G.R. No. 196171 - RCBC Capital Corp. vs. Banco de Oro Unibank, Inc.

Case Summary (G.R. No. 196171)

Factual Background

RCBC purchased 226,460,000 shares of Bankard, Inc. under a Share Purchase Agreement dated May 24, 2000 for P1,786,769,400. After payment, deeds of sale were executed in January 2001. In May 2003 RCBC alleged material overstatements in Bankard's financial statements and claimed overpayment resulting from breaches of warranties, principally Section 5(g) of the SPA. RCBC sought rescission and damages before the ICC-ICA, asserting an overpayment of P556 million and alternative damage claims. The sellers denied liability, pleaded time-bar and laches, and counterclaimed for arbitration costs and damages.

Arbitration Proceedings and Advance on Costs Dispute

The parties proceeded under the arbitration clause in Section 10 of the SPA and the ICC Rules. An arbitral tribunal of three members was constituted with Sir Ian Barker as Chairman. The ICC fixed an advance on costs which the parties were ordered to pay in equal shares. Respondents repeatedly refused to pay their share of the advances and increments, prompting ICC communications warning of suspension under Article 30(4) and invitations to RCBC to substitute for Respondents. RCBC made payments to prevent suspension and repeatedly sought relief that Respondents be declared in default and their counterclaims withdrawn. The Tribunal initially indicated it lacked power to compel payment under the ICC Rules but later invited written submissions and supplied the parties with an article by Matthew Secomb addressing the jurisprudential and theoretical bases for awards ordering reimbursement of advances.

First and Second Partial Awards

The Tribunal issued a First Partial Award dated September 27, 2007 determining liability issues and denying rescission while reserving quantum and costs for later. RCBC moved to confirm the First Partial Award in the RTC and Respondents moved to vacate; the RTC confirmed the First Partial Award and this Court denied the petition for review in G.R. No. 182248. After submissions on the reimbursement issue, the Tribunal rendered a Second Partial Award on May 28, 2008 ordering Respondents to pay RCBC US$290,000 and treating Respondents’ counterclaim as withdrawn. The Second Partial Award adopted the contractual approach and cited the Secomb article among authorities.

Motions to Vacate, Confirmation and RTC Rulings

Respondents filed a Motion to Vacate the Second Partial Award in the Makati RTC, Branch 148, arguing the Tribunal exceeded its powers, decided matters beyond the Terms of Reference, and that Chairman Barker showed evident partiality by furnishing and relying on the Secomb article. RCBC moved to confirm the Second Partial Award. On June 24, 2009 the RTC denied Respondents’ motion and confirmed the Second Partial Award, reasoning that the parties had agreed to arbitration under the ICC Rules and to share advances equally and that Respondents had failed to substantiate their counterclaim.

Final Award and Parallel Proceedings

The Tribunal issued a Final Award dated June 16, 2010 granting RCBC P348,736,920.29 in damages and awarding various arbitration costs, fees, and party-and-party legal costs, while dismissing Respondents’ counterclaims. BDO filed a Petition to Vacate Final Award ad cautelam in Branch 65, while RCBC filed a Motion to Confirm the Final Award in Branch 148. Branch 65 vacated the Final Award on February 25, 2011. Branch 148 issued an order on November 10, 2010 confirming the Final Award and later on August 8, 2011 ordered execution of the confirmed award. A writ of execution issued August 22, 2011.

Court of Appeals Review of the Second Partial Award

Respondents sought review in the Court of Appeals under the Special ADR Rules in CA-G.R. SP No. 113525, challenging the RTC’s June 24, 2009 order and the Second Partial Award. The CA on December 23, 2010 reversed and set aside the RTC order insofar as it denied the motion to vacate and confirmed the Second Partial Award, and it annulled the Second Partial Award itself. The CA’s conclusion rested substantially on a finding of evident partiality by Chairman Barker, focusing on his furnishing of the Secomb article and apparent preconceived disposition favoring RCBC.

BDO’s Application for Injunctive Relief and CA Resolution

During execution proceedings BDO petitioned the CA in CA-G.R. SP No. 120888 for a stay or injunctive relief to enjoin the implementation of the writ of execution issued by Branch 148. The CA denied BDO’s application for a stay order and/or TRO/preliminary injunction on September 13, 2011 for failure to comply with Rule 19.25 of the Special ADR Rules and for lack of a clear and unmistakable right to be protected, and for failing to show irreparable injury.

Issues Presented to the Supreme Court

The consolidated petitions presented two central issues: (1) whether legal grounds existed to vacate the Second Partial Award on the statutory ground of evident partiality under Section 24(b) of R.A. 876 as carried into Rule 11.4 of the Special ADR Rules; and (2) whether BDO was entitled to injunctive relief to stay or enjoin execution of the RTC’s confirmation and writ of execution pending appellate review.

Standard of Judicial Review Applicable to Arbitral Awards

The Court reiterated the stringent standards of judicial supervision established in the Special ADR Rules and prior jurisprudence. Under Rule 19.10 the court may vacate an arbitral award only upon a clear showing that the award suffers from infirmities enumerated in Section 24 of R.A. 876 or equivalent grounds in the Model Law, and courts shall not set aside awards for mere errors of fact or law. The scope of review is therefore narrow. The Court also invoked Rule 19.36 governing the Supreme Court’s discretionary review of Court of Appeals decisions in ADR cases.

Evident Partiality: Legal Standard and Comparative Authorities

The Court discussed the jurisprudential difficulty in defining evident partiality and surveyed leading authorities including Commonwealth Coatings Corp. v. Continental Casualty Co., Morelite Construction Corp., and Apperson v. Fleet Carrier Corporation to explain varying standards. The Court adopted the “reasonable impression of partiality” standard: whether a reasonable person would have to conclude that an arbitrator was partial to one party. The Court emphasized that such bias must be direct, definite and demonstrable, not remote or speculative, and that the inquiry focuses on whether the arbitrator’s conduct destroyed fundamental fairness.

