THE REPUBLIC OF INDONESIA, caused to them to file a complaint

HIS EXCELLENCY AMBASSADOR against the petitioner in court. The

SOERATMIN, and MINISTER petitioners filed a motion to dismiss on
COUNSELLOR AZHARI KASIM, the ground that the Republic of
petitioners, vs. JAMES VINZON, Indonesia, as a foreign sovereign
State, has sovereign immunity from
doing business under the name suit and cannot be sued as a partyand style of VINZON TRADE defendant in the Philippines. However,
AND SERVICES, respondent. respondent
filed
an
Opposition
G.R. No. 154705. June 26, 2003 alleging that the State had waived its
immunity as provided in the provision
Facts:
of the agreement that "Any legal
Petitioner,
Republic
ofaction arising out of this Maintenance
Indonesia, entered into a MaintenanceAgreement shall be settled according
Agreement in August 1995 withto the laws of the Philippines and by
respondent
James
Vinzon,
solethe proper court of Makati City".
proprietor of Vinzon Trade and
The trial court denied herein
Services. The Maintenance Agreementpetitioners Motion to Dismiss. It
stated that respondent shall, for alikewise denied the Motion for
consideration,
maintain
specifiedReconsideration subsequently filed.
equipment at the Embassy Main
The Court of Appeals rendered
Building, Embassy Annex Building andits assailed decision denying the
the Wisma Duta, the official residence petition for lack of merit. It denied
of petitioner Ambassador Soeratmin. Itherein
petitioners
motion
for
covered
air
conditioning
units,reconsideration.
generator sets, electrical facilities,
water heaters, and water motorIssue:
pumps. It is likewise stated therein
that the agreement shall be effective
Whether or not the Court of
for a period of four years and will Appeals erred in sustaining the trial
renew itself automatically unlesscourts decision that petitioners have
cancelled by either party by givingwaived their immunity from suit by
thirty days prior written notice fromusing as its basis the abovementioned
the date of expiry.
provision
in
the
Maintenance
Petitioners before the expirationAgreement.
of the term of the agreement informed
the respondent that the renwal of theirRuling:
agreement shall be the discretion of
the incoming Chief of Administration, The petition is impressed with merit.
Minister counsellor Azhari Kasim. The
The rule that a State may not be
latter allegedly found respondentssued without its consent is a
work and services unsatisfactory andnecessary
consequence
of
the
not in compliance with the standards principles
of
independence
and
set in the Maintenance Agreement. equality of States. As enunciated in
Hence,
the
Indonesian
EmbassySanders v. Veridiano II, the practical
terminated the agreement in a letter justification for the doctrine of
dated August 31, 2000.
sovereign immunity is that there can
be no legal right against the authority
Respondent
claimed
that
thethat makes the law on which the right
termination
was
arbitrary
whichdepends. In the case of foreign States,

the rule is derived from the principle of incident thereof, then it is an act jure
the sovereign equality of States, as imperii.
expressed in the maxim par in parem
Hence, the existence alone of a
non habet imperium. A contraryparagraph in a contract stating that
attitude would unduly vex the peace any legal action arising out of the
of nations.
agreement shall be settled according
The restrictive theory, holdsto the laws of the Philippines and by a
that the immunity of the sovereign is specified court of the Philippines is not
recognized only with regard to publicnecessarily a waiver of sovereign
acts or acts jure imperii, but not with immunity from suit. The aforesaid
regard to private acts or acts jureprovision
contains
language
not
gestionis.
necessarily
inconsistent
with
The mere entering into asovereign immunity. On the other
contract by a foreign State with ahand, such provision may also be
private party cannot be construed asmeant to apply where the sovereign
the ultimate test of whether or not it is party elects to sue in the local courts,
an act jure imperii or jure gestionis. or otherwise waives its immunity by
Such act is only the start of theany subsequent act. The applicability
inquiry. Is the foreign State engagedof Philippine laws must be deemed to
in the regular conduct of a business? include Philippine laws in its totality,
If the foreign State is not engaged including the principle recognizing
regularly in a business or commercialsovereign immunity.
Hence, the
activity, and in this case it has not proper court may have no proper
been shown to be so engaged, the action, by way of settling the case,
particular act or transaction must thenexcept to dismiss it. We find no such
be tested by its nature. If the act is inwaiver in this case.
pursuit of a sovereign activity, or an