bank to show why it should not be
held in contempt for violating the court’s injunction against transfer of assets by the estate.

The Philippine National Bank then filed the present petition for mandamus in the U.S. 9th Circuit
Court of Appeals, seeking to restrain the District Court from enforcing its “Order to Show Cause”
and from pursuing discovery against the Bank officer.

The Bank asserted that it had transferred nearly all of the funds in issue to the Republic of the
Philippines pursuant to the judgment of the Philippine Supreme Court. It contended that the entire
proceeding against it for its transfer of funds to the Republic of the Philippines violated the “act of
state” doctrine.

DECISION
A. ACT OF STATE DOCTRINE

Every sovereign state is bound to respect the independence of every other sovereign state, and the
courts of one country will not sit in judgment on the acts of the government of another, done within
its own territory. Redress of grievances by reason of such acts must be obtained through the means
open to be availed of by sovereign powers as between themselves. (Underhill v. Hernandez, 168 U.S.
250, 252 [1897]).

The act of state doctrine originally was deemed to arise from international law, but more recently has
been viewed as a function of our constitutional separation of powers. (W.S. Kirkpatrick & Co. v.
Envtl. Tectonics Corp., Int’l, 493 U.S. 400, 404 [1990]).

So viewed, the doctrine reflects “ ‘the strong sense of the Judicial Branch that its engagement in the
task of passing on the validity of foreign acts of state may hinder’ the conduct of foreign affairs.” (Id.,
quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423 [1964]).

The District Court’s orders in issue violated this principal. In order to obtain assets from the Philippine
National Bank, or to hold the Bank in contempt for the transfer of those assets to the Republic of the
Philippines, the District court necessarily (and expressly) held invalid the forfeiture judgment of the
Philippine Supreme Court.

The U.S. 9th Circuit Court of Appeals concluded that this action of the District Court violated the act
of state doctrine.

The class plaintiffs in the district court argued that the act of state doctrine is directed at the executive
and legislative branches of foreign governments and did not apply to judicial decisions.

Although the act of state doctrine is normally inapplicable to court judgments arising from private
litigation, there is no inflexible rule preventing a judgment sought by a foreign government from
qualifying as an act of state. (Liu v. Republic of China, 892 F.2d 1419, 1433-34 & n.2 (9th Cir. 1989),
citing RESTATEMENT [SECOND] OF FOREIGN RELATIONS OF THE UNITED STATES §
41 cmt. d [1965])

“A judgment of a court may be an act of state.” (Id.).

There was no question that the judgment of the Philippine Supreme Court gave effect to the public
interest of the Philippine Government. The forfeiture action was not a mere dispute between private
parties; it was an action initiated by the Philippine Government pursuant to its “statutory mandate to
recover property allegedly stolen from the treasury.” (In re Estate of Ferdinand Marcos Human Rights
Litig., 94 F.3d at 546).

The U.S. 9th Circuit Court of Appeals had earlier characterized the collection efforts of the Republic
of the Philippines to be governmental. (Id.).

The subject matter of the forfeiture action thus qualified for treatment as an act of state.

The class plaintiffs next argued that the act of state doctrine was “inapplicable because the judgment
of the Philippine Supreme Court did not concern matters within its own territory”.
The U.S. 9th Circuit Court of Appeals held that, “generally, the act of state doctrine applies to official
acts of foreign sovereigns “performed within their own territory.” (Credit Suisse, 130 F.3d at 1346).
The act of the Philippine Supreme Court was not wholly external, however. Its judgment, which the
district court declared invalid, was issued in the Philippines and much of its force upon the Philippine
National Bank arose from the fact that the Bank is a Philippine corporation. (Callejo v. Bancomer,
S.A, 764 F.2d 1101, 1121-25 (5th Cir. 1985, discussing differing theories of situs of intangibles).

The Appeals Court further held that “even if we assume for purposes of decision that the assets were
located in Singapore, we conclude that this fact does not preclude treatment of the Philippine
judgment as an act of state in the extraordinary circumstances of this case.”

(NOTE: [1] Certain portions of the funds held in another bank in Singapore were not transferred
because the bank refused to release the funds and instead filed an interpleader action in Singapore. [2]
The class plaintiffs cited Hilao v. Estate of Marcos, 95 F.3d 848, 851 (9th Cir. 1996), for the
proposition that the locus of a bank deposit is the branch where the deposit is made. Hilao, however,
was applying a California statute that specified the place and manner of levying execution; it did not
purport to state a general rule for determining the locus of bank accounts).

The act of state doctrine is “to be applied pragmatically and flexibly, with reference to its underlying
considerations.” (Tchacosh Co. v. Rockwell Int’l Corp., 766 F.2d 1333, 1337 (9th Cir. 1985).

Thus, even when an act of a foreign state affects property outside of its territory, “the considerations
underlying the act of state doctrine may still be present.” (Callejo, 764 F.2d at 1121 n.29).

