The South China Sea Arbitration

The Republic of the Philippines v. The People’s Republic of China)

(Abstract)
China claims “historic rights” over the islands and other maritime features in the South China
Sea. The Philippines contests these claims on the ground that they are incompatible with the
1982 Convention on the Law of the Sea. It initiated arbitration under Annex VII of the (UNCLOS)
for a declaratory judgment to that effect. China rejected the arbitral procedure in part because of
its 2006 Declaration which excludes all such disputes from the compulsory dispute settlement
procedure of the Convention. This paper examines the recent award of the Arbitral Tribunal
accepting jurisdiction over some of the submissions made by the Philippines. It finds that the UN
Convention on the Law of the Sea has very little to offer to decide on issues of sovereignty and
associated issues of overlapping maritime entitlements.

Philippines, one of the States with conflicting claims with China, initiated arbitration under Annex
VII of the 1982 Convention on the Law of the Sea (UNCLOS or the Convention or the 1982
Convention)1 questioning China’s claims to much of the South China Sea maritime area as
incompatible with the 1982 UNCLOS. Both the Philippines and China are parties to the
UNCLOS. In 2006, China submitted a declaration excluding all disputes that might involve
questions of sovereignty and issues of delimitation of maritime boundaries from the procedure
of compulsory settlement of disputes specified under Section 2 of Part XV, which is subject to
the The Arbitral Tribunal was constituted in accordance with Annex VII of the UNCLOS, which is
provided as a default procedure under article 287(3), to consider the submissions of the
Philippines. China refused to participate in its proceedings, citing its declaration. The Tribunal
accordingly had to first settle matters concerning its jurisdiction. The Tribunal then rendered its
award that it has jurisdiction on some of the Philippines’ submissions and suspended its
decision on others, linking them to the merits

Context/Facts:

The South China Sea is a semi-enclosed sea in the western Pacific Ocean “spanning an area of
almost 3.5 million square kilometers”. It is a “crucial shipping lane, a rich fishing ground, and
believed to hold substantial oil and gas resources”

The Convention entered into force on 16 November 1994 – China claims to have exercised
authority and control historically over the entire South China Sea prior to and during the period
of its colonization and occupation by Japan.5 These “historic rights” are illustrated by a map
depicting what has since come to be known as the dotted/nine dash line. The dotted line
encloses the main island features of the South China Sea: the Pratas Islands, the Paracel
Islands, the Macclesfield Bank, and the Spratly Islands.

“Chinese activities in the South China Sea date back 2000 years ago”. Further, “China was the
first country to discover, name, explore and exploit the resources of the South China Sea
Islands and the first to continuously exercise sovereign powers over them” – resumed its
activities over the area and by 1948, after conducting necessary surveys and renaming the
islands, it was able to publish “an official map which displayed a dotted line in the South China
Sea” – on 1 October 1949 officially pronounced as part of its 1958 Declaration on the Territorial
Sea and 1992 Law within the nine-dash line in the South China Sea.

The Philippines, however, claims part of the area as its territory under the UNCLOS. China in
particular also made a declaration on 25 August 2006 to state that it does not accept any of the
procedures provided for in section 2 of Part XV of the Convention.

The Philippines in particular sought a declaratory award on three interrelated matters: First, that
China’s claims regarding the rights and obligations in regard to the waters, seabed, and
maritime features of the South China Sea, on the basis of historic rights and as depicted in the
map containing the nine-dash line, are invalid because they are inconsistent with the
Convention.

Second, it seeks determination as to whether, under the Convention, certain maritime features
claimed by both China and the Philippines are properly characterized as islands, rocks, low tide
elevations, submerged banks”; and on the type of maritime rights they are capable of
generating. The Philippines focused on this connection, in particular, on Scarborough Shoal and
eight specific features in the Spratly Island group. The main:

(1) The signing of the Convention by the Government of the Republic of the Philippines
shall not in any manner impair or prejudice the sovereign rights of the Republic of the
Philippines under and arising from the Constitution of the Philippines;
(2) Such signing shall not in any manner affect the sovereign rights of the Republic of the Philippines
– Treaty of Paris – December 10, 1898, and the Treaty of Washington between the United States
of America and Great Britain of January 2, 1930

“The Philippines seek declarations that China violated the Convention by interfering with the
exercise of the Philippines sovereign rights and freedoms under the Convention and through
construction and fishing activities that have harmed the marine environment”.

