CA upholds ruling on contract agreement of Northrail and CNMEC

MANILA, Philippines – The Court of Appeals (CA) upheld the ruling of the Makati City Regional Trial Court (RTC) to conduct a summary hearing over the details of the contract agreement between North Luzon Railways Corp. (Northrail) and the China National Machinery and Equipment Corporation (CNMEC).

In the 18-page ruling by Associate Justice Remedios Salazar-Fernando, the CA’s Fifth Division dismissed CNMEC’s petition for a temporary restraining order on the Makati City RTC’s order for lack of merit.

CNMEC raised the issue before the CA, claiming diplomatic immunity being a state-owned firm of the People’s Republic of China.

The CA said there was no grave abuse of discretion from the lower court when it ordered CNMEC to appear and explain the details of the contract with Northrail.

The CA said CNMEC “must request the Foreign Office of a state where it is sued to convey to the court that it is entitled to such privilege. In this country, the practice is for the foreign entity to first secure an executive endorsement of diplomatic immunity.”

“The bottom line is, (the request) must come from the DFA (Department of Foreign Affairs) which is the proper government agency with administrative competence to perform the task associated with diplomacy and foreign relations,” the CA added.

The case stemmed from a complaint for annulment of contract and injunction filed by University of the Philippines law professor Harry Roque and his group against the Office of the Executive Secretary, represented by Secretary Eduardo Ermita.

The respondents also included the Department of Finance, the Department of Budget and Management, the National Economic and Development Authority, Northrail and CNMEC.

Roque sought to nullify the $503-million project contract and the Buyer Credit Loan Agreement No. BLA 04055 dated Feb. 26, 2004 between the Export-Import bank of China (Eximbank) and the Philippine government for being unconstitutional and illegal.

The Northrail project refers to the rehabilitation of the old Philippine National Railway’s north line, an estimated 80.2-kilometer railroad project from Caloocan City in Metro Manila to Clark Field in Pampanga.

In its petition, CNMEC argued they represent the Chinese government in the executive agreement with the Philippine government in the Northrail project and therefore enjoy diplomatic immunity.

Roque, however, pointed out the Northrail project should have undergone public bidding as required by Republic Act 9184 or the Government Procurement Act.

Roque argued further the contract is void since there was no prior appropriation of public funds for the purpose.

He said the Philippine government entered into the loan agreement with China’s Eximbank without the concurrence of the Bangko Sentral ng Pilipinas, which is a violation of the Constitution.

On April 17, 2006, CNMEC filed before the Makati RTC a motion to dismiss Roque’s petition, claiming the court has no jurisdiction over them being an agent of the Chinese government.

CNMEC argued the Northrail project is covered by an executive agreement between China and the Philippine government.

Makati RTC Judge Cesar Santamaria denied CNMEC’s motion to dismiss. CNMEC then filed a motion for reconsideration, which was later denied.