Cas RCBC v.

Banco De Oro
[POLIREV] - [Art. 3, Sec. 1][Arbitration]

e # 7 [G.R. No. 196171] [Dec. 10, 2012] [Villarama, J.] [Taylo edited by
Larah]
Petitioner/s: Respondent/s:
RCBC CAPITAL CORPORATION BANCO DE ORO UNIBANK, INC.,
Recit Ready Summary (EPCIB merged with BDO, so BDO assumed the former’s liabilities under the SPA)

[One of the members of the arbitration tribunal was Chairman Barker – Which gave RCBC an article which
armed it legal arguments to enforce to EPCIB that it should pay the advance costs paid by RCBC for the
share of EPCIB – Chairman Barker prejudged the case]

RCBC entered into a Share Purchase Agreement (SPA) with EPCIB, George L. Go, and the individual
shareholders of Bankard for the sale to RCBC of 226,460,000 shares of Bankard. The dispute between
the parties later arose when RCBC informed EPCIB et al of an overstatement of valuation of accounts
amounting to 478M and that the sellers violated their warranty under Section 5(g) of the SPA. Having
no settlement reached, RCBC commenced arbitration proceedings with the International Chamber of
Commerce- Court of Arbitration (ICC-ICA). Due to continuous non-payment by EPCIB, RCBC
shouldered the advanced costs.

The tribunal issued the 1st partial award. RCBC filed with the RTC a Motion to confirm the 1 st award,
while Bankard moved to vacate the same. RTC granted RCBC’s motion and denied Bankard’s motion.
Through a letter, Chairman Barker then advised the parties that the Tribunal noted that neither party
has referred to an article by Matthew Secomb (part of ICC Secretariat) on this very subject and to
assist both sides and to ensure that the Tribunal does not consider material on which the parties have
not been given an opportunity to address, he attached a copy of this article. The 2 nd partial award was
issued. EPCIB filed a Motion to Vacate Second Partial Award which was denied. CA reversed the
same.

I: WoN Chairman Barker’s act constitutes evident partiality which is a ground to vacate the 2 nd partial
award? YES

Special ADR Rules sets forth that evident partiality or corruption in the arbitral tribunal or any of its
members is a ground for vacating an arbitral award. The SC adopts the reasonable impression of
partiality standard, which requires a showing that a reasonable person would have to conclude that
an arbitrator was partial to the other party to the arbitration. The SC said that when a claim of
arbitrator’s evident partiality is made, the court must ascertain from such record as is available whether
the arbitrators’ conduct was so biased and prejudiced as to destroy fundamental fairness.

Applying the foregoing standard, the SC agrees with the CA in finding that Chairman Barker's act of
furnishing the parties with copies of Matthew Secomb's article, considering the attendant
circumstances, is indicative of partiality such that a reasonable man would have to conclude that he
was favoring the Claimant, RCBC. By furnishing the parties with a copy of this article, Chairman Barker
practically armed RCBC with supporting legal arguments or bases under the "contractual approach"
discussed by Secomb upon which the Second Partial Award was founded. The SC held that the
subject article reflected in advance the disposition of the ICC arbitral tribunal as well as
"signalled a preconceived course of action that the relief prayed for by RCBC will be granted.
True enough, RCBC in its Application for Reimbursement of Advance Costs Paid utilized said approach
as it singularly focused on Article 30 (3) of the ICC Rules and fiercely argued that BDO was
contractually bound to share in the advance costs fixed by the ICC. Having found evident partiality on
the part of Chairman Barker, CA’s act of vacating the 2 nd partial award is justified.
Facts + Procedural History

1. RCBC entered into a Share Purchase Agreement5 (SPA) with Equitable-PCI Bank, Inc.
(EPCIB), George L. Go and the individual shareholders of Bankard, Inc. (Bankard) for the sale