Application of the Standard to Chairman Barker’s Conduct

Applying the reasonable-impression standard to the record, the Court agreed with the CA that Chairman Barker’s conduct gave a reasonable impression of partiality. The Court identified the following dispositive factual circumstances in the record: Chairman Barker’s initial letters that suggested RCBC’s requests could be treated as an application for a partial award; his furnishing to both parties of Matthew Secomb’s article which addressed and favored the contractual approach; the fact that the Secomb author was associated with the ICC Secretariat and had participated in communications on the case; and the Tribunal’s subsequent adoption of the contractual approach and citation to the Secomb article in the Second Partial Award. The Court held that Chairman Barker’s furnishing of the article, in context, signalled a preconceived disposition and loss of objectivity and that this conduct imperiled confidence in the arbitral process and violated Article 15 of the ICC Rules requiring fairness and impartiality.

Scope of Review and Limitations

The Court clarified that it did not revisit or substitute its judgment for the Tribunal’s resolution on the substantive merits of the reimbursement claim under the ICC Rules. The Court limited its review to whether the statutory ground of evident partiality existed. Having found that ground established on the record, the Court sustained the CA’s vacatur of the Second Partial Award without addressing the correctness of the Tribunal’s legal theory.

Injunctive Relief Against Execution: Legal Requirements and Ruling

The Cou

Case Syllabus (G.R. No. 196171)

Parties and Procedural Posture

RCBC Capital Corporation filed a petition for review under Rule 45 in G.R. No. 196171 seeking reversal of the Court of Appeals Decision dated December 23, 2010 affirming vacation of the Second Partial Award.
Banco De Oro Unibank, Inc. (BDO) filed a petition for certiorari under Rule 65 in G.R. No. 199238 challenging the Court of Appeals Resolution dated September 13, 2011 denying a stay/TRO against implementation of the writ of execution.
The disputes arose from arbitration administered by the International Chamber of Commerce - International Court of Arbitration (ICC-ICA) under the parties’ Share Purchase Agreement and were litigated in the Makati City RTC (Branch 148 and Branch 65) and the Court of Appeals.
The cases were consolidated for resolution of the principal legal questions whether the Second Partial Award should be vacated for evident partiality and whether injunctive relief was warranted against execution.

Key Factual Allegations

RCBC purchased 226,460,000 shares of Bankard, Inc. pursuant to a Share Purchase Agreement (SPA) dated May 24, 2000 for PHP 1,786,769,400.
RCBC alleged in May 2003 that the sellers overstated Bankard’s accounts and breached Section 5(g) of the SPA, resulting in an overpayment alleged at approximately PHP 478 million to PHP 556 million and prayed for rescission and various damages.
Respondents denied the claims, asserted time-bar and laches, and filed counterclaims for arbitration costs and damages of US$300,000.
The arbitration tribunal was constituted with Sir Ian Barker as Chairman, Mr. Neil Kaplan nominated by RCBC, and Justice Santiago M. Kapunan nominated by the sellers.

Relevant Agreements and Clauses

Section 10 of the SPA provided for arbitration under the ICC Rules, venue in Makati City, application of the laws of the Philippines, and that the arbitrators’ decision would be final and binding.
The Terms of Reference (TOR) for the tribunal stated that Philippine law would govern and that the ICC Rules (1 January 1998) and Philippine arbitration law would apply to procedure.

Arbitration Proceedings

The ICC-ICA fixed advances on costs and repeatedly increased them from US$350,000 to US$450,000 and finally to US$580,000, and the respondents repeatedly refused to pay their allocated shares.
The ICC Secretariat warned that failure to pay could lead to suspension of proceedings under Article 30(4) of the ICC Rules and that counterclaims could be considered withdrawn if the parties did not comply.
RCBC ultimately paid the increments to avert suspension and later applied for a partial award for reimbursement of the US$290,000 it paid on behalf of the respondents.
The tribunal issued a First Partial Award (September 27, 2007) on liability, a Second Partial Award (May 28, 2008) ordering respondents to pay US$290,000 and treating respondents’ counterclaims as withdrawn, and a Final Award (June 16, 2010) awarding substantive damages and costs in favor of RCBC.

Procedural History in the Courts

RCBC moved to confirm and EPCIB/BDO moved to vacate the Second Partial Award in Makati RTC Branch 148, which confirmed the award on June 24, 2009.
EPCIB/BDO appealed to the Court of Appeals, which on December 23, 2010 reversed and set aside the RTC order insofar as it denied the motion to vacate and it set aside the Second Partial Award.
Subsequent litigation included Branch 65 filing a petition to vacate the Final Award (SP Proc. M-6995) and Branch 148 confirming the Final Award and issuing writs of execution, leading to BDO’s CA petition for a stay and this Court’s consolidated review.

Issues Presented

Whether the Second Partial Award was subject to vacation on the ground of evident partiality under Section 24(b) of Republic Act No. 876 as applied by Rule 11.4(b) of the Special ADR Rules.
Whether BDO was entitled to injunctive relief in the form of a stay, TRO, or preliminary injunction against execution of the confirmed Final Award while appeals remained pending.

Parties’ Principal Contentions

RCBC contended that the Court of Appeals erred in vacating the Second Partial Award because EPCIB/BDO failed to prove evident partiality by clear and convincing evidence and because courts must not disturb arbitral findings of fact or law.
BDO/EPCIB contended that the Second Partial Award exceeded the tribunal’s powers, that Chairman Barker manifested evident partiality by