CONFLICTS OF LAW FINAL EXAMINATION

1.     In no more than 3000 words, prepare a draft bill with explanatory notes dealing with a conflict of laws
grey area in Philippine law. (50 points)

Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
First Regular Session

House Bill No. _____

INTRODUCED BY REPRESENTATIVE STEPHEN STRANGE

AN ACT TO REGULATE THE USE OF VIRTUAL CURRENCY IN THE PHILIPPINES

EXPLANATORY NOTE

Pursuant to the duty of the State under the Securities Regulation Code to protect investors,
ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create distortions in the free market and following
the rise in the use of virtual currencies for payments and remittances in the Philippines and the risks
appurtenant thereto (since virtual currencies are subject to loss, have been connected to criminal
activities, etc), there is a need to legislate a law on virtual currencies.

Virtual currencies are currencies that only exist electronically. They do not have all the attributes
of real currencies. Some examples of virtual currencies are bitcoins and litecoins. Unlike traditional
currencies, which are issued by central governments (i.e. the USD is issued by the US Mint, the PHP is
issued by the BSP, etc), virtual currencies are neither issued nor regulated by any particular central
monetary authority. Hence, there’s no organization that regulated and decides on when to make more of
these ‘bitcoins,’ keeps track of where they are, or investigates fraud. No single central administrator who
maintains books for the purpose of recording the name of the holder of the securities; instead, there is a
bitcoin network consisting of numerous virtual ledgers that authenticate all transactions, and the approval
of a majority of these ledgers is necessary for the validity of any transaction. According to the Securities
Regulation Code1, if a person offers securities to the public, such person must register with the Securities
and Exchange Commission. Public is defined by the case of BDO v Republic 2 as twenty or more
individuals. Hence, a problem with the decentralized nature of virtual currencies means that there is no
security issuer who can register with the Securities and Exchange Commission.

Also, one might ask, is a virtual currency a security under Philippine law? Arguably, yes, it can be
considered one applying the Howey Test where it requires a transaction, contract or scheme whereby “a
person (1) makes an investment, (2) in a common enterprise, (3) with the expectation of profits, (4) to be
derived solely from the efforts of others” as used in the case of Power Homes v SEC. As a security, lex
rei sitae or “the law where the property is situated” governs not only the property subject to such
arrangement, but also the perfection of the encumbrances over said property as stated in Article 16,
paragraph 1 of the Civil Code3, to wit: “Real property as well as personal property is subject to the law
1
The Securities Regulation Code [SECURITIES REGULATION CODE], Republic Act No. 8799, §8
(2015).
2
Banco De Oro v. Republic, 750 PHIL 349, 413 (2015).
3
An Act to Ordain and Institute the Civil Code of The Philippines [CIVIL CODE], Republic Act no. 386
(1950).
of the country where it is stipulated. ” As such, however, the question arises as to what is the situs of the
virtual currencies, which are only virtual assets and not physical assets. In connection with the previous
answer, should the virtual currencies be treated as though they are choses in action, the security
arrangement will essentially cover personal property, which can be moved anywhere and thus basically
subject to the laws of any country in which they are located. Considering that these online ledgers are
decentralized worldwide and that the situs of the transaction is purely virtual, the cross-border nature of
the virtual currencies may give rise to issues on jurisdiction and choice of law and thereafter, may ignite a
Cyber World War III.
Here, in order to fill the gap in law as to personal jurisdiction, this bill proposes that first, the
doctrine of minimum contacts as ruled in some case law and two SEC Opinions (the 2010 opinion to
Genibrain and the 2017 opinion to Sony Computer Entertainment Hong Kong) be codified. The Doctrine
of Minimum Contacts as explained in the case of International Shoe Co. v Washington 4 states that an
entity may be subject to jurisdiction of a state if said entity has “minimum contacts” with said state.
Second, entities engaged in the use of virtual currencies should be required to register with an agency or
at least, registration as to virtual currency exchanges be done.
On the other hand, in relation to the issue on choice of law, since Article 16 of the Civil Code
provides that personal property shall be governed by the lex rei sitae, the situs of the virtual currency
cannot be determined and such fact may make it difficult to localise bitcoin units in a particular country,
this bill proposes that a one-sided conflicts rule be established as regards virtual currencies.

(sgd.) STEPHEN STRANGE

Representative
3th District of Gotham City

Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
First Regular Session

House Bill No. _____

INTRODUCED BY REPRESENTATIVE STEPHEN STRANGE

AN ACT TO REGULATE THE USE OF VIRTUAL CURRENCY IN THE PHILIPPINES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Title. This Act shall be known as the “Philippine Virtual Currency Act”.

