A state-owned corporation engaging in proprietary or commercial activities (acts jure gestionis) is not entitled to sovereign immunity from suit, and a contract entered into by such an entity for a commercial venture, governed by domestic law, does not constitute an executive agreement immune from judicial review.

The case arose from the North Luzon Railways Project (Northrail Project), a large-scale infrastructure project involving the construction of a railway line from Caloocan to Malolos. This project involved agreements between Philippine government entities, Chinese government entities, and petitioner CNMEG, a Chinese state-owned corporation designated as the prime contractor. The project was financed through a Preferential Buyer's Credit extended by the Export Import Bank of China (EXIM Bank) to the Philippine government.

• On 14 September 2002, petitioner CNMEG and North Luzon Railways Corporation (Northrail) entered into a Memorandum of Understanding (MOU) for a feasibility study of a railway line from Manila to San Fernando, La Union (Northrail Project).
• On 30 August 2003, the Export Import Bank of China (EXIM Bank) and the Department of Finance of the Philippines (DOF) entered into an MOU where China agreed to extend Preferential Buyer's Credit up to USD 400,000,000 to finance the Northrail Project.
• On 1 October 2003, the Chinese Ambassador informed the DOF Secretary that CNMEG was designated as the Prime Contractor for the Northrail Project.
• On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of Section I, Phase I of the North Luzon Railway System (Caloocan to Malolos) on a turnkey basis, with a contract price of USD 421,050,000.
• On 26 February 2004, the Philippine government (through DOF) and EXIM Bank entered into a Buyer Credit Loan Agreement No. BLA 04055 for USD 400,000,000 to finance Phase I of the Northrail Project.
• Respondents filed a complaint before the RTC Makati, Branch 145, seeking to annul the Contract Agreement and the Loan Agreement, alleging they violated the Constitution, R.A. No. 9184 (Government Procurement Reform Act), P.D. No. 1445 (Government Auditing Code), and E.O. No. 292 (Administrative Code).
• CNMEG filed a Motion to Dismiss, claiming immunity from suit as an agent of the Chinese government and that the trial court lacked jurisdiction over the subject matter because the Northrail Project was a product of an executive agreement.
• The RTC denied the Motion to Dismiss and the subsequent Motion for Reconsideration.
• The Court of Appeals dismissed CNMEG's Petition for Certiorari and denied its Motion for Reconsideration.

• CNMEG is an agent of the sovereign People's Republic of China and is therefore entitled to immunity from suit.
• The Northrail contracts are products of an executive agreement between two sovereign states and thus cannot be questioned by local courts.
• A certification from the Department of Foreign Affairs is not necessary under the circumstances to prove its immunity.
• The act being undertaken by CNMEG is an act jure imperii (governmental act).
• The Northrail Project is not subject to competitive public bidding.
• The Court of Appeals failed to avoid a procedural limbo in the lower court and ignored the ruling in the Neri case.

• The Contract Agreement between Northrail and CNMEG, and the Loan Agreement between the DOF and EXIM Bank, are void for being contrary to the Constitution.
• The agreements violated Republic Act No. 9184 (Government Procurement Reform Act).
• The agreements violated Presidential Decree No. 1445 (Government Auditing Code).
• The agreements violated Executive Order No. 292 (Administrative Code).

• Whether CNMEG is entitled to immunity from suit, precluding it from being sued before a local court.
• Whether the Contract Agreement is an executive agreement, such that it cannot be questioned by or before a local court.

• The Supreme Court DENIED the petition. CNMEG is not entitled to immunity from suit, and the Contract Agreement is not an executive agreement.
• On the first issue, the Court held that CNMEG was engaged in a proprietary activity (jure gestionis). The Memorandum of Understanding dated 14 September 2002, the letter from the Chinese Ambassador, and the Loan Agreement (which explicitly stated the transaction was a "private and commercial act") all indicated that CNMEG initiated the project as a business strategy to secure a commercial enterprise and generate profit. The Philippines adheres to the restrictive theory of sovereign immunity, which does not extend to commercial, private, and proprietary acts.
• Even assuming CNMEG performed governmental functions, it failed to adduce evidence that it is immune from suit under Chinese law. Following Deutsche Gesellschaft, in the absence of such evidence, CNMEG is presumed to be a government-owned and -controlled corporation without an original charter, thus having the capacity to sue and be sued under Section 36 of the Corporation Code.
• CNMEG failed to present a certification from the Philippine Department of Foreign Affairs (DFA) attesting to its immunity, which is the recognized practice for establishing such a claim. A certification from the Chinese Embassy is not the determinative endorsement.
• The arbitration clause in the Contract Agreement, subjecting disputes to the Hong Kong International Arbitration Center (HKIAC), constitutes an implicit waiver of immunity from suit.
• On the second issue, the Court ruled that the Contract Agreement is not an executive agreement. An executive agreement must be between states, written, and governed by international law. The Contract Agreement was between Northrail (a Philippine GOCC) and CNMEG (a Chinese corporation), not between the Philippines and China. Both entities have personalities distinct from their respective governments.
• The Contract Agreement explicitly provides that it shall be governed by Philippine law, not international law, thus failing another requisite for an executive agreement. It is merely an ordinary commercial contract.

