Political Law

Shell Philippines vs. Jalos G.R. No. 179918, Sept. 8, 2010 State Immunity


Petitioner Shell Philippines Exploration B.V. and the Republic of the Philippines entered into Service Contract 38 for the exploration and extraction of petroleum in northwestern Palawan. Two years later, Shell discovered natural gas in the Camago-Malampaya area and pursued its development of the well under the Malampaya Natural Gas Project. This entailed the construction and installation of a pipeline, which spanned 504 kms. and crossed the Oriental Mindoro Sea, from Shell’s production platform to its gas processing plant in Batangas. On May 19, 2003, respondents, 78 individuals, claiming that they were all subsistence fishermen from the coastal barangay of Bansud, Oriental Mindoro, filed a complaint for damages against Shell on the ground that their livelihood was adversely affected the construction and operation of Shell’s natural gas pipeline. Shell moved for dismissal of the complaint alleging that the Pollution Adjudication Board (PAB), not the trial court, has primary jurisdiction over pollution cases and actions for related damages and that it could not be sued pursuant to the doctrine of state immunity without the State’s consent on the basis that it merely serves as an agent of the Philippine government in the development of the Malampaya gas reserves through Service Contract 38.

The RTC dismissed the complaint ruling that it should be brought first to the PAB. CA reversed RTC’s order upon respondent’s petition for certiorari. Shell moved for reconsideration of the CA’s decision but the same was denied. Hence, Shell filed this petition for review under Rule 45.



Can Shell invoke state immunity, as agent of the Republic of the Philippines?



No. Shell cannot invoke state immunity because it is not an agent of the Republic of the Philippines. It is just a service contractor for the exploration and development of one of the country’s natural gas reserves. While the Republic appointed Shell as the exclusive party to conduct petroleum operations in the Camago-Malampayo area under the State’s full control and supervision, it does not follow that Shell has become the State’s “agent” within the meaning of the law.

An agent is a person who binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The Essence of an agency is the agent’s ability to represent his principal and bring about business relations between the latter and third persons.

Shell’s primary obligation under the Service Contract 38 is not to represent the Philippine government for the purpose of transacting business with third persons, rather, its contractual commitment is to develop and manage petroleum operations on behalf of the state. Hence, Shell is not an agent of the Philippine government but a provider of services, technology and financing for the Malampaya Natural Gas Project; it is not immune from suit and it may be sued for claims even without the State’s consent. And as evident in the stipulations agreed upon by the parties under Service Contract 38, the Phil. Government recognized that Shell could be sued in relation to the project.

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