Key Takeaway: Arbitration Awards and the Standard of Evident Partiality

Tri-Mark Foods, Inc. v. Gintong Pansit, Atbp., Inc., et al., G.R. No. 215644, September 14, 2021

In the bustling world of business, disputes are inevitable. Imagine a scenario where a franchisee accuses a franchisor of overpricing, leading to a breakdown in their business relationship. This was the real-world situation that unfolded between Tri-Mark Foods, Inc. and Gintong Pansit, Atbp., Inc., culminating in an arbitration award that was later challenged in court. The central legal question in this case revolves around whether an arbitrator’s decision can be vacated based on allegations of evident partiality, and what standards courts should apply in such cases.

Tri-Mark Foods, Inc., the franchisor of the Ling Nam noodle house chain, entered into a franchise agreement with Gintong Pansit, Atbp., Inc., allowing the latter to operate a branch in Mandaluyong City. The relationship soured when Gintong Pansit accused Tri-Mark of overpricing food supplies. This led to arbitration, where Tri-Mark sought payment for unpaid royalties and supplies, while Gintong Pansit counterclaimed for damages due to alleged overpricing and discrimination.

Legal Context: Understanding Arbitration and Evident Partiality

Arbitration is a form of alternative dispute resolution where parties agree to have their disputes resolved by a neutral third party, known as an arbitrator. In the Philippines, arbitration is governed by the Arbitration Law (Republic Act No. 876) and the Alternative Dispute Resolution Act of 2004 (Republic Act No. 9285), along with the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules).

Evident partiality is a ground for vacating an arbitral award under Section 24 of the Arbitration Law, which states that an award may be vacated if “there was evident partiality or corruption in the arbitrators or any of them.” The challenge lies in defining what constitutes evident partiality. The Supreme Court has clarified that it requires a showing that a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.

Key provisions from the Special ADR Rules include:

“RULE 11.4. Grounds. – (A) To vacate an arbitral award. – The arbitral award may be vacated on the following grounds: […] (b) There was evident partiality or corruption in the arbitral tribunal or any of its members; […].”

Consider a scenario where a homeowner hires a contractor to build an extension to their house. If the contractor and the arbitrator have a pre-existing business relationship that is not disclosed, and the arbitrator rules in favor of the contractor, this could be seen as evident partiality, as it might suggest bias towards the contractor.

Case Breakdown: The Journey from Arbitration to the Supreme Court

The dispute between Tri-Mark and Gintong Pansit began with a franchise agreement in 2006. Tensions arose in 2008 when Gintong Pansit noticed higher prices for supplies compared to other branches. After failed attempts to resolve the issue, Tri-Mark demanded payment in 2009, leading to arbitration in 2010.

The arbitrator, Reynaldo Saludares, issued a final award in favor of Tri-Mark, ordering Gintong Pansit to pay over P5.5 million. Gintong Pansit challenged this award in the Regional Trial Court (RTC), alleging evident partiality by the arbitrator for disregarding evidence of overpricing. The RTC vacated the award, a decision upheld by the Court of Appeals (CA).

The Supreme Court, however, reversed these decisions. The Court emphasized that evident partiality must be based on the arbitrator’s conduct, not merely on disagreement with the arbitrator’s weighing of evidence:

“The Court cannot agree with the CA that the arbitrator’s act of disregarding certain documentary and testimonial evidence presented by a party, by itself, can rise to the level of evident partiality in the arbitrator to justify vacating an arbitral award.”

The Supreme Court clarified that the standard for evident partiality is the “reasonable impression of partiality,” which requires proof that is direct, definite, and capable of demonstration:

“The standard, using the very words of the Court in RCBC Capital Corp., requires a showing that a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration, where proof of such interest, bias or partiality is direct, definite and capable of demonstration rather than remote, uncertain, or speculative.”

The procedural journey included:

• Arbitration proceedings in 2010, resulting in a final award in favor of Tri-Mark.
• Gintong Pansit’s petition to vacate the award in the RTC, which was granted in 2011.
• Tri-Mark’s appeal to the CA, which affirmed the RTC’s decision in 2013.
• Tri-Mark’s petition for review to the Supreme Court, which reversed the lower courts’ decisions in 2021.

Practical Implications: Navigating Arbitration Awards

This ruling reinforces the finality of arbitration awards and sets a high bar for vacating them on grounds of evident partiality. Businesses engaging in arbitration must understand that courts will not easily overturn an arbitrator’s decision based on disagreements over evidence or legal interpretation.

For businesses, this means:

• Ensuring transparency and fairness in the arbitration process to avoid allegations of partiality.
• Understanding that arbitration awards are generally final and binding, with limited grounds for judicial review.
• Seeking legal advice to navigate arbitration agreements and potential disputes effectively.

Key Lessons:

• Parties should carefully select arbitrators to ensure impartiality.
• Evidence of partiality must be clear and convincing, not merely speculative.
• Businesses should be prepared to abide by arbitration awards unless clear grounds for vacating exist.

Frequently Asked Questions

What is arbitration and how does it differ from litigation?

Arbitration is a private dispute resolution process where parties agree to have their disputes decided by an arbitrator rather than a court. It is generally faster and less formal than litigation.

What is evident partiality in arbitration?

Evident partiality refers to a situation where an arbitrator shows bias towards one party, which can be a ground for vacating an arbitral award. The bias must be clear and demonstrable to a reasonable person.

Can an arbitration award be appealed?

Arbitration awards are generally final and binding, with limited grounds for appeal. Parties can seek to vacate an award in court, but only on specific grounds like evident partiality or fraud.

How can a business ensure fairness in arbitration?

Businesses can ensure fairness by selecting impartial arbitrators, clearly defining the arbitration process in their agreements, and ensuring all evidence is considered during proceedings.

What should a business do if it believes an arbitration award is unfair?

If a business believes an arbitration award is unfair, it should consult with legal counsel to assess whether there are grounds to challenge the award, such as evident partiality or other statutory grounds.

ASG Law specializes in arbitration and dispute resolution. Contact us or email hello@asglawpartners.com to schedule a consultation.