Department of Foreign Affairs vs. NLRC (G.R. No.

113191)

(G.R. No. 113191, 18 September 1996; J. VITUG, Ponente; First Division)

Facts: A complaint for illegal dismissal was filed against the Asian Development Bank
("ADB"). Upon receipt of summonses, both the ADB and the DFA notified the Labor
Arbiter that the ADB, as well as its President and Officers, were covered by an immunity
from legal process except for borrowings, guaranties or the sale of securities pursuant to
Article 50(1) and Article 55 of the Agreement Establishing the Asian Development Bank
(the "Charter") in relation to Section 5 and Section 44 of the Agreement Between The
Bank And The Government Of The Philippines Regarding The Bank's Headquarters (the
"Headquarters Agreement"). The Labor Arbiter took cognizance of the complaint on the
impression that the ADB had waived its diplomatic immunity from suit, and issued a
judgment in favor of the complainant. The ADB did not file an appeal, but the DFA
sought a nullification with the NLRC. The latter denied the request.

Issue: Whether or not ADB is immune from suit?

Ruling: No.

Under the Charter and Headquarters Agreement, the ADB enjoys immunity from legal
process of every form, except in the specified cases of borrowing and guarantee
operations, as well as the purchase, sale and underwriting of securities. The Bank’s
officers, on their part, enjoy immunity in respect of all acts performed by them in their
official capacity. The Charter and the Headquarters Agreement granting these immunities
and privileges are treaty covenants and commitments voluntarily assumed by the
Philippine government which must be respected.

Being an international organization that has been extended a diplomatic status, the ADB
is independent of the municipal law. One of the basic immunities of an international
organization is immunity from local jurisdiction, i.e., that it is immune from the legal
writs and processes issued by the tribunals of the country where it is found. The obvious
reason for this is that the subjection of such an organization to the authority of the local
courts would afford a convenient medium thru which the host government may interfere
in their operations or even influence or control its policies and decisions of the
organization; besides, such subjection to local jurisdiction would impair the capacity of
such body to discharge its responsibilities impartially on behalf of its member-states."

The ADB didn't descend to the level of an ordinary party to a commercial transaction,
which should have constituted a waiver of its immunity from suit, by entering into
service contracts with different private companies. There are two conflicting concepts of
sovereign immunity, each widely held and firmly established. According to the classical
or absolute theory, a sovereign cannot, without its consent, be made a respondent in the
Courts of another sovereign. According to the newer or restrictive theory, the immunity
of the sovereign is recognized only with regard to public acts or acts jure imperii of a
state, but not with regard to private act or acts jure gestionis. Certainly, the mere entering
into a contract by a foreign state with a private party cannot be the ultimate test. Such an
act can only be the start of the inquiry. The logical question is whether the foreign state is
engaged in the activity in the regular course of business. If the foreign state is not
engaged regularly in a business or trade, the particular act or transaction must then be
tested by its nature. If the act is in pursuit of a sovereign activity, or an incident thereof,
then it is an act jure imperii, especially when it is not undertaken for gain or profit. The
service contracts referred to by private respondent have not been intended by the ADB
for profit or gain but are official acts over which a waiver of immunity would not attach.

Issue: Whether or not the DFA has the legal standing to file the present petition?
Ruling:

The DFA's function includes, among its other mandates, the determination of persons and
institutions covered by diplomatic immunities, a determination which, when challenged,
entitles it to seek relief from the court so as not to seriously impair the conduct of the
country's foreign relations. The DFA must be allowed to plead its case whenever
necessary or advisable to enable it to help keep the credibility of the Philippine
government before the international community. When international agreements are
concluded, the parties thereto are deemed to have likewise accepted the responsibility of
seeing to it that their agreements are duly regarded. In our country, this task falls
principally on the DFA as being the highest executive department with the competence
and authority to so act in this aspect of the international arena.