Because the Republic of the Philippines’ “interest in the enforcement of its laws does not end at its
borders,” the fact that the escrow funds were deposited in Singapore does not preclude the application
of the act of state doctrine. (Id.).
The underlying governmental interest of the Republic supports treatment of the judgment as an act
of state.

It is important to keep in mind that the Republic of the Philippines did not simply intrude into
Singapore in exercising its forfeiture jurisdiction. The presence of the assets in Singapore was a direct
result of events that were the subject of the decision in Credit Suisse, supra, where the U.S. 9th Circuit
Court of Appeals upheld as an act of state a freeze order by the Swiss government, enacted in
anticipation of the request of the Philippine government, to preserve the Philippine government’s
claims against the very assets in issue today. (Credit Suisse, 130 F.3d at 1346-47).

Indeed, the Philippine National Bank argued that the District Court’s orders violated the mandate of
the U.S. 9th Circuit Court of Appeals in Credit Suisse, supra, “directing the District Court to refrain
from taking any further action” with regard to assets of the Marcos estate “held or claimed to be held
by the [Swiss] Banks.” (Id. at 1348).

The District Court held that the mandate of the U.S. 9th Circuit Court of Appeals did not apply to
the assets “once they left the hands of the Swiss banks”. The Appeals Court side tracked the issue by
holding that there was no necessity to decide the correctness of that ruling “because we conclude that,
in these circumstances, the Philippine forfeiture judgment is an act of state”. It noted that “the Swiss
government did not repudiate its freeze order, and the Swiss banks did not transfer the funds in the
ordinary course of business”.

The Swiss banks delivered the funds into escrow with the approval of the Swiss courts in order to
permit the very adjudication of the Philippine courts that the district court considered invalid. To
permit the District Court to frustrate the procedure chosen by the Swiss and Philippine Governments
to adjudicate the entitlement of the Republic of the Philippines to these assets would largely nullify
the effect of the decision of the Appeals Court in Credit Suisse, supra.

In these unusual circumstances, the Appeals Court held that “the choice of a Singapore locus for the
escrow of funds (was not) fatal to the treatment of the Philippine Supreme Court’s judgment as an act
of state”.
B. MANDAMUS

On the issue of the propriety of a writ of mandamus, the U.s. 9th Circuit Court of Appeals concluded
that the District Court’s error qualified for correction by a writ of mandamus. In so ruling, the Appeals
Court considered the factors set forth in Bauman v. U.S. Dist. Ct., 557 F.2d 650 (9th Cir. 1977):

(1) The party seeking the writ has no other adequate means, such as a direct appeal, to attain the relief
he or she desires.

(2) The petitioner will be damaged or prejudiced in a way not correctable on appeal.
(3) The district court’s order is clearly erroneous as a matter of law.
(4) The district court’s order is an oft-repeated error, or manifests a persistent disregard of the federal
rules.
(5) The district court’s order raises new and important problems, or issues of law of first impression.

None of these guidelines is determinative and all five guidelines need not be satisfied at once for a
writ to issue. (citing Credit Suisse, 130 F.3d at 1345). Rarely will all the five guidelines point in the
same direction or even be relevant to the particular inquiry.

With regard to the first two factors, the Appeals Court concluded that the District Court’s error was
not sufficiently correctable on appeal. No appeal would lie unless a contempt order is issued and
sanctions have been imposed. (citing Estate of Domingo v. Republic of the Philippines, 808 F.2d
1349, 1350 (9th Cir. 1987). The Bank had made a sufficient showing that subjecting its US-based
officers to cross-examination and discovery procedures would place them and the Bank “in danger of
violating Philippine bank secrecy laws”.

Requiring the Bank “to choose between being in contempt of court and violating Philippine laws
clearly constitutes severe prejudice that could not be remedied on direct appeal.” (citing Credit Suisse,
130 F.3d at 1346).

As for the third Bauman factor, the Appeals Court held that its discussion of the act of state doctrine
had made clear that the District Court’s orders were erroneous as a matter of law. In addition, the
District Court was attempting to apply its injunction against transfer of assets to the Philippine
National Bank as an aider and abettor or agent of the estate of Marcos. But the Bank could hardly
have been acting as an aider and abettor or agent of the estate when it transferred assets to the Republic
of the Philippines pursuant to the forfeiture judgment of the Philippine Supreme Court, entered over
the opposition of the Marcos estate.
In fine, the U.S. 9th Circuit Court of Appeals granted the Philippine National Bank’s petition and
vacated the orders of the U.S. District Court of Hawaii, dated February 25, 2004 (to the Philippine
National Bank to show cause), and April 8, 2004 (to the Bank to produce its employee, Rogel L.
Zenarosa, for a deposition). It further directed the District Court to refrain from any further action
against the Philippine National Bank in this action or any other action involving any of the funds that
were the subject of the decision of the Philippine Supreme Court dated July 15, 2003. The Appeals
Court retained jurisdiction over the District Court litigation to the extent that it involved any action
against the Philippine National Bank.