Submissions 1 and 2 relate to the broader claim of China that it has maritime entitlements in the
South China Sea which in the view of the Philippines go beyond those provided by UNCLOS.
Further, the Philippines sought a declaration from the Tribunal that the Chinese claims based on
the nine-dash line are inconsistent with UNCLOS and invalid. Submissions 3 deals with the
nature of Scarborough shoal (whether it is a sand bank or a mere rock or, as the Chinese claim,
it is an island, capable of generating maritime zones); Submission 4 relates to Mischief Reef,
Second Thomas Shoal, and Subi Reef, and the claim of the Philippines that they are low-tide
elevations and incapable of generating maritime zones

Submission 5 relates to the Philippines claim that the Mischief Reef and Second Thomas Reef
are part of its EEZ and continental shelf. China considers them to be part of Nansha Islands.
Also this claim relates to the question whether the Spratly Islands can generate an EEZ and
continental shelf. Submission 6 is about the Gaven Reef and McKennan Reef (including Hughes
Reef), the claim of the Philippines being that they are low-tide elevations; Submission 7 is about
Johnson Reef, Cuarteron Reef, and Fiery Cross Reef, raising the issue whether they do or do
not generate an entitlement to EEZ and continental shelf; Submission 8 relates to the claim of
the Philippines that China is unlawfully interfering with its legitimate rights under UNCLOS within
its EEZ; Submission 9 relates to claims of fishing rights being exercised by fishermen within the
territorial sea of Scarborough Shoal; Chinese acts cause damage and do not protect and
preserve the marine environment surrounding the Scarborough Shoals and the Second Thomas

China rejected the recourse to arbitration by the Philippines and adhered to the position of
neither accepting nor participating in these proceedings. It maintains further that the Tribunal
does not enjoy jurisdiction in the absence of its consent as the issues concerning interpretation
and application of the Convention could arise only after a State’s “sovereignty over maritime
features is determined”. “When not subject to State sovereignty”, China points out, “a maritime
feature per se possesses no maritime rights or entitlements whatsoever”.15 China also objects
to the selection of certain maritime features for the purpose of assessing their eligibility to
generate – “China maintains that the legality of China’s actions in the waters of Nansha (Spratly)
Islands and Huangyan Dao (Scarborough Shoal) rests on both its sovereignty over relevant
maritime features and the maritime rights derived therefrom”

One that holds that none of the 750 maritime features in the Scarborough Shoal and the Spratly
features are capable of “generating an EEZ and continental shelf entitlement”, suggesting
thereby that they are “rocks” and low tide elevations or other insular features not amounting to
land or islands, capable of appropriation by way of assertion of “historic rights”.62 The other
assumption is that Philippines is entitled to 200 mile EEZ and continental shelf and most of
these features fall within its EEZ or the continental shelf which do not have any potential overlap
with the true maritime entitlements of China under the same UNCLOS.

As the case between the Philippines and China at its core relates to issues of historic titles and
rights in the South China Sea, it would be necessary for the Tribunal at – conflicting claims
attract. China claims “indisputable sovereignty over the islands in the South China Sea and the
adjacent waters” – to unclaimed or unoccupied islands which are outside the limits of territorial
waters of other coastal States,

But these are matters for examination on merits concerning the validity of the Chinese claims
concerning its historic rights. To that extent they are a central part of issues concerning
sovereignty and maritime delimitation. Such issues are clearly outside the jurisdiction of the
Tribunal.

On the one hand, it declares that it is not empowered to deal with issues of sovereignty and
maritime delimitation in view of the Chinese Declaration pertaining to the disputes under the
UNCLOS but, on the other hand, it declares itself competent to examine “the source of maritime
entitlements of China in the South China Sea”. In that sense, the position of the Tribunal is
manifestly self-contradictory.
 DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS (DOTC) v. SPOUSES
VICENTE ABECINA AND MARIA CLEOFFE ABECINA

(Respondents/spouses Abecina) are the registered owners of five parcels of land in Sitio Paltik,
Barrio Sta. Rosa, Jose Panganiban, Camarines Norte.

The properties are covered by Transfer Certificates of Title (TCT).

The DOTC and Digitel subsequently entered into several Facilities Management Agreements
(FMA) for Digitel to manage, operate, maintain, and develop the RTDP in Luzon. Financial
Lease Agreements (FLA) in 1995.

