Submitting to Philippine Courts: How Foreign Companies Can Waive Objections to Jurisdiction

Voluntary Appearance: How Foreign Corporations Can Inadvertently Submit to Philippine Court Jurisdiction

TLDR: Foreign companies contesting a lawsuit in the Philippines must be cautious. Even while arguing lack of jurisdiction, seeking certain ‘affirmative reliefs’ from the court, like asking for discovery procedures, can be interpreted as voluntarily submitting to Philippine court jurisdiction, thus waiving their initial objection.

G.R. No. 175799, November 28, 2011

INTRODUCTION

Imagine a multinational corporation suddenly facing a lawsuit in a foreign country. Their first instinct might be to question whether that country’s courts even have the authority to hear the case. This is especially crucial when the corporation believes it has minimal ties to that jurisdiction. However, the legal path to contesting jurisdiction can be fraught with peril. A misstep in court procedure, even while arguing against jurisdiction, can inadvertently signal acceptance of that very jurisdiction. This is precisely the predicament faced by NM Rothschild & Sons (Australia) Limited in a case against Lepanto Consolidated Mining Company, highlighting a critical aspect of Philippine civil procedure concerning foreign entities and court jurisdiction.

At the heart of this case lies a dispute over loan and hedging contracts between Rothschild and Lepanto. When Lepanto sued Rothschild in the Philippines to void these contracts, Rothschild initially contested the Philippine court’s jurisdiction, arguing improper service of summons. However, Rothschild also sought certain actions from the court, specifically related to discovery. The Supreme Court ultimately had to decide whether Rothschild’s actions, while contesting jurisdiction, inadvertently constituted a voluntary submission to the Philippine court’s authority.

LEGAL CONTEXT: JURISDICTION AND VOLUNTARY APPEARANCE IN THE PHILIPPINES

In the Philippine legal system, jurisdiction over a defendant is fundamental for a court to validly hear and decide a case. For individuals or domestic corporations, this is typically straightforward. However, for foreign private juridical entities like NM Rothschild & Sons, the rules become more nuanced. Philippine courts can acquire jurisdiction over foreign corporations in several ways, including through proper service of summons. Service of summons is the formal way of notifying a defendant about a lawsuit, ensuring they are aware and have the opportunity to respond.

Rule 14, Section 12 of the 1997 Rules of Civil Procedure governs service upon foreign private juridical entities that have transacted business in the Philippines. It states: “When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.”

However, there’s another critical concept: voluntary appearance. Section 20, Rule 14 of the same Rules of Civil Procedure clarifies this: “The defendant’s voluntary appearance in the action shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.” This rule essentially means that if a defendant takes actions in court that imply they are submitting to the court’s authority, they are considered to have voluntarily appeared, even if they were not properly served with summons. Crucially, merely including other grounds for dismissal in a motion to dismiss alongside lack of jurisdiction does *not* constitute voluntary appearance.

The key question becomes: what actions constitute ‘voluntary appearance’ beyond simply filing a motion to dismiss for lack of jurisdiction? The Supreme Court has clarified that seeking affirmative relief from the court, actions that go beyond merely contesting jurisdiction and seek some benefit or action from the court on the merits of the case, can be construed as voluntary submission.

CASE BREAKDOWN: ROTHSCHILD VS. LEPANTO

Lepanto Consolidated Mining Company initiated a legal action against NM Rothschild & Sons (Australia) Limited in the Regional Trial Court (RTC) of Makati City. Lepanto sought to declare their loan and hedging contracts with Rothschild void under Article 2018 of the Civil Code, which prohibits wagering contracts disguised as legitimate transactions. Lepanto claimed these contracts were essentially gambling, where the intention was merely to pay the difference in gold prices rather than actual gold delivery.

Rothschild, an Australian company, was served summons through the Department of Foreign Affairs and the Philippine Consulate in Sydney. Believing service was improper and the Philippine court lacked jurisdiction, Rothschild filed a “Special Appearance With Motion to Dismiss.” This motion argued:

Lack of jurisdiction due to improper service of summons.

Failure of Lepanto’s complaint to state a cause of action.

Estoppel.

Lepanto’s alleged “unclean hands.”