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 to RCBC of 226,460,000 shares (Subject Shares) of Bankard, constituting 67% of the latter's
capital stock. Contract price is P1,786,769,400.
2. RCBC informed EPCIB and the other selling shareholders of an overpayment of the subject
shares, claiming there was an overstatement of valuation of accounts amounting to P478
million and that the sellers violated their warranty.
3. As no settlement was reached, RCBC commenced arbitration proceedings with the
International Chamber of Commerce-International Court of Arbitration (ICC-ICA) in accordance
with Section 10 of the SPA.
4. Subsequently, the Arbitration Tribunal was constituted.
a. Mr. Neil Kaplan → nominated by RCBC.
b. Justice Santiago M. Kapunan (a retired Member of this Court) → nominated by
the Respondents.
c. Sir Ian Barker → appointed by the ICC-ICA as Chairman.
5. ICC-ICA informed the parties that they are required to pay an advance on costs pursuant to
Article 30 (3) of the ICC Rules of Arbitration (ICC Rules). (½ each)
a. 1st valuation → US$350,000
b. 1st increase → US$450,000
c. 2nd increase → US$580,000
6. Respondents refuse to pay. They prefer that the ICC fix separate advances on the cost of the
parties' respective claims and counterclaims, instead of directing them to share equally on the
advance cost of Claimant's (RCBC) claim. Respondents continuously refused to pay despite
several demands.
7. After the advance on costs was increased, RCBC paid the share of respondents in the costs in
order to prevent the suspension of the proceedings.
8. Arbitral Tribunal’s 1st Partial Award → the Claimant has established the following breaches by
the Respondents of clause 5(g) of the SPA: “the assets, revenue and net worth of Bankard
were overstated by reason of its policy on and recognition of Late Payment Fees”.
9. RCBC filed with the RTC a Motion to confirm the 1 st award, while Bankard moved to vacate the
same. RTC granted RCBC’s motion and denied Bankard’s motion.
10. RCBC then filed an Application for Reimbursement of Advance on Costs Paid, praying for the
issuance of a partial award directing the Respondents to reimburse its payment in the amount
of US$290,000 representing Respondents' share in the Advance on Costs and to consider
Respondents' counterclaim for actual damages in the amount of US$300,000, and moral and
exemplary damages as withdrawn for their failure to pay their equal share in the advance on
costs.
11. Respondents filed their Opposition to the said application alleging that the Arbitration Tribunal
has lost its objectivity in an unnecessary litigation over the payment of Respondents' share in
the advance costs. Aside from violating their right to due process and to be heard by an
impartial tribunal, Respondents also argued that in issuing the award for advance cost, the
Arbitration Tribunal decided an issue beyond the terms of the Terms of Reference (TOR).
12. Chairman Barker advised the parties: “The Tribunal notes that neither party has referred to
an article by Matthew Secomb (ICC Secretariat) on this very subject which appears in the
ICC Bulletin Vol. 14 No. 1 (Spring 2003). To assist both sides and to ensure that the Tribunal
does not consider material on which the parties have not been given an opportunity to address,
I attach a copy of this article, which also contains reference to other scholarly works on the
subject.
13. RCBC contended that based on Mr. Secomb's article, whether the "contractual" or "provisional
measures" approach is applied, the Arbitration Tribunal is vested with jurisdiction and authority
to render an award with respect to said reimbursement of advance cost paid by the non-
defaulting party.
14. Respondents, on the other hand, maintained that RCBC's application for reimbursement of
advance cost has no basis under the ICC Rules.
15. Arbitration Tribunal’s 2nd Partial Award → “Respondents are forthwith to pay to the Claimant
the sum of US$290,000.”
16. EPCIB filed a Motion to Vacate Second Partial Award in the Makati City RTC, while RCBC
filed in the same court a Motion to Confirm Second Partial Award.

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 17. Makati City RTC issued the Order confirming the Second Partial Award and denying EPCIB's
motion to vacate the same.
a. Since the parties agreed to submit any dispute under the SPA to arbitration and to be
bound by the ICC Rules, they are also bound to pay in equal shares the advance on
costs as provided in Article 30 (2) and (3).
b. It noted that RCBC was forced to pay the share of EPCIB in substitution of the latter to
prevent a suspension of the arbitration proceedings, while EPCIB's non-payment
seems more like a scheme to delay such proceedings.
18. EPCIB filed in the CA a petition for review with application for TRO and/or writ of preliminary
injunction in accordance with Rule 19, Section 4 of the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules). EPCIB assailed the Makati City RTC in denying its
motion to vacate the Second Partial Award despite the fact that it was issued with evident
partiality and serious misconduct.
19. CA granted EPCIB’s petition, reversing The Second Partial Award issued in International
Chamber of Commerce Court of Arbitration.

Issue/s Ruling
1. WoN Chairman Barker’s act constitutes evident partiality which is a ground to 1. Yes
vacate the 2nd partial award?
Rationale

