The sovereign immunity

question
Philippine Daily Inquirer / 05:08 AM April 01, 2019

Passions arise whenever the phrase “sovereign immunity” becomes the

topic, more so if it involves the waiving of such. This is now the case in
the loan agreement between the Duterte administration and China for
Philippine infrastructure projects. Critics have questioned the provision
in the contract wherein the government waives its sovereign immunity to
be sued in case of disputes.

The “waiver of sovereign immunity” is, in fact, a fairly standard provision

in loan contracts between foreign lenders and a sovereign state or its
agencies (which by extension also have immunity from legal action).
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For some other loans to governments and their instrumentalities, such

waiver is implied in provisions that make the borrower subject to
arbitration proceedings in case of disputes. A government allowing itself
to be subjected to arbitration proceedings indicates its waiving of its
sovereign immunity from suit.

The Supreme Court, in its decision in February 2012 saying Northrail

project contractor China National Machinery & Equipment Corp. was not
entitled to immunity from suit, pointed out that “(t)he mantle of State
immunity cannot be extended to commercial, private and proprietary
acts… a State may be said to have descended to the level of an individual
and can thus be deemed to have tacitly given its consent to be sued when
it enters into business contracts.” Loan contracts fall squarely as business
contracts.
The Japan International Cooperation Agency, a major source of financial
aid for the Philippines, has a specific provision on the waiving of
sovereign immunity in its loan documents. It requires the borrower to
“irrevocably waive (i) any and all of its privileges and sovereign
immunities from and against any lawsuit and enforcement of arbitral
award and (ii) any and all privileges and sovereign immunities on any of
its properties from and against any attachment, enforcement and any
other legal proceedings, both of which it may be entitled to as a legal
defense under any applicable international or domestic law.”

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This provision is designed to give creditors recourse against any arbitrary

action by the borrowing government that will affect the repayment of its
loans. Abrupt change in government through a military takeover is one
example.

This was the reason why the clamor for then President Cory Aquino to
unilaterally repudiate millions of dollars in questionable foreign loans
contracted by the Marcos regime did not prosper. All her administration
could do was renegotiate the terms of the loans, to seek relief such as
lower interest and longer repayment periods.

Yes, borrowers do have a say in the terms and conditions of the loans
they are seeking. Presidential spokesperson Salvador Panelo is simply
wrong in saying that the Philippines could not do anything because China
as the lender dictates the terms of the loan.
Borrowers are not helpless. The terms of any loan are negotiated between
the lender and the borrower. If the borrower believes that the terms are
disadvantageous to him, he can walk away and look elsewhere. China is
not the only source of ODA loans.

However, the allocated ODA and other concessional funding for the
Philippines from its traditional sources, Japan and the United States, is
not infinite. There are dozens of other poorer countries in need of such
financial assistance, more than a middle-income country such as ours.

The European Union (EU) is another major source of ODA, but the
Philippines can’t go there now and seek financial help after President
Duterte cursed and raised hell against EU officials for allegedly meddling
in Philippine affairs, this after the EU raised concerns about the
government’s bloody war on drugs.
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Perhaps the current public concern over the waiving of sovereign

immunity revolves around the fact that the lender is China, not any
friendly state such as the Unites States or Japan. China is not an
uninterested party in this case, having had a track record of undermining
Philippine interests and coveting the country’s territory and resources.

However, the booby traps could be in other provisions in the Chinese

loan agreement, not in the “waiver of sovereign immunity” clause. It’s in
the Philippines’ loan contracts with other lenders from the United States
and Japan, too.

Read more: https://opinion.inquirer.net/120492/the-sovereign-immunity-
question#ixzz5lX24iGJM 
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