The municipality of Jose Panganiban, Camarines Norte, donated a one thousand two hundred
square-meter parcel of land to the DOTC. The municipality erroneously included portions of the
respondents’ property. Digitel constructed a telephone exchange on the property which
encroached on the properties of the respondent spouses.

Sometime in the mid-1990s, the spouses Abecina discovered Digitel’s occupation over portions
of their properties. They required Digitel to vacate their properties and pay damages, but the
latter refused, insisting that it was occupying the property of the DOTC pursuant to their FLA.

On April 29, 2003, the respondent spouses sent a final demand letter to both the DOTC and
Digitel to vacate the premises and to pay unpaid rent/damages (₱1,200,000.00). Neither the
DOTC nor Digitel complied with the demand.

On September 3, 2003, filed an accion publiciana complaint for recovery of possession and
damages.

In its answer, the DOTC claimed immunity from suit, the DOTC admitted that the Abecinas
were the rightful owners of the properties – rely instead on state immunity.

On March 12, 2007, spouses and Digitel executed a Compromise Agreement and entered into a
Contract of Lease. The RTC rendered its decision against the DOTC – brushed aside the
defense of state immunity. It held that government immunity from suit could not be used as an
instrument to perpetuate an injustice on a citizen.

The RTC held that as the lawful owners of the properties, the respondent spouses enjoyed the
right to use and to possess them – rights that were violated by the DOTC’s unauthorized entry,
construction, and refusal to vacate. The RTC (1) ordered the Department – as a builder in bad
faith – to forfeit the improvements and vacate the properties; and (2) awarded the spouses with
₱1,200,000.00 as actual damages, ₱200,000.00 as moral damages, and ₱200,000.00 as
exemplary damages plus attorney’s fees and costs of suit.
The DOTC elevated the case to the CA arguing: (1) that the RTC never acquired jurisdiction
over it due to state immunity from suit; (2) that the suit against it should have been dismissed
after the spouses Abecina and Digitel executed a compromise agreement; and (3) that the RTC
erred in awarding actual, moral, and exemplary damages against it.

CA affirmed the RTC’s decision but deleted the award of exemplary damages. accion publiciana
– denied the DOTC’s claim of state immunity – DOTC removed its cloak of immunity after
entering into a proprietary contract – the Financial Lease Agreement with Digitel. RTC’s position
that state immunity cannot be used to defeat a valid claim for compensation arising from an
unlawful taking without the proper expropriation proceedings.

PARTIES ARGUMENTS
The DOTC asserts that its Financial Lease Agreement was entered into in pursuit of its
governmental functions. Therefore, it cannot be interpreted as a waiver of state immunity.
Took private property without formal expropriation proceedings, the taking was nevertheless an
exercise of eminent domain.
– Instead of allowing recovery of the property, the case should be remanded to the RTC for
determination of just compensation – respondents counter that the state immunity cannot be
invoked to perpetrate an injustice against its citizens.

We find no merit in the petition.

State may not be sued without its consent. This fundamental doctrine stems from the principle
that there can be no legal right against the authority which makes the law on which the right
depends.

The doctrine of state immunity is not absolute. The State may waive its cloak of immunity and
the waiver may be made expressly or by implication. State’s participation in economic and
commercial activities gradually expanded beyond its sovereign function as regulator and
governor – and governmental acts (jure imperii) – private, commercial, and proprietary acts (jure
gestionis) – jure gestionis are considered as a waiver of immunity.

jure gestionis are considered as a waiver of immunity – expropriation proceedings

We hold, therefore, that the Department’s entry into and taking of possession of the
respondents’ property amounted to an implied waiver of its governmental immunity from suit.
We also find no merit in the DOTC’s contention that the RTC – Contrary to the RTC's findings,
the DOTC was not a builder in bad faith when the improvements were constructed by a
mistaken implementation of the donation from the municipality of Jose Panganiban. There is no
evidence that it acted maliciously or in bad faith when the construction was done.

Article 527 of the Civil Code presumes good faith – forfeiture of the improvements in favor of
the respondent spouses is unwarranted.
WHEREFORE, we hereby DENY the petition for lack of merit. The May 20, 2009 decision of the
Regional Trial Court in Civil Case No. 7355, as modified by the March 20, is AFFIRMED with
further MODIFICATION that the forfeiture of the improvements made by the DOTC in favor of
the respondents is DELETED. No costs.