1. Yes, Chairman Barker’s act constitutes evident partiality.

 In their TOR, the parties agreed on the governing law and rules as follows: a. Laws to be
Applied → The Tribunal shall determine the issues to be resolved in accordance with the laws
of the Republic of the Philippines. b. Procedure to be Applied
→ The proceedings before the Tribunal shall be governed by the ICC Rules of Arbitration (1
January 1998) and the law currently applicable to arbitration in the Republic of the Philippines.
 As stated in the Partial Award dated September 27, 2007, although the parties provided in
Section 10 of the SPA that the arbitration shall be conducted under the ICC Rules, it was
nevertheless arbitration under Philippine law since the parties are both residents of this
country.
 The provisions of the Arbitration Law (RA 876), as amended by Alternative Dispute Resolution
Act of 2004 (RA 9285) principally applied in the arbitration between the herein parties.
 Special ADR Rules sets forth that evident partiality or corruption in the arbitral tribunal or
any of its members is a ground for vacating an arbitral award.
o The failure of the CA to apply the applicable standard or test for judicial review
prescribed in the Special ADR Rules may warrant the exercise of the Supreme Court’s
discretionary powers of judicial review.
o Rule 19.10. Rule on judicial review on arbitration in the Philippines—As a general rule,
the court can only vacate or set aside the decision of an arbitral tribunal upon a clear
showing that the award suffers from any of the infirmities or grounds for vacating an
arbitral award.
 Evident partiality is not defined in our arbitration laws. As one of the grounds for vacating an
arbitral award under the Federal Arbitration Act (FAA) in the United States (US), the term
"encompasses both an arbitrator’s explicit bias toward one party and an arbitrator’s
inferred bias when an arbitrator fails to disclose relevant information to the parties."
o Construction Corp. v. New York District Council Carpenters Benefit Funds → evident
partiality will be found where a reasonable person would have to conclude that
an arbitrator was partial to one party to the arbitration.
 The Court adopts the reasonable impression of partiality standard, which requires a
showing that a reasonable person would have to conclude that an arbitrator was partial to the
other party to the arbitration.
o Such interest or bias must be direct, definite and capable of demonstration rather than
remote, uncertain, or speculative.

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 o When a claim of arbitrator’s evident partiality is made, the court must ascertain from
such record as is available whether the arbitrators’ conduct was so biased and
prejudiced as to destroy fundamental fairness.
 [APPLICATION] Applying the foregoing standard, we agree with the CA in finding that
Chairman Barker's act of furnishing the parties with copies of Matthew Secomb's article,
considering the attendant circumstances, is indicative of partiality such that a
reasonable man would have to conclude that he was favoring the Claimant, RCBC.
o Even before the issuance of the Second Partial Award for the reimbursement of
advance costs paid by RCBC, Chairman Barker exhibited strong inclination to grant
such relief to RCBC, notwithstanding his categorical ruling that the Arbitration Tribunal
"has no power under the ICC Rules to order the Respondents to pay the advance on
costs sought by the ICC or to give the Claimant any relief against the Respondents'
refusal to pay."
o That Chairman Barker was predisposed to grant relief to RCBC was shown by his act
of interpreting RCBC's letter, which merely reiterated its plea to declare the
Respondents in default and consider all counterclaims withdrawn — as what the ICC
Rules provide — as an application to the Arbitration Tribunal to issue a partial award in
respect of BDO's failure to share in the advance costs.
o It must be noted that RCBC in said letter did not contemplate the issuance of a partial
order, despite Chairman Barker's previous letter which mentioned the possibility of
granting relief upon the parties making submissions to the Arbitration Tribunal.
o Expectedly, in compliance with Chairman Barker's letter, RCBC formally applied for the
issuance of a partial award ordering BDO to pay its share in the advance costs
 Mr. Secomb's article, "Awards and Orders Dealing with the Advance on Costs in ICC
Arbitration: Theoretical Questions and Practical Problems" specifically dealt with the situation
when one of the parties to international commercial arbitration refuses to pay its share on the
advance on costs.
 By furnishing the parties with a copy of this article, Chairman Barker practically armed RCBC
with supporting legal arguments under the "contractual approach" discussed by Secomb. True
enough, RCBC in its Application for Reimbursement of Advance Costs Paid utilized said
approach as it singularly focused on Article 30 (3) of the ICC Rules and fiercely argued that
BDO was contractually bound to share in the advance costs fixed by the ICC.
o But whether under the "contractual approach" or "provisional approach" (an application
must be treated as an interim measure of protection under Article 23 [1] rather than
enforcement of a contractual obligation), both treated in the Secomb article, RCBC
succeeded in availing of a remedy which was not expressly allowed by the Rules but in
practice has been resorted to by parties in international commercial arbitration
proceedings.
o It may also be mentioned that the author, Matthew Secomb, is a member of the ICC
Secretariat and the "Counsel in charge of the file", as in fact he signed some early
communications on behalf of the ICC Secretariat pertaining to the advance costs fixed
by the ICC. This bolstered the impression that Chairman Barker was predisposed to
grant relief to RCBC by issuing a partial award.
 Indeed, fairness dictates that Chairman Barker refrain from suggesting to or directing RCBC
towards a course of action to advance the latter's cause, by providing it with legal arguments
contained in an article written by a lawyer who serves at the ICC Secretariat and was involved
or had participation — insofar as the actions or recommendations of the ICC — in the case .
Though done purportedly to assist both parties, Chairman Barker's act clearly violated Article
15 of the ICC Rules declaring that "[i]n all cases, the Arbitral Tribunal shall act fairly and
impartially and ensure that each party has a reasonable opportunity to present its case. "
Having pre-judged the matter in dispute, Chairman Barker had lost his objectivity in the
issuance of the Second Partial Award.
Disposition
WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. CA’s decision is
affirmed.

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