SECTION 2. Declaration of Policy. It is the policy of the State to provide an environment that
encourages financial innovation, protect investors, ensure full and fair disclosure about securities,
minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices
which create distortions in the free market.

SECTION 3. Definition of Terms. The terms as used in this Section shall be defined, as follows:

4
International Shoe Co. v Washington, 326 U.S. 310, 316, 90 L. ed, (1945).
 (a) “Virtual currency” refers to any type of digital unit that is used as a medium of exchange or a form
of digitally stored value created by agreement within the community of VC users. It is stored in
electronic wallets and generally transacted online. VCs are not issued nor guaranteed by any
jurisdiction and do not have legal tender status. VCs shall be broadly construed to include digital
units of exchange that (1) have a centralized repository or administrator; (2) are decentralized
and have no centralized repository or administrator; or (3) may be created or obtained by
computing or manufacturing effort. VCs are considered as securities for purposes of the law.
However, it shall not be construed to include e-money as defined under Sec. X780 of the Manual
of Regulations for Banks, digital units used solely within online gaming platforms and are not
convertible to fiat currency or real-world goods of services and limited to transactions involving a
defined merchant such as rewards programs;

(b) “SEC” refers to the Securities and Exchange Commission.

SECTION 4. Establishment of the Virtual Currency Agency. There is hereby created an agency which
shall be known as the Virtual Currency Agency, whose primary purpose is to receive, register and
consolidate basic data on virtual currency exchanges, to act as a central repository of information and to
provide access to reliable information as to such.

SECTION 5. Registration. All virtual currency transactions shall be registered with the Virtual Currency
Agency not later than thirty (30) days from the date of the transaction. The person causing such
registration shall pay the service fees provided for by law.

SECTION 6. Jurisdiction, Doctrine of Minimum Contacts. The Philippine Courts shall exercise
jurisdiction over all disputes arising under this Act based on some minimum contacts that will not offend
traditional notions of fair play and substantial justice.

SECTION 7. Choice of Law. Disputes concerning transactions registered under Section 5 hereof shall be
governed by Philippine law.

SECTION 8. Rules and Regulations. For purposes of creating a healthy balance between the need for
reliable information and safeguarding investor protection, the SEC, in coordination with relevant
government agencies and existing industry stakeholders, shall issue implementing rules and regulations
(IRRs), which shall be reviewed, revised and approved by the Oversight Committee and the Virtual
Currency Agency to ensure consistency and compliance with the provisions of this Act.

SECTION 9. Congressional Oversight Committee. There is hereby created a congressional oversight

committee, composed of seven (7) members from the Senate and seven (7) members of the House of
Representatives. The members of the Senate shall be appointed by the Senate President with at least
three (3) Senators representing minority. The members of the House of Representatives shall be
appointed by the Speaker with at least three (3) members representing the minority.

After the Oversight Committee approved the implementing rules and regulations, it shall thereafter
become functus officio, and therefore cease to exist: Provided, That the Congress may revive the
Congressional Oversight Committee in case of a need for any major revision/s in the implementing rules
and regulations.

SECTION . Separability Clause. If any provision of this Act is declared unconstitutional and inoperative,
the other provisions not so declared shall remain in force and effect.

SECTION. Repealing Clause. All laws, decrees, orders, rules and regulations or parts thereof
inconsistent with the Act or the rules and regulations promulgated pursuant thereto are hereby repealed
or amended accordingly.

SECTION. Effectivity Clause. This Act shall take effect fifteen (15) days after publication in two (2)
national newspapers of general circulation.
Approved,
2.     In no more than 1000 words, critically analyze and discuss the quote: "Philippine courts
would do well to adopt the first and most basic rule in most legal systems, namely, to allow the
parties to select the law applicable to their contract, subject to the limitation that it is not against
the law, morals, or public policy of the forum and that the chosen law must bear a substantive
relationship to the transaction." (25 points) 

There are three steps involved in solving private international law issues which are: (1)
jurisdiction, (2) choice of law, and (3) enforcement of judgements5. Choice of law is entirely different from
jurisdiction as stated in the Hasegawa case6 since issues on jurisdiction only seeks to answer whether the
courts of a state where the case is initiated have power to hear the case and enter a judgment. The power
to exercise jurisdiction does not automatically give a state constitutional authority to apply forum law. The
abovementioned statement involves choice of law.

