G.R. No. 154705 ; June 26, 2003
THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and MINISTER COUNSELLOR AZHARI KASIM, Petitioners, vs. JAMES VINZON, doing business under the name and style of VINZON TRADE AND SERVICES, Respondent.

FACTS

The Republic of Indonesia, through its embassy, entered into a four-year Maintenance Agreement with respondent James Vinzon for the upkeep of equipment at its embassy premises and the Ambassador’s residence. The agreement contained a provision stating, “Any legal action arising out of this Maintenance Agreement shall be settled according to the laws of the Philippines and by the proper court of Makati City, Philippines.” Upon finding Vinzon’s services unsatisfactory, the Indonesian Embassy terminated the agreement. Vinzon filed a complaint for breach of contract in the Regional Trial Court of Makati.
Petitioners filed a Motion to Dismiss, invoking the doctrine of state immunity from suit and, for the individual petitioners, diplomatic immunity under the Vienna Convention. The trial court denied the motion, ruling that the aforementioned provision in the contract constituted a waiver of immunity. The Court of Appeals sustained this decision, prompting this petition.

ISSUE

Whether the Republic of Indonesia, its Ambassador, and its Minister Counsellor have waived their immunity from suit, thereby subjecting them to the jurisdiction of Philippine courts.

RULING

No. The petition is granted. The Supreme Court reversed the Court of Appeals and ordered the dismissal of the complaint. The Court applied the restrictive theory of state immunity, which distinguishes between sovereign acts (jure imperii) and private, commercial acts (jure gestionis). Only the latter are not immune from suit. The Court held that the act of entering into a contract for the maintenance of embassy premises, including the official residence of the ambassador, is not a commercial act but is intrinsically connected to the diplomatic mission’s functions. Such an act is necessary for the diplomatic mission to operate and is therefore an act jure imperii, covered by sovereign immunity.
The contractual clause specifying the application of Philippine law and the Makati courts as the venue for any legal action does not constitute an express waiver of immunity. The Court ruled it was merely a choice-of-law and venue stipulation operative only if immunity had already been waived separately; it is not a waiver in itself. Regarding the individual petitioners, the Court found they acted in their official capacities in terminating the contract. Their acts do not fall under the exceptions in Article 31 of the Vienna Convention on Diplomatic Relations, which allows suits for private commercial activities undertaken outside official functions. Consequently, they retain their diplomatic immunity. The State’s immunity extends to its diplomatic agents acting in their official capacity.