• Restrictive Theory of Sovereign Immunity — This doctrine holds that the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii (governmental acts) of a state, but not with regard to private acts or acts jure gestionis (commercial or proprietary acts). The Court applied this by analyzing the nature of CNMEG's involvement in the Northrail Project, concluding it was a commercial venture (design, construction, supply for profit) and therefore an act jure gestionis, stripping CNMEG of immunity.
• Acts jure imperii vs. Acts jure gestionis — Jure imperii refers to acts done by a state in its sovereign or governmental capacity. Jure gestionis refers to acts done by a state in its commercial, private, or proprietary capacity. The Court determined CNMEG's participation in the Northrail Project, including the turnkey construction contract, was commercial in nature (jure gestionis), thus not covered by sovereign immunity.
• Waiver of Sovereign Immunity — A state may waive its sovereign immunity either expressly or implicitly. An agreement to submit disputes to arbitration is considered an implicit waiver. The Court found that the arbitration clause in the Contract Agreement, mandating submission of disputes to the HKIAC, constituted CNMEG's consent to be sued and a waiver of any potential immunity.
• Presumption of Foreign Law as Similar to Domestic Law (Processual Presumption) — In the absence of evidence to the contrary, foreign laws on a particular subject are presumed to be the same as those of the Philippines. The Court applied this by stating that since CNMEG, claiming to be a government-owned corporation, failed to prove under Chinese law that it could not be sued, it is presumed to be like a Philippine GOCC without an original charter, which can sue and be sued under the Corporation Code.
• Executive Endorsement of Immunity Claim — The practice in the Philippines is for a foreign government or international organization claiming sovereign immunity to secure an executive endorsement from the Department of Foreign Affairs (DFA). The Court emphasized that a certification from the foreign entity's own embassy or endorsement by the OSG/OGCC does not carry the same weight as a DFA certification, and even a DFA certification is not absolutely conclusive upon the courts. CNMEG failed to provide such a DFA certification.
• Definition of a Treaty/Executive Agreement (Vienna Convention on the Law of Treaties) — An international agreement concluded between States in written form and governed by international law. The Court used this definition to determine that the Contract Agreement was not an executive agreement because it was not between states (but between Northrail and CNMEG) and was explicitly governed by Philippine law, not international law.

• "As it stands now, the application of the doctrine of immunity from suit has been restricted to sovereign or governmental activities (jure imperii). The mantle of state immunity cannot be extended to commercial, private and proprietary acts (jure gestionis)."
• "The restrictive application of State immunity is proper only when the proceedings arise out of commercial transactions of the foreign sovereign, its commercial activities or economic affairs... It does not apply where the contract relates to the exercise of its sovereign functions."
• "In the Philippines, the practice is for the foreign government or the international organization to first secure an executive endorsement of its claim of sovereign or diplomatic immunity."
• "[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." (Definition of a treaty from Vienna Convention, applied to executive agreements).

• Holy See v. Rosario — Cited for explaining the two conflicting concepts of sovereign immunity (absolute and restrictive) and the Philippine practice of requiring executive endorsement (DFA certification) for claims of immunity. Also cited for the principle that courts can inquire into the facts if foreign states bypass the Foreign Office in claiming immunity.
• JUSMAG v. National Labor Relations Commission — Cited to affirm the Philippines' adherence to the restrictive theory of sovereign immunity, where immunity is limited to governmental acts (jure imperii) and does not extend to commercial acts (jure gestionis).
• United States of America v. Ruiz — Referenced for the principle that restrictive application of state immunity is proper for commercial transactions, and a state is deemed to have tacitly consented to be sued when it enters into business contracts, but not when the contract relates to sovereign functions.
• Malong v. Philippine National Railways — Cited for the principle that immunity from suit is determined by the character of the objects for which the entity was organized.
• Deutsche Gesellschaft Für Technische Zusammenarbeit (GTZ) v. CA — Extensively discussed and applied. Cited for the ruling that an "implementing agency" status does not automatically confer immunity; for the requirement to prove under foreign law that an entity has not consented to be sued; for the presumption that foreign law is similar to Philippine law (processual presumption) if not proven otherwise; and for the emphasis that DFA certification is the proper executive endorsement for immunity claims, not just an OSG comment.
• Department of Foreign Affairs (DFA) v. National Labor Relations Commission (NLRC) — Cited to emphasize the DFA's competence and authority as the highest executive department to determine persons and institutions covered by diplomatic immunities, and that this determination is crucial for maintaining the credibility of the Philippine government in the international arena.
• Bayan Muna v. Romulo — Cited for the distinctions between a treaty and an executive agreement (executive agreements do not require legislative concurrence, are less formal, and deal with narrower subject matters), while noting that both must meet certain requisites like being an agreement between states and governed by international law.

• Section 36 of the Corporation Code — Referenced in relation to the Deutsche Gesellschaft ruling, implying that if CNMEG is considered a government-owned or controlled corporation without an original charter (due to lack of proof of its status under Chinese law), it has the power and capacity to sue and be sued in its corporate name under Philippine law.
• Rule 13 of the Special Rules on Alternative Dispute Resolution (Special Rules) — Specifically Rules 13.2 and 13.3, which provide for the procedure for recognition and enforcement of a foreign arbitral award in Philippine regional trial courts. This was cited to show that the arbitration clause in the Contract Agreement, if invoked, would lead to proceedings in Philippine courts, further supporting the waiver of immunity.
• Article 2(1) of the Vienna Convention on the Law of Treaties — Cited for the definition of a "treaty" which the Court noted is similar in requisites for an "executive agreement" (must be between states, in writing, and governed by international law). This was used to determine that the Contract Agreement was not an executive agreement.
• Conditions of Contract, Article 2 (Applicable Law and Governing Language) — This specific article of the contract between Northrail and CNMEG was cited to show that the contract explicitly states it "shall in all respects be read and construed in accordance with the laws of the Philippines," proving it is not governed by international law and thus not an executive agreement.
• Conditions of Contract, Article 33 (Settlement of Disputes and Arbitration) — This article, providing for amicable settlement and arbitration under UNCITRAL Arbitration Rules with the Hong Kong International Arbitration Center (HKIAC) as the appointing authority, was cited as evidence of an implicit waiver of immunity from suit by CNMEG.