Such statement was taken in Philippine Export v Eusebio (2004) 7. In this case, Philippine Export
was seeking reimbursement from VP Eusebio Construction, Inc. the sum of money it paid to the Bank of
Kuwait by virtue of a letter of guarantee in favour of VPECI. The Court ruled that Philippine law must
apply. It stated that the applicable law, in the absence of an express choice of law, is that of the State that
has the most significant relationship to the transaction and the parties.” In this case, it was supposedly
Kuwait, however, because of the failure of the party to prove and plead foreign law, applying the doctrine
of processual presumption. Thereafter, the Court made the pronouncement, “Philippine courts would do
well to adopt the first and most basic rule in most legal systems, namely, to allow the parties to select the
law applicable to their contract, subject to the limitation that it is not against the law, morals, or public
policy of the forum and that the chosen law must bear a substantive relationship to the transaction .” Here,
it can be gleaned that the parties are allowed to select the applicable law to their contract. However, there
are two limitations given which are: (1) such must not be against the law, morals, or public policy of the
forum, and (2) the chosen law must bear a substantive law to their contract.

In my opinion, it is incorrect for the Court to state that the chosen law must be a substantive
relationship to the transaction. First, according to Paras8, the intrinsic validity of the contract is governed
by the lex contractus considered in the broad sense or the “proper law of the contract.” This is the rule
followed by most legal systems9. It may be either be the law voluntarily agreed upon by the parties (lex
loci voluntatis) or the law intended by them expressly or impliedly (lex loci intentionis) 10. Paras citing Dean
Graveson further stated that stipulations as to form and capacity cannot be a subject of an agreement,
however, in all other aspects of the contract, the free will of the parties shall govern. Manresa also shares
the same view11. Article 1306 of the Civil Code of the Philippines12 supports such view as it is stated
therein that “contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient provided they are not contrary to law, morals, good customs, public order, or public
policy.” A similar and more recent pronouncement was made by the Court in 2015 in Continental
Micronesia, Inc. v Basso13. In this case, the Court removed the clause in the abovementioned statement,
“that the chosen law must bear a substantive relationship to the transaction.” On the other hand,
substantial connection with the transaction is only important as regards the implied agreement of the
parties as to which law shall govern. Hence, substantial connection is only determinative of when the law
selected is impliedly agreed upon where the Court may consider factors such as the law having the most
substantial connection with the transaction. There is no basis in law that there must be substantial
connection to the transaction when the parties expressly agree upon the applicable law, hence, it would
abridge the principle of autonomy of the parties.
5
Hasegawa v Kitamura, 563 PHIL 572, 590 (2007).
6
Id.
7
Philippine Export v VP Eusebio, 478 PHIL 269, 297 (2004).
8
EDGARDO L. PARAS, PHILIPPINE CONFLICT OF LAWS (8d ed. 1996).
9
Philippine Export, 478 PHIL.
10
PARAS, supra note 8.
11
Id.
12
CIVIL CODE, Art. 1306.
13
Continental Micronesia, Inc. v Basso, 770 PHIL 201, 231 (2015).
 Second, according to Section 187(2) of the Second Restatement of Conflict of Laws 14 concerning
the method for determining whether to enforce a choice of law stipulation, “the law of the state chosen by
the parties to govern their contractual rights and duties will be applied, even if the particular issue is one
which the parties could not have resolved by an explicit provision in their agreement directed to that issue,
unless either: a) the chosen state has no substantial relationship to the parties of the transaction and
there is no other reasonable basis for the parties' choice, or b) application of the law of the chosen state
would be contrary to a fundamental policy of a state which has a materially greater interest than the
chosen state in the determination of the particular issue and which, under the rule of §188, would be the
state of the applicable law in the absence of an effective choice of law by the parties.” Here, the
Restatement made it possible for the parties to have a reasonable basis for choosing the law of a state
despite not having substantial relationship to such. In the case of 1-800-Got Junk? LLC v. Superior
Court15, although the parties had no “significant relationship” to Washington, still the provision in the
franchise agreement that the applicable law is that of Washington was upheld. Only the reasonable basis
test was applied. The court held that "because Washington State is the closest United States jurisdiction
to Got Junk's headquarters in Vancouver, Canada, it was reasonable for Got Junk to have designated the
law of that state in the choice of law provision."