UNIVERSITY OF THE PHILIPPINES v. DIZON

On August 30, 1990, the UP, entered into a General Construction Agreement with respondent
Stern Builders Corporation (Stern Builders), Manager dela Cruz, for the construction of the
extension building and the renovation of the College of Arts and Sciences Building in the
campus (UPLB).

In the course of the implementation of the contract, Stern Builders submitted three progress
billings, but the UP paid only two of the billings. The third billing worth ₱ 273,729.47 was not
paid due to its disallowance (COA). Despite the lifting of the disallowance, the UP failed to pay
the billing, prompting Stern Builders and dela Cruz to sue the UP to collect the unpaid billing
and to recover various damages.

After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs,
judgment is hereby rendered in favor of the plaintiff and against
the defendants ordering the latter to pay plaintiff:
1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and
5. Costs of suit.

The RTC’s denial of its motion for reconsideration on May 7, 2002,6 the UP filed a notice of
appeal on June 3, 2002. Stern Builders and dela Cruz opposed the notice of appeal on the
ground of its filing being belated. The UP countered that the notice of appeal was filed within the
reglementary period because the UP’s Office of Legal Affairs received the order of denial only
on May 31, 2002. The RTC denied due course to the notice of appeal for having been filed out
of time and granted the private respondents’ motion for execution.

On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition for
certiorari in the Court – On February 24, 2004, the CA dismissed the petition UP’s notice of
appeal had been filed late, November 28, 2001 and January 7, 2002, thus, they had until
January 22, 2002 within which to file their appeal.

OF ₱ 10 MILLION AS MORAL DAMAGES TO RESPONDENTS.

factual basis, because they had been gravely wronged, had been deprived of their source of
income, and had suffered untold miseries, discomfort, humiliation and sleepless years; that dela
Cruz had even been constrained to sell his house, his equipment and the implements of his
trade, and together with his family had been forced to live miserably because of the wrongful
actuations of the UP;

(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the
judgment award; and (b) whether the UP’s prayer for the deletion of the awards of actual
damages of ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00 and attorney’s fees of ₱
150,000.00 plus ₱ 1,500.00 per appearance could be granted despite the finality of the
judgment of the RTC

UP’s funds, being government funds,

Irrefragably, the UP is a government instrumentality,69 performing the State’s constitutional

The execution of the monetary judgment against the UP was within the primary jurisdiction of
the COA. This was – All money claims against the Government must first be filed with the
Commission on Audit which must act upon it within sixty days. Rejection of the claim will
authorize the claimant to elevate the matter to the Supreme Court on certiorari and in effect, sue

1. Properties held for public uses – and generally everything held for governmental purposes –
are not subject to levy and sale under execution against such corporations. The same rule
applies to funds in the hands of a public officer and taxes due to a municipal corporation.

At stake in the UP’s plea for equity was the return of the amount of ₱ 16,370,191.74 illegally
garnished from its trust funds. The CA upheld the declaration of finality on February 24, 2004,
May 11, 2004 – denial became final on November 12, 2004.

We agree with the submission of the UP.

– The counsel of record of the UP. The rule – That counsel was the OLS in Diliman, Quezon
City, which – The fact that Atty. Nolasco was in the employ of the UP at the UPLB Legal Office
and did not render the service upon him effective. It is – There was also no clear and distinct
statement amount of ₱ 10,000,000.00.

The contravention of the law was manifest considering that Stern Builders, as an artificial
person, was incapable of experiencing pain and moral sufferings. ₱ 10,000,000.00 as moral
damages – distinct personality from that of Stern Builders. not intended to enrich the plaintiff at
but to restore the plaintiff to his – ₱ 10,000,000.00 allowed as moral damages – to be
unconscionable, inequitable and unreasonable.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the decision of the Court of Appeals under review; ANNULS the orders for the
garnishment of the funds of the University of the Philippines and for the release of the garnished
amount to Stern Builders Corporation and Servillano dela Cruz; and DELETES from the
decision of the Regional Trial Court dated November 28, 2001 for being void only the awards of
actual damages of ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00, and attorney's fees of ₱
150,000.00, plus ₱ 1,500.00 per appearance, in favor of Stern Builders Corporation and
Servillano dela Cruz.

The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the
amount of ₱ 16,370,191.74 within 10 days from receipt of this decision. Costs of suit to be paid
by the private respondents.