Significantly, Rothschild didn’t stop there. While awaiting a ruling on their motion to dismiss, they actively participated in pre-trial procedures. Rothschild filed two motions:

Motion for Leave to take the deposition of Mr. Paul Murray, a Rothschild Director, before the Philippine Consul General.

Motion for Leave to Serve Interrogatories on Lepanto.

The RTC denied Rothschild’s Motion to Dismiss, finding proper service of summons and a sufficient cause of action. Rothschild’s Motion for Reconsideration and motions for discovery were also denied. Rothschild then elevated the case to the Court of Appeals via a Petition for Certiorari, arguing grave abuse of discretion by the RTC. The Court of Appeals dismissed Rothschild’s petition, stating that certiorari was not the proper remedy for an interlocutory order like the denial of a motion to dismiss.

Undeterred, Rothschild brought the case to the Supreme Court. The Supreme Court had to resolve several issues, but the most critical was whether Rothschild, by seeking discovery while contesting jurisdiction, had voluntarily submitted to the jurisdiction of the Philippine court.

The Supreme Court pointed out that while Section 20, Rule 14 allows defendants to include other grounds for dismissal alongside lack of jurisdiction without it being considered voluntary appearance, this refers to *defenses* raised in a Motion to Dismiss, not requests for *affirmative relief*. The Court emphasized the distinction laid out in previous jurisprudence, stating:

“In the same manner that a plaintiff may assert two or more causes of action in a court suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses alternatively or even hypothetically… By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an answer.”

However, Rothschild’s motions for deposition and interrogatories were deemed by the Supreme Court as requests for affirmative relief. By actively seeking to utilize court processes for discovery, Rothschild had gone beyond simply contesting jurisdiction. The Supreme Court concluded:

“In view of the above, we therefore rule that petitioner, by seeking affirmative reliefs from the trial court, is deemed to have voluntarily submitted to the jurisdiction of said court. A party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction.”

Ultimately, the Supreme Court denied Rothschild’s petition, affirming the Court of Appeals’ decision and effectively upholding the RTC’s jurisdiction over Rothschild.

PRACTICAL IMPLICATIONS: NAVIGATING JURISDICTIONAL CHALLENGES AS A FOREIGN ENTITY

The Rothschild vs. Lepanto case offers crucial lessons for foreign companies facing lawsuits in the Philippines. It underscores that while contesting jurisdiction is a valid legal strategy, it must be handled with extreme care. Foreign entities must be acutely aware that any action taken in Philippine court beyond simply contesting jurisdiction, particularly seeking affirmative relief, can be construed as voluntary submission, thereby nullifying their jurisdictional challenge.

This ruling doesn’t prevent foreign companies from defending themselves. They can still file motions to dismiss based on lack of jurisdiction and even include other defenses within that motion. However, they must refrain from actively seeking benefits or processes from the court that imply acceptance of jurisdiction while their jurisdictional challenge is pending. If discovery is needed, it should ideally be pursued *after* a clear ruling on jurisdiction has been obtained and if jurisdiction is ultimately upheld.

For businesses operating internationally or considering doing so in the Philippines, this case highlights the importance of understanding the nuances of civil procedure in different jurisdictions. Seeking expert legal counsel early on is crucial when facing cross-border litigation to navigate these complex procedural rules effectively and avoid inadvertent waivers of crucial legal rights.

Key Lessons:

Contest Jurisdiction Carefully: Foreign entities can and should contest jurisdiction if grounds exist, such as improper service or lack of minimum contacts.

Avoid Seeking Affirmative Relief: While contesting jurisdiction, refrain from actions that request the court to grant specific benefits or orders beyond dismissal. Seeking discovery procedures while contesting jurisdiction can be particularly risky.

Focus on Defense Initially: Limit initial court filings to contesting jurisdiction and raising defenses within the motion to dismiss. Avoid actively engaging in discovery or other procedural steps that imply acceptance of jurisdiction.

Seek Expert Legal Advice: Engage experienced Philippine legal counsel immediately upon being served with a lawsuit to properly assess jurisdictional issues and strategize the defense without inadvertently waiving jurisdictional objections.

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