 
 
 
 
 

14
Restatement (Second) of Conflicts of Laws, §187 (1971).
15
1-800-Got Junk? LLC v Superior Court, 189 Cal.App.4th 500 (2010).
4.     In no more than 1000 words, critically analyze and discuss the definition of public policy in
the enforcement of a foreign judgment and the definition of public policy in the enforcement of a
foreign arbitral award. (25 points)

Public policy as defined in Sweet Lines, Inc. v Teves, et al. 16, is "that principle of the law which
holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good.” The public policy defense has been used against the enforcement of foreign
judgment in the Philippines. The legal basis for this is Article 17 of the Civil Code 17 states that “Prohibitive
laws concerning persons, their acts or property, and those which have for their object public order, public
policy and good customs, shall not be rendered ineffective by laws or judgments promulgated, or by
determinations or conventions agreed upon, in a foreign country.” Also, According to Paras18, there are
four reasons why not all foreign judgments can be recognized or enforced in our country: “(1) The
requisite proof may not be adequate; (2) They may contravene our established public policies; (3) They
may contradict one another, obviously, we cannot be guided by contradictions; and (4) In some countries,
the administration of justice may be shockingly corrupt.” According to the case of Querubin v Querubin19,
the Court cannot give effect to a foreign judgment that contravenes the Philippines’ laws, customs and
public morals.

An example where the public policy defense was upheld was the case of Bellis v Bellis20 where
the Court ruled that “It is therefore evident that whatever public policy or good customs may be involved in
our System of legitimes, Congress has not intended to extend the same to the succession of foreign
nationals. For it has specifically chosen to leave, inter alia, the amount of successional rights, to the
decedent's national law. Specific provisions must prevail over general ones.” Another example would be
the case of Bank of America v American Realty21 where the Court said, ”when the foreign law, judgment
or contract is contrary to a sound and established public policy of the forum, the said foreign law,
judgment or order shall not be applied. The public policy sought to be protected in the instant case is the
principle embedded in our jurisdiction proscribing the splitting up of a single cause of action.” In terms of
labor relations, the Court held in Triple Eight v NLRC22, “Therefore, the Labor Code, its implementing
rules and regulations, and other laws affecting labor apply in this case. Furthermore, settled is the rule
that the courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy.”
These cited cases only show that as to foreign judgments, Philippines adopts a broad definition like any
other civil law nations.

Having a broad definition of public policy may serve as a safeguard against possible abuses to
the easy offshore litigation when the original claim proves to be against constitutional values. On the other
hand, it may result in a denial of a recognition even when the wrong law is applied to the case. If the
public policy exception application is disparate enough, there is a possibility of crisis as such an exception
threatens to become a catch-all ground against petitions for recognition or enforcement of foreign
judgment. Though it may be argued that

On the other hand, in cases of enforcement of a foreign arbitral award, Article V(2) of the New
York Convention (to which the Philippines signed on June 10, 1958 and acceded on July 6, 1967) states
that “Recognition and enforcement of an arbitral award may also be refused if the competent authority in
the country where recognition and enforcement is sought finds that: (a) The subject matter of the
difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition
or enforcement of the award would be contrary to the public policy of that country.” The case of Mabuhay
v Sembcorp23 provides for a narrow definition of public policy in relation to arbitral awards, where the
16
Sweet Lines Inc.v Court of Appeals, 206 PHIL 663-670 (1983).||
17
CIVIL CODE, Art. 17.
18
PARAS, supra note 8.
19
Querubin v Querubin, 87 PHIL 124 (1950).
20
Bellis v Bellis, 126 PHIL 726-733 (1967).
21
Bank of America v American Realty, 378 PHIL 1279-1304 (1999).
22
Triple Eight v National Labor Relations Commission, 359 PHIL 955-972 (1998).|||
23
Mabuhay Holdings Corporation v Sembcorp, G.R. No. 212734 (2018).|
Court ruled that “Mere errors in the interpretation of the law or factual findings would not suffice to warrant
refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach
a certain threshold such that, enforcement of the same would be against [the Philippines’] fundamental
tenets of justice and morality, or it would blatantly be injurious to the public, or the interests of the society.”
This limited the courts unbridled discretion on the enforcement of arbitral awards in relation to the public
policy exception. Also, another advantage of this narrow definition of public policy is stated in the
Mabuhay case, to wit: “[a]rbitration, as a mode of alternative dispute resolution, is one of the viable
solutions to the long-standing problem of clogged court dockets... In this light, We uphold the policies of
the State favouring arbitration and enforcement of arbitral awards, and have due regard to the said
policies in the interpretation of Our arbitration laws24.”

I argue that the narrow definition of public policy should be used in both the enforcement of
foreign judgments and arbitral awards since a broad definition is more prone to abuse of the Courts and
also may be used as a political tool.

24
Id.